February 2018

The Department of Labor (DOL) has released a proposed rule  (Notice of Proposed Rulemaking, NPRM) that would allow more employers to form association health plans (AHPs) and more self-employed workers to participate. The rule was developed in response to President Trump’s Executive Order 13813, which prioritized the expansion of AHPs, short-term, limited-duration insurance, and health reimbursement arrangements (HRAs).

The new rules would treat qualified AHPs as large group health plans, allowing them to avoid some small group regulations such as coverage for essential health benefits and more importantly the modified community age rating. The new rules would also allow AHPs to be offered through self-insured arrangements, however, under the proposed regulations, states would continue to have the right to regulate self-insured AHPs as Multiple Employer Welfare Arrangements (MEWAs). The NPRM also suggests that AHPs will still be subject to other applicable state insurance laws.

Commonality of Interest

Under existing association plan rules, employers must meet a narrow “commonality of interest” test to form an AHP in order for it to be treated as a large group health plan. There are a very few groups that actually meet this strict test currently.
The DOL is proposing to expand this definition of “commonality of interest” so more employers would be able to form large group AHPs. The NPRM proposes two different types of AHPs: 1. Businesses in the same trade, industry, or profession. 2. Businesses located in the same state of a common metropolitan area. Most sole proprietors and independent contractors would also be allowed to join an AHP even if they don’t have any other employees.

Organizational Requirements

Existing rules require that an association exist for other business purposes before it can sponsor a health plan for member employers. The proposed rules would allow an association to exist solely for the purpose of offering health coverage, as long as an association set up to sponsor an AHP is controlled by its employer members and has a formal organizational structure ( including a governing body, with bylaws, etc).

Conclusion

It is important to note that nothing has changed yet, and the new AHPs will not be available for a while.
But once the formal guidance regarding the expansion of AHPs arrives, it may provide employers with new choices that will hopefully allow them to leverage their combined negotiating power, economies of scale, and the greater flexibility in benefit design to offer lower-cost health coverage that delivers real value.