On June 19th, 2018, the U.S. Department of Labor (DOL) released its long awaited final rule on Association Health Plans (AHPs), which the Self-Insurance Institute of America Inc. (SIIA) has been actively involved in through comments and advocacy. The AHP rule seeks to expand affordable health coverage among small employer groups and self-employed individuals.
In summary, the final rule confirms that self-insured AHPs are multiple employer welfare arrangements (MEWAs) and does nothing to usurp a State’s ability to regulate self-insured AHPs. As a result, self-insured AHPs will be subject to the individual MEWA laws in each State the self-insured AHP coverage may be offered. This means that the current patchwork of State regulations – which may be augmented by additional regulation – will remain. Complying with such a patchwork of laws will make it difficult for self-insured AHPs to offer health coverage in multiple States.
All states allow fully-insured MEWAs. Self-funded MEWAs are only allowed in certain states with MEWA specific statutes that have very clear provisions. Some states out-law self-funded MEWAs, unless the MEWA qualifies as an insurance company. The DOL regulations do not preempt state laws that regulate MEWAs.
The final rule does not include a “class exemption” for self-insured AHPs, whereby self-insured AHPs may be exempt from the non-solvency requirements of State MEWA laws. AHPs could become a great option for qualified small businesses when underwritten properly, and with the right strategy.
Other highlights of the final rule include:
The Creation of Three Categories of AHPs
Category #1: AHPs Satisfying the DOL’s Existing Rules – Existing and newly formed employer groups may establish a fully-insured “large group” or self-insured AHP by qualifying as a “bona fide group or association of employers” under the DOL’s existing rules. This requires employers (1) to be in the same industry, trade, or profession (i.e., “related” employers) and (2) to be located in the same geographic location. An employer group that includes self-employed individuals with no employees will not be considered “bona fide” under the DOL’s existing rules.
Category #2: AHPs Satisfying the DOL’s New Final Regulations – The final rule provides that existing and newly formed employer groups may establish a fully-insured “large group” or self-insured AHP by qualifying as a “bona fide group or association” if the employers (1) are in the same industry or profession (but not constrained to a geographic location) or (2) are “unrelated” (i.e., employers not in the same industry or profession) but confined to the same State or Metropolitan area. Self-employed individuals with no employees (“working owners”) may create their own “bona fide” group or participate in an AHP formed by a “bona fide” group of employers.
Category #3: Non-“Bona Fide” AHPs – In some cases, groups of employers that currently do not satisfy the DOL’s existing guidance, or new final regulations, may continue to sponsor an AHP. In this case, if the AHP is fully-insured, the AHP will be subject to CMS’s “look-through” rule, where insurance carriers are required to impose the ACA’s small group and individual market rules based on the underlying size of the AHP member. In the case of a self-insured AHP, a State can regulate the AHP, and the State’s benefit mandates will apply (even in the absence of a State MEWA law).
The final rule continues to prohibit an AHP from developing different premium rates for different employer members based on the “health claims experience” of employees (i.e., AHPs cannot “experience-rate”). However, this nondiscrimination protection ONLY applies to Category #2 AHPs, those that meet the new, more flexible requirements under the new rule. AHPs that satisfy Category #1 and Category #3 do not have to comply with such protections, meaning they are permitted to “experience-rate” employer members.
With the final regulations, all AHPs are permitted to vary premiums based on a “bona fide employment-based classification,” which include: full-time vs. part-time employees, union vs. non-union, employees located in different geographic locations, different occupations, date of hire, and length of service. In addition, varying premium based on age or gender is also allowed.
Sole Purpose of Offering Health Insurance
While the DOL initially proposed that an AHP could be established for the sole purpose of offering health coverage, the final regulations did NOT adopt this proposal. Instead, the regulations require that a “bona fide group” sponsoring the AHP must have a “substantial business purpose unrelated to the provision of health care benefits.” A substantial business purpose unrelated to the provision of health care benefits could include offering certain services, such as convening conferences or offering classes or education materials on business issues of interest to the group’s members. The group may also act as a standard-setting organization, whereby it establishes business standards or practices, or engages in public relations activities such as advertising, education, and publishing on business issues of interest to group members.
Staggered Effective Dates
The final regulations will be effective 60 days after publication, meaning on or around August 20, 2018. Upon being effective, the regulations establish staggered applicability dates. Beginning on September 1, 2018, new and existing fully-insured AHPs may begin coverage. On January 1, 2019, existing associations currently sponsoring self-funded AHPs may take advantage of the new rules. Lastly, on April 1, 2019, new self-funded groups may begin the establishment of AHPs.
The NARFA Team will continue to keep up to date on this issue. Also, we are proud that our Executive Director, Philip Healy will be speaking on Association Health Plan/MEWA session ‘Association Health Plans, MEWAs and Stop-Loss Captive Programs – So Many Options, So Much to Know’ during the SIIA National Conference in Austin, Texas from September 23-25.