On June 21, 2018, the Department of Labor (“DOL”) (after consultation with the Department of Health and Human Services, the Center for Medicare and Medicaid services and the Department of the Treasury) issued final regulations broadening access to Association Health Plans. The DOL anticipates the new rule will give small employers and the self-employed the opportunity to band together to obtain lower-cost health insurance coverage not otherwise available through the individual market or the small group market.
The Employee Retirement Income Security Act of 1974 (“ERISA”) permits a multiple employer welfare benefit plan to be established or maintained by a bona fide group or association of employers acting in the interest of its employer members to provide benefits to their employees, as long as certain factors are present, such as commonality of interest of employer members and control of the plan by the employer members. See ERISA Section 3(5). These types of plans are called “Association Health Plans.” The health care coverage offered by an Association Health Plan can either be insured or self-funded. Because the coverage is offered through an Association Health Plan, which is established by multiple employers, this type of arrangement constitutes a “multiple employer welfare benefit arrangement” under ERISA, and is not only subject to ERISA, but also governed by state law.
The final regulations provide for a more flexible commonality of interest test, paving way for more Association Health Plans to be established and maintained. Unlike the prior rule, where commonality of interest could not exist unless the group or association of employers had a sufficient close economic or representational nexus that was unrelated to the provision of benefits, the new rule provides that a commonality of interest exists if the members are in the same trade, industry or line of business or profession orthey operate in the same state or same metropolitan area (even if the metropolitan area includes more than one state). Recognizing that some Association Health Plans were established under DOL’s prior guidance, the DOL will permit existing Association Health Plans to continue to operate under the old rule, and will permit new Association Health Plans to satisfy either the old rule or the final regulations. While under prior guidance only employees (and their spouses and dependents) could enroll in the underlying health coverage offered through an Association Health Plan, under the final rule, working owners, such as sole proprietors and other self-employed individuals can become employer-members of the Association Health Plan and enroll themselves as employees in the underlying coverage.
Under the final rule, Association Health Plans cannot discriminate in eligibility, benefits or premium based on an individual’s health status. Discrimination based on non-health factors, such as age, gender, industry, occupation and geography is openly permitted, as is provision of rewards and penalties to individual members that participate in a HIPAA-compliant wellness program. This type of discrimination can be advantageous to an Association Health Plan, which can potentially develop a system for adverse selection.
Most Association Health Plans are considered large group plans for purposes of the Affordable Care Act and other laws. As a result, these types of plans provide much more flexibility in design than the products small employers and the self-employed can purchase on the Affordable Care Act Marketplace Exchange (“Exchange”) or through an insurance company. Accordingly, the DOL expects many small employers and the self-employed to leave the Exchange and enroll in the much more flexible and more affordable coverage offered by the Association Health Plan. If this new model of offering insurance functions as contemplated by the DOL, unhealthy self-employed individuals, small employers with high claims and individuals qualifying for a full subsidy on the Exchange will be the only participants left on the Exchange, which will likely have an adverse impact on the Exchange.
The DOL understands that in the past, these types of arrangements invited mismanagement and abuse, particularly if the health coverage offered by these arrangements was paid from general assets rather than insurance. Although expressing some concern that these arrangements are not always financially sound, the DOL is optimistic that most of the arrangements will be free from such abuse because of joint authority of the states and the DOL to regulate such arrangements. Accordingly, the DOL is relying heavily on state insurance departments to apply their existing rules and create new rules to minimize fraud and abuse that these types of arrangements have created in the past.
It is unclear how many new Association Health Plans will be formed and to what extent they will be utilized by employees and the self-employed. It is clear, however, that with this initiative, the DOL is trying to change how health insurance is purchased by using a well-vetted concept of leveraging group purchasing power to negotiate lower rates. The new rules will take effect as of September 1, 2018 for fully insured plans, January 1, 2019 for existing self-insured plans, and April 1, 2019 for new self-insured plans.
NARFA has provided Association Health Plans for many years, giving our members freedom of choice, transparency about networks and access, competitive pricing, and much more. When underwritten properly, and with the right administrative support, AHPs can be a great option for small businesses looking for better buying power and more choices. It is important to partner with the right association with the health of its member businesses as a key core value, not turning a huge profit.
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