On June 19, 2018, the Department of Labor issued a final rule that changes 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. The final rule is scheduled for publication in the Federal Register on June 21, 2018.
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.
The final rule will make it possible for more small employers and their employees to join AHPs, which generally are considered large group health plans that 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). For example, AHPs would be exempt from requirements for small group and individual market policies to cover the ACA’s 10 essential health benefits.
The AHP final 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.
The final rule cites a May 2018 Congressional Budget Office (CBO) report projecting that enrollment in AHPs will total 4 million by 2023. Of the 4 million, 400,000 enrollees otherwise would have been uninsured, and 3.6 million would have been enrolled in other types of coverage.
The American Society of Actuaries, trade groups representing health plans, and consumer groups have raised concerns about the potential for the expansion of the availability of AHPs to result in an increase in premiums for more comprehensive coverage available via ACA Exchanges. The May 2018 CBO report projected that greater availability of AHPs, together with an expected expansion of short-term limited duration insurance (STLDI) policies, would result in 2-3% increase in premiums in other small-group or nongroup plans due to changes in relative risk.
In comments filed in response to the proposed rule, trade groups representing hospitals and physicians raised concerns about the adequacy of consumer protections in the proposed policy.
Trade groups representing employers have voiced support for the expansion of the availability of AHPs.
Highlights of key details of the proposed rule and RFI are provided below.
The final rule provides different applicability dates for AHPs, depending on the circumstances of the plans:
Basis of the Group of Association
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. The final rule clarifies that AHPs that were in existence prior to this rulemaking are allowed to continue operating under pre-rule guidance. The final rule “provides an additional mechanism for groups or associations to meet the definition of an “employer” and sponsor a single ERISA-covered group health plan; it is not the sole mechanism.”
Going forward, the final rule creates a general legal standard that a group or association of employers have at least one substantial business purpose unrelated to offering and providing health coverage or other employee benefits to its employer members and their employees, even if the primary purpose of the group or association is to offer such coverage to its members.
With minor points of clarification, the final rule codifies the proposal to allow employers to establish commonality of interest under ERISA if the employers either are:
As an illustrative example, this definition would allow thematically unrelated businesses to join an AHP under a regional chamber of commerce.
Governance requirements of the group/association
Under the final 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. (Note: The final rule clarifies that the general prohibition on health insurance issuers sponsoring an AHP would not preclude a health insurance issuer from participating in an AHP as an employer member of a bona fide association of insurers that sponsors an AHP.)
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 final rule also requires 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 final rule states that that only employees and former employees of employer members, as well as family/beneficiaries of those employees and former employees, are permitted to participate in an AHP. The final rule clarifies that former employees retain eligibility for an AHP they were initially eligible to join as an active employee, but not retrospectively, and that family members are defined as “beneficiaries” under ERISA law, which includes (but is not limited to) spouses or dependent children.
Notably, the rule generally provides 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. The final rule relaxes the threshold for working owners so that they must work at least 20 hours per week or 80 hours per month providing services to the trade or business, or have earned income that at least equals the working owner’s cost of coverage.
Health non-discrimination protections
In general, the final rule extends the non-discrimination provisions applicable to group health plans under the Health Insurance Portability and Accountability Act (HIPAA) as amended by the ACA. Thus, the final rule 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. Non-discrimination protections extend to employer groups under an AHP, so that an employer with higher-risk employees cannot be excluded from joining an AHP or be subject to higher premiums or cost sharing.
However, premium distinctions based on non-health factors such as industry, occupation, or geography are permitted.
Applicability of state insurance regulations
The final rule does not modify the States’ authority to regulate health insurance issuers or the insurance policies they sell to AHPs. Similarly, the rule does not alter existing ERISA statutory provisions regarding multi-employer welfare arrangements (MEWAs).
Although the final rule acknowledges certain circumstances in which HHS can grant exemptions to state insurance regulations to certain non-fully insured MEWAs, the rule highlights the limitations to that authority and notes that even MEWAs covered by an exemption remain subject to state insurance laws requiring specified levels of reserves and contributions to ensure payment of promised benefits.
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