Association Health Plans: Final Rule Fact Sheet

Background:

On June 19, 2018, the Department of Labor (DOL) issued a final rule on Association Health Plans (AHPs), which culminated a nine-month effort by the Federal administration to expand access to such plans. The Federal activity began on October 12, 2017 with the President’s signing of Executive Order 13813 “Promoting Healthcare Choice and Competition Across the United States,” which, in part, directed the Secretary of Labor to take action to expand access to AHPs. In turn, the DOL issued proposed regulations seeking to broaden access to AHPs on January 5, 2018, which have now been finalized.

The regulations, 29 CFR 2510.3-3, establish additional and more flexible criteria under which an association of small employers may be treated as an employer itself for the purposes of offering group health insurance plans, known as AHPs. Specifically, the regulations expand access to AHPs under prior guidance by:

• Making the commonality of interest requirement more flexible;
• Allowing associations to exist for the primary purpose of offering health insurance; and
• Allowing working owners without employees to participate in AHPs.

The regulations also set forth nondiscrimination rules that apply to AHPs.

It is important to note that the regulations specify additional bases for groups to be considered bona fide associations for the purposes of offering AHPs. AHPs may continue to be established and exist under the prior guidance (relative to both the standards for being considered an AHP and the rules that apply to AHPs), and Multiple Employer Welfare Arrangements (MEWAs) may continue to exist as non-AHPs.

This fact sheet provides an overview of the final regulations and the potential impact on State insurance markets. Health Policy News staff have also prepared a slide deck that provides a short synopsis of the key provisions of the rule as well as considerations for state regulators. For a copy of the slide deck, click here.

Key Provisions

1. Bona Fide Associations

The final regulations amend and expand the criteria for an association to be considered an “employer” for the purposes of offering insurance, allowing more small groups and certain individuals to purchase large group market health insurance via an AHP.

Commonality of Interest

The final regulations create more flexible “commonality of interest” standards for the purpose of determining if an association is bona fide and may offer an AHP.

• The commonality of interest standard still may be met if the employer members are in the same trade, industry, line of business, or profession.
• The commonality of interest standard now may also be met if the employer members have their principal place of business within the same state or metropolitan area (which could cross state lines).

As such, the rule specifically allows for multi-state AHPs.

Purpose

The final regulations maintain the requirement that a bona fide association must not be created for the sole purpose of offering insurance. However, this standard has also been relaxed in the new rule, which provides that the association must have at least one substantial business interest other than providing benefits. The provision of benefits, however, may be the primary purpose of the association.

Structure and Sponsorship

The new rules maintain the requirement that member employers must control the functions and activities of the association, including those related to the group health plan being offered. The rules also require that the association must have a formal organizational structure with a governing body and bylaws or “similar indications of formality.”

A health insurance issuer, and organizations owned or controlled by issuers, subsidiaries, or affiliates, may not sponsor an AHP unless the issuer is participating as an employer member of an AHP or sponsoring the AHP in its capacity as an employer. Likewise, because an association offering an AHP must be controlled by its employer members, the sponsor of an AHP may not be a network provider, a healthcare organization, or another entity that is part of the healthcare delivery system outside their role as employers. These organizations, however, may provide administrative services on behalf of the AHP.

2. Eligible Employers and Employees

Working Owners

The final rule expands the definition of employers who may participate in AHPs to include working owners who do not have other employees and, therefore, must typically purchase individual market insurance. Under the new regulations, as long as the working owner meets enumerated hours or income requirements, it will be considered both an employer and employee for purposes of participating in the AHP.

Employees

Employees of current employer members, former employees of current employer members who became eligible for the AHP when they were employed by the employer, and beneficiaries of such individuals (including, but not limited to, spouses and dependent children) may participate in the AHP. Working owners and their beneficiaries are only eligible while they meet the requirements of being a working owner and, subsequently, may be eligible for COBRA coverage.

3. Overview of Association Health Plan Standards

The final rule states that an AHP sponsored by a bona fide group or association is a group health plan and an employee benefit plan under ERISA and, as such, is subject to ERISA provisions applicable to such plans, including Title I of ERISA. On the other hand, AHPs are judged as a whole, as far as group size and, therefore, may be treated as a large group plan even though the member employers would have to purchase individual or small group insurance on their own.

State and Federal insurance law and regulations

As large group plans, AHPs are only subject to State and Federal laws and regulations that apply to the large group market[1].

AHPs are bound by the standards applicable to large group plans under the Affordable Care Act (ACA), including, for example, prohibitions on pre-existing condition exclusions and rescissions, limitations on waiting periods, preventative care benefit rules, and Mental Health Parity and Addiction Equity Act (MHPAEA) standards for behavioral health benefits.

AHPs, however, are exempt from ACA protections that only apply to the individual and small group market plans, including coverage of the ten essential health benefits (EHBs). However, if an AHP chooses to cover any EHBs, it must do so without imposing annual or lifetime dollar limits. Additionally, if the AHP covers a benefit that is considered an EHB, it must count out-of-pocket spending for in-network services towards an individual’s maximum out-of-pocket (MOOP), and any EHBs in excess of the MOOP must be covered without cost sharing.

AHPs also do not have to meet the minimum essential value standards of the ACA. AHPs are free to design benefit and cost-sharing requirements without the Federal standards applicable to qualified health plans under the ACA. However, AHPs that are applicable large employers subject to employer responsibility payments under Federal law[2] may face penalties if the AHP does not provide minimum value coverage.

