Analysis on DOL’s Final AHP Rule

June 27, 2018

On June 19, the U.S. Department of Labor (DOL) published a final rule that many believe will make it easier for small businesses to band together to buy health insurance without some of the regulatory requirements that individual states and the Affordable Care Act (ACA) impose on smaller employers.

The DOL said the final rule, titled Definition of “Employer” under Section 3(5) of ERISA–Association Health Plans, will help small businesses afford better coverage for their employees. Essentially, the final rule modifies the definition of “employer” under the Employee Retirement Income Security Act (ERISA) regarding entities—such as associations—that could sponsor group health coverage. An association can be formed for the sole purpose of offering an association health plan (AHP) to its members.

The broader interpretation of ERISA will let employers anywhere in the country that can pass a “commonality of interest” test join together to offer health care coverage to their employees. Sole proprietors will be able to join small business health plans to provide coverage for themselves as well as their spouses and children. An association could show a commonality of interest among its members on the basis of geography or industry, if the members are either:

  • In the same trade, industry or profession throughout the U.S.
  • In the same principal place of business within the same state or a common metropolitan area, even if the metro area extends across state lines.

The new rule does not affect previously existing AHPs, which were allowed—but with stricter geographic and commonality restrictions—under prior guidance. Such plans can continue to operate as before, or elect to follow the new requirements if they want to expand within a geographic area, regardless of industry, or to cover the self-employed, the DOL said. New plans can also form and elect to follow either the old guidance or the new rules.

The ACA requires that non-grandfathered insured health plans offered in the individual and small group markets provide a core package of health care services, known as essential health benefits. Large employer group plans and self-funded plans are not required to comply with the essential benefit requirements.

The AHP rule will let employers that currently can only purchase group coverage in their state’s small group market to join together to purchase insurance in the less-regulated large group market. The 50 states most often limit the large group market to employers with 50 or more employees, while a handful of states limit this market to employers with 100 or more employees.

By joining together, the DOL said, employers could:

  • Avoid regulatory restrictions that pertain only to the small group market.
  • Reduce administrative costs through economies of scale.
  • Strengthen their bargaining position to obtain more favorable deals.
  • Enhance their ability to self-insure.
  • Offer a wider array of insurance options.

Additionally, the implementation dates are staggered, associations will not be able to form a new self-funded health plan until April 2019.The first opportunity to form an AHP, in September 2018, is only available to existing associations wishing to put a fully insured plan in place. Associations looking to form an AHP, will need to ensure they are fully compliant with the nondiscrimination provisions in the regulations, which ensure that AHPs cannot discriminate on the basis of a health factor, or keep certain individuals or employers out of the AHP plan due to health conditions.

The proposed rule would maintain current employee protections by:

  • Preserving nondiscrimination provisions under the Health Insurance Portability and Accountability Act (HIPAA) and the ACA with regard to association health plans.
  • Clarifying that an AHP cannot restrict coverage of an individual based on any health factor.

AHPs “cannot charge individuals higher premiums based on health factors or refuse to admit employees to a plan because of health factors,” the DOL said. The Employee Benefits Security Administration “will closely monitor these plans to protect consumers.”

The DOL included a specific provision that participation in an AHP will not subject employers to joint employer liability under any other federal or state law, rule or regulation. It also clarified that businesses will not be considered an employer of its independent contractors merely by its participation in an AHP with those independent contractors that participate in the same AHP as working owners.

The new rule triggered a promise of lawsuits from several state attorney generals. The new rule will “invite fraud, mismanagement, and deception, and, as we’ve made clear, will do nothing to help ease the real healthcare challenges facing Americans,” AGs Barbara Underwood of New York and Maura Healey of Massachusetts said in a joint statement, a day after the Labor Department announced finalized rules for AHPs. The attorneys general said they would file a complaint in the coming weeks. One big concern for states, worried about the integrity of their individual markets, is that association plans will be sold across state lines. That means states could lose the ability to regulate plans marketed and sold within their borders — authority that insurance commissioners of all political persuasions historically have been loath to give up.

Back in March, NSBA submitted comments on the AHP rule, which was originally proposed in January 2018 as a result of an executive order signed by President Donald J. Trump to expand access to AHPs and other types of insurance products. In addition to the aforementioned concerns, NSBA also emphasized that true cost relief can only be achieved through a broad reform of the current health care system with a goal of reducing the cost of coverage, providing universal access, focusing on individual responsibility and empowerment, creating of the right market-based incentives, and a relentless focus on improving quality while driving out unnecessary, wasteful and harmful costs.

To read the final AHP rule, please click here.