On October 12, 2017, President Trump signed a “Presidential Executive Order Promoting Healthcare Choice and Competition Across the United States” (the “Executive Order”) to “facilitate the purchase of insurance across state lines and the development and operation of a healthcare system that provides high-quality care at affordable prices for the American people.” One of the stated goals in the Executive Order is to expand access to and allow more employers to form Association Health Plans (“AHPs”). In furtherance of this goal, the Executive Order directed the Department of Labor to consider proposing new rules to expand the definition of “employer” under Section 3(5) of the Employee Retirement Income Security Act of 1974 (“ERISA”). The Department of Labor issued its proposed rule on January 5, 2018.
In Part 1 of this “Deep Dive” series, we examined the history of AHPs and the effects of the changes proposed by the Trump Administration by providing a high-level, summary overview of the three types of arrangements that fall under the umbrella of health arrangements sponsored by associations, which include Affinity Arrangements, Group Insurance Arrangements (“GIAs”), and AHPs. In Part 2 of this “Deep Dive” series, we compared plan features of the three types of arrangements under current law. In this installment of the “Deep Dive” series, we will examine the qualification requirements for AHPs under current law.
Current Qualification Requirements for AHPs
ERISA provides that an employee benefit plan may be maintained by an association of employers that effectively operates like a single employer. Guidance around this concept has been developed through 40 years of case law and Department of Labor advisory opinions and, not surprisingly, such guidance is somewhat confusing and at times inconsistent. Nonetheless, certain basic principles can be garnered from the existing guidance. To be a bona fide association of employers, the members of the association must:
- have a commonality of interest unrelated to the provision of benefits;
- exercise control over the benefit plan; and
- consist of employers with at least one employee.In addition, the association itself must
- be a pre-existing organization; and
- exist for a purpose other than providing health coverage to its members.
The commonality of interest determination is made based on the facts and circumstances of each situation and is based on whether the members of the association have a genuine organizational relationship unrelated to the provision of benefits. Examples of activities that support a genuine organizational relationship include collaboration of resources for educational opportunities, developing marketing strategies, and other shared advocacy programs related to the particular industry. The group of employers must direct the operation and activities of the plan either through the ability to nominate, elect and remove a majority of the trustees or the ability to otherwise amend or terminate the benefit plan. Sole proprietors or other self-employed individuals who are not considered to be employees are not currently eligible to participate in AHPs.
Benefit programs maintained by employers with no common industry affiliation or effectively controlled by a self-perpetuating board with no voice provided to the participating employers are not considered to be a bona fide association of employers. Practically speaking, very few association plans are treated as a single ERISA-covered plan under the current sub-regulatory framework, but instead are treated as a collection of plans each sponsored by individual employers.
Currently, AHPs are subject to certain nondiscrimination requirements generally applicable to health insurance plans. AHPs are not allowed to discriminate within groups of similarly situated individuals with respect to eligibility, benefits and premiums based upon health-status factors. These rules do not, however, prohibit AHPs from varying premiums on an employer-by –employer basis.