On January 4, 2018, the United States Department of Labor (DOL) issued a proposed regulation relating to association health plans (AHPs). This guidance was issued in response to an executive order issued by the White House on October 12, 2017. The proposed regulation contains several provisions that are favorable; however, the guidance also introduces a new rule that will pose significant problems for many existing AHPs.
- The guidance applies to employee welfare benefit plans subject to ERISA. Governmental plans are exempt from ERISA and are not subject to the new DOL guidance.
- The proposed regulation notes that “AHPs are an innovative option for expanding access to employer-sponsored coverage (especially for small businesses).” This statement stands in contrast with recent DOL enforcement efforts against AHPs.
- The DOL indicates that it will recognize an employer group or association as the “employer” sponsor of a single multiple-employer employee welfare benefit plan if it meets the requirements set forth in the regulations. Many of these requirements are more lenient than imposed by prior guidance.
- Employers will be permitted to band together in new organizations whose sole purpose is to provide group health coverage to member employers and their employees. Prior guidance required that the group or association must exist for a bona fide purpose other than offering health coverage.
- The proposed regulation would allow employers to band together for the express purpose of offering health coverage if they either are: (a) in the same trade, industry, line of business, or profession; or (b) have a principal place of business within a region that does not exceed the boundaries of the same State or the same metropolitan area (even if the metropolitan area includes more than one State). For example, it would now be permissible for a local chamber of commerce to start an AHP for various businesses in a region.
- Working owners, such as sole proprietors and other self-employed individuals, may elect to act as employers for purposes of participating in an employer group or association and also be treated as employees of their businesses for purposes of being covered by the group or association’s health plan. However, the working owner must not be eligible for other subsidized group health plan coverage sponsored by any other employer or by a spouse’s employer.
- The DOL most recently issued an advisory opinion in May 2017 that addressed plan MEWAs (Advisory Opinion 2017-02AC). MEWA is the acronym for “multiple employer welfare arrangement” — AHPs are almost always MEWAs. Only the parties described in the advisory opinion may rely on the advisory opinion; however, the guidance provided reasonably clear guidance on how to achieve plan MEWA status. It is curious that the proposed regulation and its preamble contain no reference to Advisory Opinion 2017-02AC.
- Notwithstanding many of the positive provisions, the proposed regulations would prevent AHPs from utilizing health status to determine rates among participating employers (Prop. Reg. § 2510.3-5(d)(4)). Federal law currently prohibits an employer from differentiating premiums among employees based upon health-status related factors (except to the extent permissible under federal wellness regulations). However, there is currently no restriction that limits an AHP from treating separate employers differently (as insurance carriers can and do with respect to large groups). This new provision may result in significant cost increases for some AHP participants. In the preamble, the DOL acknowledges that this provision: (a) could potentially represent an expansion of current regulations, and (b) would create involuntary cross-subsidization across firms that would discourage formation and use of AHPs.
- The proposed regulations would permit AHPs to differentiate between participating employers based upon non-health factors, including age, group size and geographic location.
Written comments on the proposed regulation must be submitted by March 6, 2018.
For more information on this topic, contact Jim Hamilton at 317-684-5419.