On June 19, 2018, the Department of Labor (DOL) released a final rule that offers new options for associations to sponsor health plans for their members. These new options allow more small businesses to come together to create large employer plans free from many of the Affordable Care Act (ACA) mandates applicable to individual and small group insurance plans. The DOL expects that this will drive down cost for these businesses and increase opportunities to design plans that better fit the needs of the member businesses.
Original guidance under the ACA required insurers to look through association health plans to determine if any participants were small employers or individuals. If there were any small employers or individuals in the plan, the plan would have to comply with the ACA mandates applicable to small group and individual insurance plans. This meant that associations could not offer small employer or individual members different coverage options or pricing than was already available to them in the small group or individual markets in their area. Some existing association health plans were not subject to these look-through rules.
The new rule clarifies the position of the DOL that the look-through rules do not apply to qualifying association health plans. It also creates new options for associations of businesses to sponsor a health plan that is treated as a large group plan exempt from the ACA small group and individual insurance mandates.
The final rule broadens the definition of “employer” under ERISA to include associations with a broader commonality of interest. An association can still satisfy the commonality test if its members are in the same trade, industry, line of business, or profession. The rule intends these terms to be construed broadly. The association can further segment health plans within the industry based on other areas of commonality, meaning an association could offer different plans to corn growers than it does to dairy farmers, as long as such segmentation is not directed at individual participants or beneficiaries based on health factors. The final rule also recognizes commonality of interest by region. Commonality can be established based on a state or a metro area even if it extends over state lines. An association health plan is not required to cover an entire state or metro area.
Another significant change is that the new rule will allow an association’s primary purpose to be the provision of a benefit plan, as long as the association has at least one other substantial purpose that is not related to the provision of benefits. If the association existed prior to the rule, it is presumed that another substantial purpose exists. However, the association health plan cannot be controlled by a health insurance issuer, and must be controlled by the employee-members of the association. It is presumed that the employee-members control the plan if they have the power to elect and remove directors of the association, and authority and opportunity to approve or veto activities relating to formation, amendment, design, and termination of the plan.
The new rule will permit working owners including sole proprietors to participate in the association health plan even if they don’t have any other employees working in their business. This permits working owners who are not otherwise treated as employees of the business and who do not have other employees working for them to be included in the association health plan, as long as they meet requirements for how much they work for the business.
Association health plans using the new guidance are not permitted to separately experience-rate employer members but must treat all businesses within a particular category the same regardless of the health factors of their employees or their claims experience. Separate groups can be created and separately rated, provided that the different classifications are legitimate and not based on health factors.
The new rule does not supplant existing guidance, so association health plans that existed prior to the rule will not be required to comply with the new rule unless they choose to expand the membership of the plan as permitted under the new rule. Additionally, association health plans can choose between satisfying the new rule or following the old requirements. The old requirements are more restrictive with respect to qualifying as a bona fide association, but more flexible on permitting experience rating for employer groups within the plan.
Importantly, the rule does not change or limit existing state authority to regulate association health plans. Just as before the new rule, insurance issued to fully-insured association health plans is regulated by state law. States can also regulate self-funded association health plans to the extent the state regulation is not inconsistent with ERISA. These state laws are not preempted by ERISA. This means that associations will need to evaluate their options on a state-by-state basis. There is considerable variation in state law regarding requirements for association health plans. For example, some state laws impose look-through requirements that would limit exemptions for association health plans from state small group requirements. Other states permit insurers to treat qualifying association plans as large group plans not subject to small group requirements. Some states permit working owners without other employees to participate in association health plans while others do not. In addition, states have varying requirements for self-funded association health plans. Some states permit self-funded association health plans as long as they comply with certain state law requirements to ensure the financial stability of the plan. Other states prohibit self-funded association health plans altogether. Some states that wish to permit the new flexibility for association health plans provided by the new rule may look to amend their state laws to do so.
The changes will take effect in three phases beginning September 1, 2018, for fully-insured association plans, January 1, 2019, for existing self-funded association plans, and April 1, 2019, for new self-funded association plans.
The new rule faces opposition from groups that are concerned that expansion of association health plans for small employers and working owners will shrink consumer protections, drive up costs in the small group and individual insurance markets, and invite fraud and mismanagement in association health plans. On June 21, 2018, the attorneys general of New York and Massachusetts indicated that they would sue the administration to attempt to block the new rule.