ACA UPDATE: Final Rules for Association Health Plans Released

Definition of “employer” under ERISA 3(5)

Under ERISA, an “employee welfare benefit plan” is any plan that provides medical benefits through a plan, fund or program and is established or maintained by an employer or employer organization. An “employer” is defined as a person acting directly or indirectly in the interests of the employer and includes groups or associations of employers. A group or association may sponsor a “multiple employer” plan if certain factors exist. The key factors are commonality of interest and control of the arrangement. If the factors are met, a “bona fide” employer group or association exists.

• Commonality of Interest: The final rule adopts the “commonality of interest” requirement as outlined in the proposed rule without substantive change. Previously, groups or associations had to be organized for purposes other than benefits, with employees sharing some genuine organizational relationship unrelated.
  • The group or association must be comprised of employers in the same trade, industry, line of business; OR
  • The group or association is comprised of employers in the same state or metropolitan region¹ relationship unrelated
• The group or association must have one “substantial business purpose” unrelated to the provision of benefits. The term “substantial business purpose” is not defined but a safe harbor is identified and exists in cases where the group or association would be a viable entity in the absence of sponsoring an employee benefit plan. The business purposes does not have to be a for-profit purpose.
• Control: In order to be a “bona fide” employer group or association, the functions and activities of the group or association must be controlled by employer members and the employer members must control the plan. Control must be present in form and in substance. Members do not need to manage the day to day operations of the group. The important factors in determining if sufficient control is present are:
  • Whether the members regularly nominate and elect directors, officers, trustees or other similar roles that would constitute a governing body;
  • Whether members have the authority to remove such directors, officers, trustees or others from office with or without cause; and
  • Whether members have the authority and opportunity to approve or veto decisions in relation to the plan, including formation, design and termination of the plan
• Group size: Previously the Center for Medicare and Medicaid Services (CMS) did not allow for the distinction of association coverage as a meaningful category of health insurance coverage. CMS looked directly to each association member to determine the status of each member organization’s coverage. In practice, association coverage could be compromised of individual, small group and
  large group coverage.

Under the final rule, Associations which purchase insurance will not be subject to this “look through” doctrine as applied in the 2011 CMS guidance. Rather, AHPs will be categorized as a single plan and the determination of group size will be determined by reference to the number of employees participating in the entire AHP.

Nondiscrimination Rules

The final rules clarify non-discrimination rules as they pertain to AHPs. The provisions build on existing health nondiscrimination provisions under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) as amended by the Affordable Care Act (ACA).
The rule calls for:

• Association membership cannot be restricted based on any health factor (health status, medical condition, claims experience, receipt of healthcare, medical history, genetic information, evidence of insurability and disability)
• Association cannot treat member employers as distinct groups of similarly situated individuals.
• AHPs will need to accept all employers who fit their geographic, industry or any other non-health based selection criteria as chosen by the Association.
• AHPs are allowed to draw distinctions based on non-health attributes such as industry or region or non-health factors of the work force such as occupation.

Implementation Dates

The final rules stagger implementation dates for different components of
the rules. Those key dates are:

• September 1, 2018: All associations (new or existing) may establish a fully-insured AHP under the new rule;
• January 1, 2019: Existing associations that sponsored an AHP on or before June 20, 2018 may establish a self-funded AHP under the new rule. And;
• April 1, 2019: All other associations (new or existing) may establish a self-funded AHP under the new
  rule.