Association Health Plans Proposed Rule

January 10, 2018

On Jan. 5, 2018, the Employee Benefits Security Administration (EBSA) of the Department of Labor (DOL) published a proposed rule that would broaden the criteria under the Employee Retirement Income Security Act (ERISA) for determining when employers may join together an employer group or association that is treated as the “employer” sponsor of a single multiple-employer group health plan. The proposed rule would modify the definition of “employer,” in part, by creating a more flexible “commonality of interest” test for the employer members than DOL had adopted in previous interpretive rulings.

DOL anticipates that the proposed rule would result in more flexible and affordable health coverage options for small businesses. Under the proposal, small businesses and sole proprietors would be given more freedom to band together to provide health coverage for employees in what are referred to as Small Business Health Plans or Association Health Plans (AHPs). The proposal would allow employers to form a Small Business Health Plan on the basis of geography or industry. A plan could serve employers in a state, city, county, or a multi-state metro area, or it could serve all the businesses in a particular industry nationwide.

The proposed rule was developed in response to President Trump’s recent executive order that directed the federal government to expand access to AHPs and other types of insurance products or arrangements, such as short-term limited duration insurance and health reimbursement arrangements. In his executive order, President Trump directed the Secretary of Labor to issue regulations to allow more employers to form AHPs. In particular, the Department was asked to reconsider its definition of “employer” under ERISA and identify ways to promote AHP formation on the basis of common geography or industry.

In addition, the new interpretation would permit sole proprietors and partners to be treated as both employers, for certain purposes, and employees for the purpose of being able to participate in the Association Health Plan. In the past, “employee-less” groups were treated as not covered by ERISA. Now, entrepreneurs with zero employees can obtain coverage through the association, and business owners who are active in the business can obtain coverage alongside their employees.

The proposed rule adopts a series of non-discrimination protections that groups and associations must comply with when offering group health AHP coverage. These build upon existing health non-discrimination provisions applicable to group health plans under HIPAA, as amended by the ACA, but they are applied slightly differently. Under the rule, associations would be prohibited from conditioning membership in the association based on any health factor (defined as health status, medical condition, claims experience, receipt of health care, medically history, genetic information, evidence of insurability, or disability) of an employee, former employee, or family member or beneficiary. The association must also comply with nondiscrimination rules that govern benefit eligibility (including enrollment, effective coverage dates, waiting periods, late or special enrollment, and eligibility for benefit packages) and premiums for group health plan coverage.

The new interpretation is complex and raises significant issues for small- and medium-sized employers who are not already self-insured. Interested parties have 60 days to submit comments—due on March 6. After the public comment period ends, DOL will review the submitted comments and issue a final rule. It is anticipated that legal challenges will also result for overturning previous DOL interpretations, which may further elongate finalization of the rule.

The text of the proposed rule is available here.

Comments may be filed on this website for a period of 60 days after the publication of the proposed rule.