HIGHLIGHTS:

  • The Federal Register published a final rule promulgated by the U.S. Department of Labor (DOL) regarding association health plans (AHPs). AHPs are group health plans established by groups or associations of employers that come together to purchase such plans.
  • The regulations are the result of an executive order issued in October 2017 directing the DOL to allow more employers to form AHPs by expanding the "commonality of interest" requirements for employers under Section 3(5) of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
  • The final rule does not come without controversy. Attorneys general in at least two states have already stated that they will file a lawsuit claiming that the final rule undercuts consumer health protections imposed by the Patient Protection and Affordable Care Act.

The U.S. Department of Labor (DOL) announced a final rule on June 19, 2018, regarding association health plans (AHPs). The final rule was published in the Federal Register on June 21, 2018.1 AHPs are group health plans established by groups or associations of employers that come together to purchase such plans. The regulations are the result of an executive order issued in October 20172 directing the DOL to allow more employers to form AHPs by expanding the "commonality of interest" requirements for employers under Section 3(5) of the Employee Retirement Income Security Act of 1974, as amended (ERISA).

Prior to the issuance of the final rule, groups or associations of employers could come together to purchase health insurance coverage if such group or association had a commonality of interest. Before the final rule, this commonality of interest test was based on facts and circumstances and was often very narrowly construed. The final rule does not remove the current facts and circumstances-based commonality of interest rules test. Rather, the final rule contains additional ways in which groups may come together with a commonality of interest to form AHPs as an "employer" for purposes of ERISA. The final rule also requires a group or association of employers to be a bona fide group or association of employers and requires such groups or associations not to prohibit membership in such group or association on the basis of any health factor.

"Commonality of Interest" Test

The commonality of interest test under the final rule is met by an association or group provided that 1) the employer members of the association or group are in the same trade, industry, line of business or profession, or 2) each employer member has a principal place of business in the same region that does not exceed the boundaries of a single state or metropolitan area (even if the metropolitan area includes more than one state).

It is important to note that the commonality of interest test is an "or" test rather than an "and" test, meaning that groups or association members are either all in the same trade or business or the members are in the same region. The region test in the final rule makes it clear that the same region can stretch across state lines, meaning that association or group members in the Washington D.C., or New York metropolitan areas can all participate in the same AHP even though the association or group members may be located in different states.

"Working Owners" Eligibility

The final rule also makes it clear that individual "working owners" may participate in AHPs. A "working owner" is an individual that is both an employer and an employee of a group or association member that:

  • has an ownership right in the trade or business that is a group or association member
  • earns wages or self-employment income from the trade or business that is a group or association member for providing personal services to such trade or business, and
  • either: 1) works on average at least 20 hours per week or 80 hours per month providing personal services to the trade or business that is a group or association member, or 2) has wages or self-employment income from the trade or business that is a group or association member that at least equals the working owner's cost of coverage for participation by the working owner any of his or her covered beneficiaries in the AHP

Next Steps

The final rule does not come without controversy. Because the final rule expands the definition of an "employer" solely for purposes of ERISA and not for purposes of other federal laws, AHPs may be able to avoid providing certain coverages (such as maternity coverage) to individuals covered by the AHPs because the AHP is not an "employer" under those other federal laws. In addition, the day after the final rule was announced by the DOL, attorneys general in at least two states stated that they will file a lawsuit claiming that the final rule undercuts a number of consumer health protections imposed by the Patient Protection and Affordable Care Act.3

The final rule becomes effective Sept. 1, 2018, for existing fully insured AHPs; Jan. 1, 2019, for self-funded AHPs in existence on or before June 21, 2018; and April 1, 2019, for any other AHPs created after June 21, 2018.