Pursuant to President Donald J. Trump’s October 12, 2017 Executive Order instructing the U.S. Department of Labor (DOL) to consider expanding access to association health plans (AHP), the DOL published a proposed rule on January 5, 2018 that would modify ERISA regulations to increase the availability of AHPs. Association health plans have been defined as “health insurance coverage offered to collections of individuals and/or employers through entities that may be called associations, trusts, multiple employer welfare arrangements, purchasing alliances, or purchasing cooperatives.” When employers join together through an association to purchase or receive health insurance coverage, they may be considered a large group, and thus not subject to many of the Affordable Care Act reforms. In a press release, the DOL indicated that as many as 11 million Americans working for small businesses or sole proprietors may be able to obtain coverage under this proposed rule by allowing employers to join together with other employers and purchase large group coverage through an association.
Historically, the DOL narrowly interpreted the circumstances under which employers may join together as a single ERISA-covered multi-employer plan to offer or enroll in a group health plan. The DOL applied a facts-and-circumstances approach that examined whether the employer group or association had: (1) business and organization purposes and functions unrelated to the provision of benefits; (2) a commonality and organizational relationship unrelated to the provision of benefits; and (3) participating employers directly or indirectly exercised control over the program. The proposed rule would loosen the long-standing interpretation by enlarging the definition of “employer” under ERISA and more broadly defining “group or association of employers”. The DOL proposes to permit employers to form a new association for the sole purpose of offering health insurance, if the members are:
- In the same trade, industry, or profession; or
- Have a principal place of business within a region that does not exceed the boundaries of the same State or same metropolitan area (even if it includes more than one State).
The group or association would be required to have a formal organization structure with a governing body and by-laws. This requirement is meant to ensure the organizations will act in the interest of participating employees. Additionally, the proposed rule would permit a working owner (i.e., a sole proprietor and other self-employed individuals) to elect to act as both the employer and employee in order to enroll in the group or association’s health plan. To ensure a legitimate trade or business exists, the working owner must: have an ownership right in a trade or business; earn wages or self-employment income from the trade or business for providing personal services to the trade or business; not be eligible to participate in a subsidized group health plan by another employer; and either work at least 30 hours a week or at least 120 hours a month providing personal services to the trade or business, or have earned income from the trade or business at least equal to the cost of coverage in the AHP. The preamble notes the rule is intended to cover genuine employment-based relationships. This rule could be particularly useful for workers in the “gig-economy” wishing to purchase insurance through an association.
If finalized, there is concern the rule could further erode the individual and small group health insurance market risk pools by attracting younger and healthier enrollees to enroll in AHPs. If able to purchase health coverage in the large group market, AHPs would allow employers to avoid the Affordable Care Act’s market reforms, such as providing essential health benefits and the allowed rating factors (limited to age, geography, family size, and tobacco use) by offering coverage designed to attract younger and healthier enrollees. This uncertainty may lead to increased premiums and further insurer departures in the individual and small group markets. The preamble of the proposed rule attempts to address these concerns by referring to stakeholder suggestions that increased regulatory flexibility and bargaining power could reduce the cost of, and expand access to, health coverage. These concerns may also be assuaged by the proposed non-discrimination protections that would prohibit plans from discriminating against individuals based on any health factor. The proposed definition of health factor aligns with HIPAA and ACA nondiscrimination rules: “health status; medical condition; claims experience; receipt of health care; medical history; genetic information; evidence of insurability; or disability.” In the context of a group or association of employers sponsoring a single group health plan, health discrimination would be prohibited within groups of similarly situated individuals, but not prohibited across different groups of similarly situated individuals. The preamble provides examples of bona fide employment-based classifications such as full-time/part-time employees, different geographic regions, and different occupations.
Comments on the proposed rule are due by March 6, 2018.