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DOL Issues Final Rule on Association Health Plans

How viable is this new alternative for employers and working owners?

The long-awaited final rule on association health plans (AHPs) is out, posting to the Federal Register on June 18, 2018. The Department of Labor’s (DOL’s) response to President Trump’s Executive order asking for more favorable rules for associations of employers proves to add a new dimension to health care plan offerings.

Since the proposed rule’s release, January 5, 2018, the DOL has been working to address the roughly 900 comments from various responders. Our summary of the proposed rule can be found here. As is customary, federal rules and regulations are released to the Federal Register and posted for public commentary. The drafting department must adequately address each and every comment in their next version of the rule. OneDigital’s was among them, along with our partners, National Association of Health Underwriters (NAHU) and Council of Insurance Agents and Brokers (CIAB).

The final rule addresses all of our questions and concerns. It also incorporates quite a few of our suggestions. Let’s clarify what the final rule says and then talk about some of the finer points to consider in setting up these plans.

Summary and Requirements in the Final Rule

  • A New Alternative:

    The final rule adds a new way for employer groups and working owners to combine for the purposes of health insurance. It does not replace current AHP rules but adds an additional method for creating an AHP. Moving forward, new and existing associations may choose to organize under the current rules or this new option.

  • Treated as a Single Employer (section a):

    The new rule allows the association to be the employer for health plan purposes. All other participating groups and their employees become the “employees” of the association.
    Large groups have responsibilities under the employer shared responsibility provision of the ACA, e.g. the requirement to offer coverage to full-time employees that meets minimum value and affordability criteria, reporting to the IRS, furnishing of coverage statements to employees, etc. They are not, however, subject to other ACA provisions, like the requirement to include all ten essential health benefits in their medical plan or modified community rating1. The new rule allows an association to be considered a single employer. As a single employer, if their collective number of employees across all member employers meet the state’s definition for large group (50 in most states), the AHP will be a large group and subject to fewer ACA provisions than small groups or individuals.

  • Bona Fide Group or Association of Employers (section b):

    To be eligible for this new option, AHPs must be a bona fide group or association. To be considered a bona fide group or association, the entity must meet the following requirements:

    1. The group or association may exist, in whole or in part, for the purpose of sponsoring a group health plan that it offers to its employer members, however, they must also have at least one substantial business purpose2 unrelated to the offering and providing of health insurance or another employee benefit;
    2. Each employer member of the group or association participating in the group health plan is a person acting directly as an employer of at least one employee who is a participant covered under the plan;
    3. The group or association has a formal organizational structure with a governing body and has by-laws or other similar indications of formality;
    4. The functions and activities of the group or association are controlled by its employer members, and the group's or association's employer members that participate in the group health plan control the plan;
    5. The employer members have a commonality of interest as described in the corresponding section below;
    6. Coverage eligibility and availability
      • The group or association does not make health coverage through the group's or association's group health plan available other than to:
        1. An employee of a current employer member of the group or association;
        2. A former employee of a current employer member of the group or association who became eligible for coverage under the group health plan when the former employee was an employee of the employer; and
        3. A beneficiary of an individual described above (e.g., spouses and dependent children).
      • Unless the plan specifically covers former employees, coverage may not be made available to any individual (or beneficiaries of the individual) for any plan year following the plan year in which the plan determines pursuant to reasonable monitoring procedures that the individual ceases to meet the definition of employee or beneficiary as defined in this section;
    7. The group or association and health coverage offered by the group or association complies with the nondiscrimination provisions (see section below); and
    8. The group or association is not a health insurance issuer or owned or controlled by such a health insurance issuer or by a subsidiary or affiliate of such a health insurance issuer, other than to the extent such entities participate in the group or association in their capacity as employer members of the group or association.
  • Commonality of Interest (section c)

    1. Employer members of a group or association will be treated as having a commonality of interest, provided these standards are not implemented in a manner that is subterfuge for discrimination as is prohibited in the section below, if:
      • The employers are in the same trade, industry, line of business or profession; or
      • Each employer has a principal place of business in the same region that does not exceed the boundaries of a single State or a metropolitan area (even if the metropolitan area includes more than one State).
    2. In the case of a group or association that is sponsoring a group health plan under this section and that is itself an employer member of the group or association, the group or association will be deemed to be in the same trade, industry, line of business, or profession, as applicable, as the other employer members of the group or association
  • Nondiscrimination (section d)

