Insights

Clarification on Association Health Plans


On December 31, 2020, the Illinois Department of Insurance (Department) issued Company Bulletin 2020-20, which clarifies that the expanded eligibility standards from the 2018 Association Health Plan (AHP) rules no longer apply.

As background, the EBSA issued final regulations in 2018 related to the creation and maintenance of Association Health Plans (AHPs) under ERISA. The final regulations allowed AHPs to include employers without a commonality of interest if they are located in the same state or metropolitan area (for example, DC/MD/VA or NY/NJ/CT). Further, AHPs could form for the primary purpose of providing benefits (something that was prohibited before 2018), if they can show a “substantial business purpose,” which includes fairly minimal proof — anything from setting business standards and practices to publishing a newsletter. Importantly, the 2018 rules also allowed an AHP to cover non-employees (sole proprietors, independent contractors, partners and other businesses without any employees).

In March 2019, a federal district court vacated the AHP rule’s expanded eligibility standards and vacated the portion of the rule that permitted working-owner participation (as reported in the April 2, 2019, Compliance Corner edition). As such, the department explains that the expanded eligibility provisions set forth in the AHP rule no longer apply. Further, if an insurer enters into a contract with an association of employers that does not qualify as an employer under the AHP sub-regulatory guidance (those that have a commonality of interest, exclude sole proprietors and exercise control over the AHP) and have its own ERISA group health plan, such contract between the association and insurer would not qualify as group health insurance coverage. In other words, if an association is not a bona fide association health plan per the sub-regulatory guidance, large or small group market standards would be applied separately and determined for each employer member based on that employer’s number of employees.

Employers should be aware that AHPs can only form subject to the sub-regulatory guidance in effect prior to the 2018 AHP rules.

Company Bulletin 2020-20 »