On Jan. 5, 2018, the EBSA published proposed regulations related to the creation and maintenance of association health plans (AHPs) under ERISA. The rules are in direct response to Pres. Trump’s Executive Order dated Oct. 12, 2017, in which he ordered the DOL to propose regulations to expand access to AHPs and allow health coverage sales across state lines.
As background, ERISA currently governs single employer plans and multiple employer welfare plans (MEWAs). There are two types of MEWAs depending upon whether the participating employers meet the commonality-of-interest test. In general, parties to the MEWA must have sufficiently close economic or representational connection.
ERISA would apply to the MEWA on the plan level, instead of on the individual employer level, if all of the following criteria apply:
- The association is a bona fide organization with business/organization functions and purposes unrelated to providing benefits
- The participating employers share some commonality of interest and relationship outside of benefits
- The employers directly or indirectly exercise control over the program
If an employer meets these criteria, it’s considered a bona fide association, the group is rated collectively for insurance premium purposes, the plan is considered to be maintained at the plan level and there’s a single Summary Plan Description (SPD) and Form 5500 filed (if applicable). Alternatively, if the group doesn’t satisfy the criteria, then the insurer may issue rates based on each separate employer member, the plan is considered to be maintained at the employer level and each employer would be responsible for a separate SPD and Form 5500 (if applicable).
Essentially, the proposed regulations would eliminate the requirement for the association to exist outside of the purpose of providing benefits. Instead, under the proposed rules, a group of employers may join together solely for the purpose of purchasing or providing health benefits to employees. The group would still need to be maintained as a legal entity with by-laws and a governing board.
Additionally, under the proposed rules, employers must exercise control over the program. For example, a representation of employers may serve on the board and make decisions related to coverage offered, plan design, etc. Importantly, the employers must either:
- Be in the same industry, trade, line of business or profession.
- Have a principal place of business within the same state or metropolitan area. The metropolitan area may include more than one state. EBSA provides specific examples of such areas: Greater New York City Area/Tri-State Region covering portions of New York, New Jersey and Connecticut; the Washington Metropolitan Area of the District of Columbia and portions of Maryland and Virginia; and the Kansas City Metropolitan Area covering portions of Missouri and Kansas.
Currently, ERISA doesn’t apply to an arrangement consisting only of a self-employed individual with no common law employees. Participants must be employees, former employees or family members of such. However, the proposed rules would permit sole proprietors and other self-employed individuals with no common law employees to join an AHP as a member employer. The individual must just earn income from the trade or business for providing personal services. Specifically, the individual must provide on average at least 30 hours of personal services per week (or 120 hours per month) or have earned income that at least equals the cost of coverage under the AHP. Further, the individual must not be eligible for other subsidized group health plan coverage by another employer.
The proposed rules also include health nondiscrimination provisions. The association must not restrict membership based on a health factor such as claims utilization, health status or disability. The AHP must comply with the HIPAA nondiscrimination rules that prohibit discrimination in terms of eligibility or cost based on a health factor.
While any size employer may join an AHP, AHPs may only be attractive to small employers that would avoid the current member-level billing, modified community rating, essential health benefit package and limited plan choice. The rules apply generally to both fully insured and self-insured plans. This means that employers may join together to provide a self-insured plan, but the EBSA notes that such plans would still be subject to state law. Concerned with issues of plan solvency, many states restrict such designs and place many requirements on these plans, which may include licensure as an insurer.
Importantly, these plans would still be considered MEWAs and, therefore, would still have initial and annual M-1 filing requirements.
Comments on the proposed regulations are due within 60 days following Friday’s publication. We’ll continue to keep you updated on any future developments.
EBSA Proposed AHP Rules »