    A bona fide group or association, and any health coverage offered by the bona fide association must comply with the following nondiscrimination provisions:

    1. The group or association must not condition employer membership in the group or association based on any health factor of any individual who is or may become eligible to participate in the group health plan sponsored by the group or association;
    2. The group health plan sponsored by the group or association is not required to provide coverage for any particular benefit to any group of similarly situated individuals but all benefits provided must be uniformly available to all similarly situated individuals3, and must not be directed at individual participants or beneficiaries based on any health factor;
    3. The group health plan sponsored by the group or association may not require as a condition of enrollment, a premium or contribution that is greater than that of a similarly situated individual based on any health factor (this does not apply to the aggregate amount that an employer may be charged as long as there are no adjustments to premium based upon genetic information);
    4. In applying the nondiscrimination provisions of paragraphs (2) and (3) of this section, the group or association may not treat different employer members of the group or association as distinct groups of similarly-situated individuals based upon health factor.
  • Eligibility of Working Owners (section e)

    A working owner of a trade or business without common law employees may qualify as both an employer and as an employee of the trade or business.
    “Working owner” is any person who a responsible fiduciary reasonably determines meets the following requirements, at the time the individual is first eligible, and periodically thereafter:

    1. Has an ownership right in a trade or business, regardless of business type, e.g. sole proprietor, partner, corporation, etc.;
    2. Is earning wages or self-employment income from the trade or business for providing personal services to the trade or business; and
    3. Who either:
      • Works on average at least 20 hours per week or 80 hours per month providing personal services to the working owner’s trade or business, or
      • Has wages or self-employment income from such trade or business that at least equals the working owner’s cost of coverage for participation by the working owner and any covered beneficiaries participating in the plan
  • Applicability Dates (section f)

    Effective August 20, 2018. Applicability is as follows:

    • New or existing fully-insured plans – September 1, 2018
    • Self-funded plans in existence as of June 21, 2018, who meet the criteria and are choosing to become an association health plan sponsored by a bona fide association under these new rules - January 1, 2019
    • Any other welfare plan established to be and operated as an association health plan sponsored by a bona fide group or association of employers – April 1, 2019

There are both opportunities and challenges for groups or associations that wish to move forward under the new Association Health Plan rule. We are receiving numerous questions from employers and associations who are trying to understand if this is a viable option for them. Download the Association Health Plan Rule FAQ that highlights some of the finer points and considerations.

Download Now: Association Health Plan Final Rule FAQs


Future Watch

Adoption and success of these new programs rest on three areas: the states, insurance carriers, and economic and administrative feasibility of the group or association. As the FAQ indicates, states will review their current laws and regulations, including those for MEWAs to ensure that they have the proper safeguards and oversight to ensure consumer protection. The extent to which each state expands or modifies these rules will determine how attractive or feasible these arrangements will be in any given state.

Once that is known, insurance carriers will begin to determine whether they will want to pursue these arrangements. Although carriers will not be able to manage risk through health-related factors and information, they will be able to use non-health factors to create some division of risk and charge appropriately for it, e.g. industry, occupation, etc. The question is whether this will be enough to keep the entity viable for its members.

Last, the ease with which the group of association may operate will be a significant factor in the formation of these new AHPs. Cost, administrative burden, and projections of participation by future members will impact the adoption rate.

There will be much to watch in the coming months before we clearly see results. It is too early to determine how widespread the adoption may be. We will continue to watch this potential new solution and report on significant progress, but for more information on the final rule and implications for your organization, contact your OneDigital consultant.

Additional Resources

Click here to view the full text of the rule.

Click here to view the Rules and Regulations for Group Health Plans - §2590.702 – Rules prohibiting discrimination against participants and beneficiaries based on a health factor.

Click here to view the Department of Labor FAQ and Information on Final Rule.

1. [Modified community rating is the process used to ensure that all people in the same age, with the same type of family coverage, in the same geographic area, and with the same tobacco usage status pay the same premium.]

2. [Substantial business purpose, as defined in the final rule, is considered to exist if the group or association would be a viable entity in the absence of sponsoring an employee benefit plan. Not present in the proposed rule but added in the final rule.]

3. [Participants may be considered as two or more groups of similarly situated individuals if the distinction between the groups is base]