On June 19, 2018, the Department of Labor (DOL) released final regulations under 29 CFR Section 2510.3-5 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.
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WHY ARE THESE FINAL REGULATIONS IMPORTANT?
Under existing law, multiple employers are treated as a single “employer” under the Employee Retirement Income Security Act of 1974 (“ERISA”) if they are members of a bona fide group or association of employers. To qualify as a bona fide group or association, the employer members must have a “commonality of interest,” which the DOL had narrowly defined. To satisfy this requirement, the law required the members of an Association Health Plan (AHP) to be in the same geographic location and industry, thereby prohibiting national health plans in the same industry or plans with membership based on common geography but no industry or business ties.
The new final regulations revises prior DOL guidance regarding what constitutes a “commonality of interest,” providing that the association members have a commonality of interest if they are: (1) in the same “trade, industry, line of business or profession,” or (2) are located in “same state or metropolitan area even if the metropolitan area includes more than one state.”
Under ACA, such a plan would be treated as a single large plan.
DO THESE FINAL REGULATIONS APPLY TO EXISTING AHPS THAT WERE FORMED TO COMPLY WITH PREVIOUS GUIDANCE?
No. The final regulations expressly preserve existing AHPs that were formed to comply with the previous guidance on association coverage under the Health Insurance Portability and Accountability Act (HIPAA). Some argued that because those AHPs did not design their operations with the new requirements in mind, they “may not be able to comply with the new conditions without reducing existing options for affordable healthcare.”
DOL agreed. “AHPs may continue to rely upon the Department’s previous guidance,” DOL noted. “This final rule provides an additional mechanism for groups or associations to meet the definition of an ’employer’ and sponsor a single … group health plan; it is not the sole mechanism.”
TO BE A VALID AHP UNDER THE NEW FINAL REGULATIONS, WHAT OTHER REQUIREMENTS MUST IT MEET, BESIDES THE COMMONALITY OF INTEREST?
Purpose/Sponsorship. The sponsoring group or association must have at least one substantial business purpose unrelated to offering and providing health coverage or other employee benefits to its members and their employees; however, the primary purpose can be to offer health coverage to members. A safe harbor under the final regulations deems a substantial business purpose to exist where the group or association would be a viable entity even in the absence of sponsoring an employee benefit plan.
Organizational Structure. A group or association must have a formal organizational structure with a governing body as well as by-laws or other similar indicia of governance establishing the legal form in which the group or association operates.
Control. The functions and activities of the group or association must be controlled by its members, and the group or association’s members that participate in the group health plan must control the plan. Control must be present both in form and in substance and is a facts and circumstances test. Factors that will be considered include: (i) whether members regularly nominate and elect directors, officers, trustees, or other similar persons that constitute the governing body or authority of the employer group or association and plan; (ii) whether members have authority to remove directors, officers, trustees, or other similar persons with or without cause; and (iii) whether participating members have the authority to approve or veto decisions or activities that relate to the formation, design, amendment, and termination of the plan, such as material amendments to the plan, including changes in coverage, benefits, and premiums.
Eligibility. Eligible AHP participants include employees of a current employer member of the group or association, former employees of a current employer member of the group or association who became entitled to coverage under the group’s or association’s group health plan when the former employee was an employee of the employer, and beneficiaries of such individuals (e.g., spouses and dependent children).
CAN AN ASSOCIATION CONSIDER CLAIM EXPERIENCE IN DETERMINING WHETHER AN EMPLOYER’S IS ELIGIBLE TO JOIN THE ASSOCIATION FOR COVERAGE OR CHARGE THEM MORE FOR PREMIUMS?
It depends. In applying the final regulations, HIPAA nondiscrimination provisions will have to be met. AHPS are not permitted to separate 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. Where an AHP implements any permitted distinctions in premiums as between its various employer member groups (i.e., based on geographic location, worker classification, etc.), careful consideration should be given to ensure that those distinctions may not be deemed to be based on health factors.
CAN WORKING OWNERS WITHOUT COMMON LAW EMPLOYEES PARTICIPATE IN AN AHP?
Yes. 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.
WHAT BENEFIT RULES APPLY TO AHPS?
AHPs are required to comply with the ACA and ERISA rules applicable to large group health plans; and to the extent they are fully insured, state mandated benefit laws will also apply. While AHPs are not required to provide essential health benefits or minimum value coverage, they are subject to other significant benefit mandates, including, for example, no pre-existing condition exclusions, coverage of adult dependent children to age 26, coverage of preventive care with no cost-sharing and enhanced patient protections and claim and appeal rights.
ARE AHPS SUBJECT TO STATE RULES REGULATING MULTIPLE EMPLOYER WELFARE ARRANGEMENTS (MEWAS)?
Yes. In the preamble to the final regulations, DOL indicates that these final regulations do not modify existing state authority to regulate MEWAs. Such state regulation will prevent self-funded AHPs in a number of states.
WHAT IS THE EFFECTIVE DATE OF THESE FINAL REGULATIONS?
The final regulations are effective September 1, 2018, for fully insured AHPs, January 1, 2019, for existing self-insured AHPs complying with the DOL” prior rules that choose to qualify as AHPs under the final regulations, and April 1, 2019, for new self-insured AHPs formed pursuant to the final regulations.
There are a multitude of compliance obligations that attach to AHPs under various state and federal laws, including the fiduciary, reporting and disclosure obligations under Title I of ERISA. In addition, all AHPs constitute multiple employer welfare arrangements (“MEWAs”) under section 3(40) of ERISA. A MEWA’s status alone has significant state and federal legal implications.
A legally compliant and properly administered AHP requires much more than off-the shelf documentation and a group insurance policy. Before joining an AHP, an employer should consider all of these issues discussed above.