The Department of Labor's ("DOL’s") much anticipated proposed regulations to expand "association health plans" ("AHPs") were published in the January 5, 2018 Federal Register (“Proposed Rule”). While there is still much we do not know about the future of AHPs under the Trump administration, here are five takeaways from the Proposed Rule:
1. AHP Opportunities Would Be Greatly Expanded – AHPs that meet the definition of a single employer under ERISA (so-called “bona fide groups or associations”) enjoy preferred legal status. However, under current law, few AHPs meet this definition. The Proposed Rule would expand ERISA’s “single employer” definition for AHP purposes. The expansion of this “employer” definition would make it far easier for AHPs to qualify for ERISA’s preferred legal status. For example, significant changes to the "commonality of interest" test currently used in determining whether a bona fide employer arrangement exists would open the door to the formation of multi-industry AHPs based on geographic location alone (single state or a multi-state metro area) or national AHPs based on “the same trade, industry line of business or profession.” The Proposed Rule would not require an AHP sponsoring organization to be a preexisting entity and would even allow for AHPs sponsored by entities whose sole purpose is to provide health coverage. In theory, these changes should make the process of establishing an AHP far easier than compared to current law. Keep in mind, however, that AHPs are complex entities subject to regulation by multiple regulatory authorities. In addition to the DOL, consideration must be given to the applicable rules and regulations of the IRS, HHS, CMS, and, in many instances, state insurance laws. Self-funded AHPs and AHPs utilizing VEBA trusts should be particularly cautious in evaluating the Proposed Rule’s expansion opportunities.
2. Sole Proprietors and Self-Employed Individuals Could Be AHP Participants – Under the Proposed Rule, sole proprietors and self-employed individuals meeting certain criteria would be able to elect to act as employers for purposes of participating in an AHP. This is a direct (and significant) departure from existing DOL guidance, which expressly prohibits these individuals from AHP participation. While many AHP proponents welcome this change, a cautious approach is recommended. The introduction of sole proprietors and self-employed individuals into AHP arrangements would likely increase administrative complexities as well as opportunities for adverse selection.
3. Special Nondiscrimination Rules Would Apply for AHPs – To address concerns regarding adverse selection and overall market stability, the Proposed Rule includes special nondiscrimination rules for AHPs. While these new rules build upon existing nondiscrimination requirements under the ACA and HIPAA, both existing and newly formed AHPs will need to carefully evaluate these rules relative to their plan’s membership, benefits and eligibility rules. The Proposed Rule includes a number examples concerning how the new nondiscrimination requirements would apply to various scenarios.
4. State Insurance Laws Would Still Matter – By definition, virtually all AHPs are treated as multiple employer welfare arrangements (“MEWAs”) under both federal and state laws. The Proposed Rule states that it “would not change AHP’s status as large group plans and MEWAs, under ERISA, and state law” and further notes that AHPs would continue to be subject to state insurance regulation. This is particularly important to self-funded AHPs/MEWAs. Self-funded MEWAs are highly regulated (or altogether prohibited) in many states and, in most instances, the Proposed Rule would not alter state insurance regulation of self-funded AHPs/MEWAs. Less clear is the extent to which state insurance laws could regulate fully insured AHPs/MEWAs in response to the Proposed Rule.
5. AHP Organizational Requirements Would Be Codified – Under existing DOL guidance, an AHP must have an identifiable organizational structure and be controlled by its members. The Proposed Rule codifies these requirements, specifically requiring a governing body with “by-laws or similar indications of formality” and that “the functions and activities of the group or association, including the establishment and maintenance of the group health plan, are controlled by its employer members.” While these AHP organizational requirements are not new, the codification of these requirements likely means that an AHP’s legal documentation will receive greater scrutiny by both regulators and insurance carriers going forward.
The Proposed Rule includes a 60-day comment period, and the DOL will likely receive an earful. While the Proposed Rule seems promising for AHPs and their advocates, the future of AHPs still remains uncertain. Large industry groups (including insurance carriers) as well as state insurance departments, oppose AHP expansion due mainly to concerns surrounding their potentially negative impact on overall market stability and consumer protections. Additionally, many state insurance departments have historically opposed AHPs on the basis of their MEWA status alone. The myriad other state and federal laws governing AHPs must also be carefully considered should final AHP regulations be issued. Stay tuned ...