Member Article

On January 5, 2018, the U.S. Department of Labor (“DOL”) published a much-anticipated proposed rule that would make it easier for groups or associations of employers to band together to form association health plans (“AHPs”).[1]  The proposed rule comes in response to an executive order issued by the White House in October 2017 directing the DOL to consider issuing such a rule.[2]

Under the proposed rule, employers, including sole proprietors and self-employed individuals, in the same trade, industry, line of business, or profession, or with a principal place of business in the same state or metropolitan area, could join together to create an AHP that would be treated as a large group health plan for purposes of the Affordable Care Act. It is hoped that employers participating in an AHP will be able to use their combined negotiating power, economies of scale, and the greater flexibility in benefit design permitted for large groups to obtain health coverage at a lower cost.

A number of rules would apply to AHPs and the associations sponsoring them, including the following: the association sponsoring an AHP would be required to have a formal organizational structure with a governing body and bylaws, and its functions and activities would need to be controlled by its employer members.  Members may exercise control directly or indirectly through the election and appointment of directors or other representatives.  An AHP could not exclude an employer from eligibility based on health factors.  Nor could the AHP require an employer or its employees to pay a different premium or contribution based on health factors.  Thus, an AHP could not exclude an employer based on the fact that an employee has a serious or chronic health condition and could not require the employer or employee to pay more based on the health condition.

The regulation of AHPs is colored by the fact that they constitute Multiple Employer Welfare Arrangements (“MEWAs”).  Under the Employee Retirement and Income Security Act of 1974 (“ERISA”), states have broad authority to apply their insurance laws to self-insured MEWAs.  Many states regulate self-insured MEWAs like a commercial insurance company.  State authority to regulate fully insured MEWAs, however, is much more limited.  Under ERISA, states may not regulate fully insured MEWAs directly, except by establishing reserve and contribution levels to ensure the solvency of the MEWA.  Nevertheless, states are free to regulate the insurance provided to a fully insured MEWA.  Thus, for example, a fully insured MEWA is subject to the same state benefit mandates that apply to other insured plans.  Although the DOL has never done so, the agency has authority under ERISA to exempt self-insured MEWAs from state laws other than those that regulate reserve and contribution levels.  In the preamble to the proposed rule, the DOL solicits public comment on whether it should exercise this authority for AHPs.

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[1] Employee Benefits Security Administration, Department of Labor, “Definition of ‘Employer’ Under Section 3(5) of ERISA – Association Health Plans,” 83 Fed. Reg. 614 (Jan. 5, 2018).

[2] Executive Order 13813 (Oct. 12, 2017).

The deadline for submitting comments on the proposed rule is March 6, 2018.

 

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