ACA UPDATE: Final Rules for Association Health Plans Released

Compliance, Employee Benefits, Small Business

On Tuesday, June 19, 2018 the Department of Labor (DOL) released a final rule regarding Association Health Plans (AHPs). The final rule is in response to President Trump’s Executive Order 13813 requesting the agency draft rules to expand access to affordable health coverage and adopts the proposed rule that was issued on January 5, 2018 with a few modifications.

The final rule is designed to promote broader availability of group health coverage for small businesses and self-employed people and provides an alternative to restrictions that are present in pre-rule guidance by allowing more employers to join together to create employer groups or associations for the purposes of purchasing group health plans. The rule expands the definition of “employer” under ERISA 3(5), revises the criteria for the “commonality of interest” that is required between employers to form a “bona fide” group or association, establishes the necessary control required to maintain the AHP, allows certain working owners of a trade or business to participate in an AHP and includes nondiscrimination requirements.

Pre-Rule Guidance

The application of the final rule could reduce coverage for existing AHPs. Therefore, the final rule allows existing AHPs to rely on pre-rule guidance and only provides an additional mechanism for groups or associations to meet the definition of “employer” under ERISA 3(5) and does not supplant previous guidance. Both existing and new employer groups that conform to pre-rule guidance can sponsor an AHP.

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.

Working Owners

Working owners are defined as sole proprietors and other self-employed individuals. These types of individuals may elect to act as employer for the purpose of participating in an employer group or association and also be treated as employees of their businesses for purposes of being covered by an AHP. The rules have the following requirements for working owners:

  • Average 20 hours per week or 80 hours per month OR have earned income derived from such trade or business that at least equals the cost of coverage under the AHP.
  • The final rule removed the prohibition against the working owner being eligible for coverage by any other employer of the individual or by a spouse’s employer.
  • AHPs must act in their ERISA fiduciary capacity to reasonably determine if the working owner conditions are satisfied and to monitor continued eligibility.

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.

Other important items

  • Nothing in the final rule is intended to indicate that participating in an AHP gives rise to joint employer status or employer status with independent contractors.
  • State regulation of self-insured AHPs could be pre-empted at some point, but is not done in this rule. State regulations still apply.
  • AHPs are subject to all ERISA disclosure requirements, including Summary Plan Descriptions (SPDs), Summary of Material Modifications (SMMs) and Summary of Benefits and Coverage (SBCs).
  • All AHPS will be considered a Multiple Employer Welfare Arrangement (MEWA) and will be required to file federal M1s forms.
  • All AHPs will be required to file 5500s regardless of size or funding.
  • No special disclosure requirements will be applicable solely for AHPs.

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

Key Takeaways:

The final rule on AHPs issued by the Department of Labor (DOL) aims to expand opportunities to provide health coverage, particularly in the small group and individual markets. The final rule will need to be weighed against state-level regulations and the market. Expect the state level regulations and carrier implementation to create some nuance by region. If you have questions about AHPs, we encourage you to discuss them with your M3 Client Executive.

1 This can be determined by matching a Metropolitan Statistical Area or Combined Statistical Area or as defined by Office of Management and Budget (OMB)

The information provided is a summary of laws and regulations relating to employee benefit plan compliance. This information should not be construed as legal advice. In all cases, employers should consult with their own legal counsel.

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