What’s the Deal with Association Health Plans? EBSA Issues Final Regulations
On June 19, 2018, the EBSA issued the highly anticipated final regulations related to the creation and maintenance of association health plans (AHPs) under ERISA. After considering more than 900 public comments, the EBSA largely finalized the proposed regulations with some clarification and a few modifications.
Importantly, the final regulations don’t replace the previous guidance related to AHPs. They provide an additional option for unrelated employers to come together to sponsor a single health plan. Groups that previously qualified as bona fide associations under the previous guidance continue to qualify as AHPs.
How AHPs Can Exist
In the proposed regulations, the requirement for the association to exist outside of the purpose of providing benefits was eliminated. The final regulations altered this provision slightly by adding a requirement that the association have at least one substantial business purpose unrelated to the provision of benefits, although the principal purpose may be the provision of benefits. This is in response to comments claiming that allowing associations to form solely for the purpose of providing benefits would result in diminishing value of existing trade and professional associations and an increased risk of poorly managed AHPs and fraudulent practices.
Similar to the proposed rule, the commonality of interest test will be satisfied if the employers are of the same industry, trade, line of business or profession OR same geographic location. The same geographic location includes the same state or metropolitan area [such as NY/NJ/CT, WA/DC/VA, and KS/MO]. It could also include a Metropolitan Statistical Area or a Combined Statistical Area, as defined by OMB (and as used by U.S. government agencies for statistical purposes). This means that employers may come together on a national basis as long as they’re in the same industry, trade, line of business or profession and meet the other outlined requirements.
As with the proposed rule, member employers must exercise control over the plan. However, the final rule modified the control test slightly from the proposed version. Sufficient control is considered to be demonstrated if the employers regularly nominate a governing body for the association and plan; employers have the authority to remove a director or officer without cause, and employers have decision-making authority and opportunity related to formation, design, amendment and termination of the plan.
Who Can Join
The final rules permit sole proprietors and other self-employed individuals (called working owners) with no common law employees to join an AHP as a member employer. The individual must work at least 20 hours per week or 80 hours per month providing services to the trade or business (decreased from the proposed 30 and 120 hours, respectively) OR have earned income from such trade or business that at least equals cost of coverage.
The final rule includes the proposed rule’s nondiscrimination provision, which is intended to limit adverse selection and apply the existing health nondiscrimination provisions under HIPAA. The HIPAA health nondiscrimination rules generally prohibit discrimination based on a health factor as it pertains to eligibility, benefits or premiums within groups of similarly situated individuals. The rules don’t prohibit discrimination across different groups of “similarly-situated individuals” — defined as bona-fide employment-based classifications consistent with the employer’s usual business practice. An employee classification is bona fide if the employer uses the classification for purposes independent of qualification for health coverage. AHPS, like any other group health plan, cannot discriminate within a group of similarly situated individuals based on a health factor. This means that AHPs may not treat employees of an employer member as a distinct group of similarly situated individuals resulting in higher premiums than other employer members based on health factors.
When New Regulations Become Effective
The regulations are effective 60 days following the publication in the Federal Register. However, the applicability date varies by plan: Sept. 1, 2018 for fully insured AHPs, Jan. 1, 2019 for existing self-insured AHPs and April 1, 2019 for newly formed self-insured AHPs.
AHPs are generally subject to ERISA, HIPAA and ACA market reforms. The size of the group for premium rating purposes will be based on the total number of employees of all employer members of the association. The applicability of COBRA for a small employer who would otherwise be exempt except for participation in an AHP is an issue that EBSA has referred to the IRS and Treasury for future guidance.
The most common questions remaining after the proposed regulations relate to state regulation of AHPs. For example: What about a state law that prohibits self-insured AHPs, the participation of self-employed individuals without common law employees or the formation of an association based primarily on the purchase of insurance? Would these laws be preempted by the federal regulations? Unfortunately, the final regulations provide little information as to that issue. In the preamble, the EBSA encourages state cooperation, but states:
"The Department declines the invitation of the commenters to opine on specific State laws…The final rule is not the appropriate vehicle to issue opinions on whether any specific State law or laws would be superseded because of the final rule."
The expectation is that states will review the final regulations and begin issuing guidance in the coming weeks and months. We’ll continue to report any developments.
Who Will Benefit
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. AHPs may also be an attractive option for self-employed individuals looking to get out of the volatile individual market.
For more information on how the final AHP regulations may apply to your benefit options, please contact your ShawHankins benefits consultant.