Proposed rule sets stage to expand availability of association health plans; HHS seeks comment on choice, competition in health care markets

On January 4, 2018, the Department of Labor issued a proposed rule outlining changes to the definition of “employer” under the Employee Retirement Income Security Act (ERISA) in an effort to make association health plans (AHPs) more broadly available to small employers and their employees. In doing so, the proposed rule would lay the groundwork for more small employers and their employees to join AHPs, which generally are considered large group health plans and are not subject to insurance market requirements for small group and non-group health insurance products that were enacted as part of the Affordable Care Act (ACA). Examples of such insurance market reforms include the essential health benefits (EHB) package.

ERISA is the 1974 federal law that generally regulates health coverage offered by large employers and pre-empts state insurance requirements for self-funded coverage.

In its announcement of the proposed rule, the Department of Labor said expanding availability of AHPs could provide an additional coverage option for the estimated 11 million individuals working for small businesses/sole proprietors and their families who do not have access to employer-sponsored coverage.

The American Academy of Actuaries and other stakeholders have raised concerns that such policy decisions could further segment the small group and non-group insurance market, potentially resulting in higher premiums for coverage available via the ACA’s health insurance Exchanges if more healthy individuals opt for lower-priced coverage outside of the Exchanges that is not subject to all of the ACA’s benefit requirements.

The proposed rule is in response to an executive order signed on October 12, 2017, that directed federal agencies to revisit regulations on AHPs, short-term limited duration insurance (STLDI) plans, and health reimbursement arrangements (HRAs) in an effort to increase competition and expand the availability of lower-premium coverage options. Similarly, the Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation (HHS ASPE) on December 26, 2017, issued a request for information on “State and Federal laws, regulations, guidance, requirements, and policies that discourage or prevent the development and operation of a healthcare system that provides high quality care at affordable prices for the American people, the promotion of competition in the health care markets, and the limitations of excessive consolidation throughout the health care system.”

The proposed rule was published in the Federal Register on January 5, 2018. Comments are due by March 6, 2018.

Responses to the HHS ASPE RFI are due by January 25, 2018.

Highlights of key details of the proposed rule and RFI are provided below.

Basis of the group or association

The proposed rule would allow employers to form groups or associations for the single purpose of obtaining health coverage provided that the employers either are:

  1. In the same trade, industry, line of business or profession; or
  2. Have a principal place of business within a region that does not exceed the boundaries of the same state or same metropolitan area (even if the metropolitan area includes more than one state).

Current sub-regulatory guidance provides that the group or association must exist for a bona fide purpose other than offering health coverage to be an employer for purposes of ERISA protection.

Notably, the proposed rule states that although one of the “primary aims” of this proposal is to give small employers the opportunity to join together to offer AHPs, “there may be some large employers that may see cost savings and/or administrative efficiencies in using an AHP as the vehicle for providing health coverage to their employees.” The proposed rule would not preclude such large employers from joining associations or groups to offer AHPs.

Governance requirements of the group/association

Under the proposed rule, a group or association offering an AHP would be required to be controlled by the employers themselves, rather than a third party, such as a health plan or provider. As such, the member employers of the group or association would be required to control its functions and activities, including the establishment and maintenance of the group health plan, either directly or through the regular election of directors, officers, or other similar representatives.

The proposal also would require that the group or association have a formal organizational structure with a governing body and have by-laws or other similar indications of formality appropriate for the legal form in which the group or association operates.

Availability of AHPs

The proposed rule would require that only employees and former employees of employer members, as well as family/beneficiaries of those employees and former employees, would be permitted to participate in an AHP. Notably, the proposed rule generally would provide for working owners, such as sole proprietors and other self-employed individuals, to act as employees of their businesses for purposed of being covered by the AHP.

Health non-discrimination protections

In general, the proposed rule would extend the non-discrimination provisions applicable to group health plans under the Health Insurance Portability and Accountability Act (HIPAA) as amended by the ACA and would prohibit the association or group from restricting membership based on any health factor, including health status, medical condition (including both physical and mental illness), claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability.

Applicability of state insurance regulations

The proposed rule would not modify the States’ authority to regulate health insurance issuers or the insurance policies they sell to AHPs. Similarly, the proposed rule similarly would not alter existing ERISA statutory provisions regarding multi-employer welfare arrangements (MEWAs). Although the proposed rule acknowledges certain circumstances in which HHS can grant exemptions to state insurance regulations to certain non-fully insured MEWAs, the proposed rule highlights the limitations to that authority and notes that even MEWAs covered by an exemption remain subject to state insurance laws that provide standards requiring specified levels of reserves and contributions to ensure payment of promised benefits.

HHS ASPE RFI on promoting health care choice and competition across the US

Consistent with the October 2017 executive order, HHS ASPE requested comments on state and federal policies that might inhibit health care choice and competition. Specifically, the RFI asks for comment on what State and Federal laws, regulations, or policies (including Medicare, Medicaid, and other sources of payment):

  1. Reduce or restrict competition and choice in health care markets?
  2. May promote or encourage anticompetitive behavior in health care markets?
  3. Reduce or restrict competition and choice in health care markets?
  4. May promote or encourage anticompetitive behavior in health care markets?

In addition, the RFI seeks suggestions for “policies or other solutions (including those pertaining to Medicare, Medicaid, and other sources of payment) to promote the development and operation of a more competitive health care system that provides high-quality health care at affordable prices to the American people.”


Anne Phelps
Principal | Deloitte Risk and Financial Advisory
US Health Care Regulatory Leader
Deloitte & Touche LLP
Latest conversations from Anne Phelps on Twitter

Daniel Esquibel
Senior Manager | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

Ethan Joselow
Manager | Deloitte Risk and Financial Advisory
Deloitte & Touche LLP

This article contains general information only and Deloitte is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this article.

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