Similarly, AHPs are also only subject to those State mandated benefits that apply to large group plans.

Nondiscrimination

AHPs must comply with the Health Insurance Portability and Accountability Act (HIPAA) nondiscrimination provisions, which prohibit discrimination in regards to eligibility for premiums and benefits within groups of “similarly situated” individuals, but do not prohibit discrimination across different groups of individuals. Variation may occur if it is tied to a bona fide employment-based classification, consistent with the employer’s usual business practices, such as full-time versus part-time status, different geographic location, membership in a collective bargaining unit, date of hire and length of service, current versus former employee status, and different occupations. In the case of an AHP, an agricultural AHP may offer a different coverage package to a dairy farmer than they would a corn farmer and a metropolitan AHP may offer different pricing to a retailer than a restaurant.

Rating AHPs

Under the new rule, AHPs are bound by some rating requirements in addition to the nondiscrimination provisions outlined above. AHPs are allowed to develop rates that take into consideration an employer’s size, location and industry as well as employees’ age (beyond ACA limits) and gender. However, the new rule prohibits health underwriting. AHPs cannot sell or develop a rate that is based on an employer’s specific health claims or use rating criteria that would target a specific high cost employee. AHPs also may not discriminate in applying eligibility standards (such as coverage dates and waiting periods) [3] based on health status. Lastly, an AHP cannot deny coverage to an employee based solely on that individual’s particular health status.

An AHP can offer the same kinds of wellness program participation incentives that an ordinary employer-sponsored health plan can offer, which, under HIPAA, permits rewards to members of up to 30 percent of the total costs of coverage, with additional incentives allowed for tobacco use prevention.

4. State Jurisdiction

The final rule makes it clear that the intent is not to preempt or impair current ERISA provisions that broadly allow states to regulate AHPs under State insurance laws and regulations. The preamble of the rule notes that the DOL received comments requesting that AHPs operating in multiple states be required to abide by the regulations of all states the AHP operates in, not just the domicile state. This suggestion was not implemented in the final rule as DOL stated that the coordination of State insurance law across the states remains a State law issue. Additionally, the DOL specially noted that it declined to opine on state-specific laws in the final rule. ERISA section 514(b)(6) continues to apply, giving states the authority to subject AHPs to licensing requirements, registration, certification, financial reporting, examinations, audits, and any another requirements of State insurance law necessary to ensure compliance with the State insurance reserves, contribution, and funding obligations. Additionally, if an AHP is fully insured, any State law that regulates insurance may apply to the AHP to the extent that State law is not inconsistent with ERISA.

5. Effective dates

The final rule outlines the effective dates as follows:

• September 1, 2018, for fully-insured AHPs seeking to operate under the new rule;
• January 1, 2019, for existing self-insured AHPs who choose to begin operating under the new rule; and
• April 1, 2019, for new self-insured AHPs seeking to be formed under the new rule.

The effectives dates are staggered to allow stakeholders, including State regulators, time to implement oversight and compliance standards, in particular for self- insured AHPs.

Potential Impact on State Insurance Markets

The administration’s stated goal is to expand access to health insurance coverage by allowing small employers access to coverage under the large group market. Large group market coverage has traditionally been less expensive because the coverage may be more limited. Large groups are also not subject to rating rules and may negotiate their rates and may more easily self-insure. The Congressional Budget Office (CBO) estimates that about 10 percent of the four million individuals that are estimated to be insured by AHPs by 2023 would not have been insured in absence of the regulatory changes. That represents an increase in the insured population of about 400,000 people nationwide.

However, concerns exist regarding the other 90 percent (or 3.6 million people) who would have remained in the small group or individual markets in the absence of these regulations. Those individuals are likely to have less comprehensive coverage than they would have had in the more regulated individual and small group markets. Some of those individuals may need more comprehensive coverage. Other employers (or employees with other offers of coverage) may strategically select the skinnier and therefore, less expensive plans. With more rating factors available for AHPs than the individual and small group market, employers may be able to negotiate better rates because their particular employees are considered a better risk. The result is that the remaining small group and individual markets may face adverse selection. The CBO estimates that premiums in those markets are likely to increase two to three percent as a result, making that coverage less affordable.

As noted above, the final rules opted not to opine on many aspects related to State regulation, but reinforced that the final rule is not intended to preempt existing State authority to regulate AHPs. Given that AHPs are a type of MEWA, filing, disclosure, and reporting requirements applicable to MEWAs will continue, and applicability of State laws will depend on the state and whether the AHP is self or fully insured. Given that the rule specifically allows for multi-state AHPs, jurisdictional issues of oversight and enforcement could arise, especially if AHPs choose to domicile in states they feel have less robust regulatory standards yet have members in states across the country. Attorneys General in 17 states have raised concerns that fraud and insolvency will result from the regulatory changes, and regulators across the country will need to decide whether further State regulation is required to ensure consumer protection for those enrollees in AHPs.

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Footnotes:

[1] DOL also noted that, in the future, it may grant exemptions from State laws that go “too far” in regulating AHPs. Back
[2] Internal Revenue Code sections 36B and 4980H Back
[3] Neither the new rule or existing Federal law sets forth an annual open enrollment period (OEP), but AHPs are not prohibited from establishing an OEP. Back