June 26, 2018
On June 19, 2018, the Department of Labor (DOL) released a final rule (available here) intended to lower the costs of health insurance for small businesses and self-employed individuals by providing options for small employers and self-employed businesses to join together as a single group to purchase health insurance in the large group market or to self-insure. These benefit arrangements are called association health plans (AHPs).
By forming AHPs, small employers can avoid certain Affordable Care Act (ACA) reforms that apply to the small group market. According to the DOL, this will provide small employers with more affordable health insurance options. However, in exchange for lower premiums, AHPs may cover fewer benefits. Most AHPs will not be subject to the ACA's essential health benefits reform, which requires small group plans to cover a core set of items and services, such as mental health care and maternity and newborn care.
Previously existing association health plans, allowed under prior guidance, are not affected. Such plans have a choice of either to continue to operate as before or elect to follow the new requirements if they desire to expand within a geographic area, regardless of industry, or to cover the self-employed. New plans can also form and elect to follow either the old guidance or the new rules.
The following effective dates apply for the new AHP framework regulations:
The final rule expands current guidance to allow more employers to join together and sponsor AHPs that are treated as single plans under the Employee Retirement Income Security Act (ERISA). When an AHP is treated as a single ERISA plan, all employees covered by the plan are considered when determining the insurance market rules (that is, small group or large group) that apply to the plan. Specifically, the final rule provides an additional mechanism for groups or associations to meet the definition of an "employer" within the meaning of ERISA section 3(5) and sponsor a single ERISA-covered group health plan.
The final rule allows employers to join together to form an AHP that is a single ERISA plan if either of the following requirements is satisfied:
In addition, the final rule allows working owners without other employees, such as sole proprietors and other self-employed individuals, to join AHPs.
To distinguish single plan AHPs from commercial insurance-type arrangements, the final rule requires AHPs to satisfy the following conditions:
In addition, the final rule requires AHPs to comply with certain consumer protections and anti-discrimination protections that apply to the large group market. For example, AHPs may not charge higher premiums or deny coverage to people because of pre-existing conditions or cancel coverage because an employee becomes ill. Additionally, AHPs under this rule will not be able to charge employers different rates based on the health status of their employees.
Small employers may want to consider banding together to form an AHP as a more affordable health insurance option. However, employers should carefully review the AHP's benefit design to make sure it is appropriate for their workforce. Because AHPs are regulated at the federal and state level, the availability of these plans will also depend on a state's regulatory approach.
It should be noted that some consumer groups have expressed concern that AHPs will attract small employers with healthier workers, which could increase premiums in the small group and individual markets, including the ACA marketplaces. Critics have also pointed out that, while AHPs may have lower premiums, they are also exempt from some key consumer protections under the ACA. For example, most AHPs will not be subject to the ACA's essential health benefits requirement, which requires small group plans to cover a core set of items and services, such as mental health care, maternity and newborn care, prescription drugs and emergency services. Most AHPs will also be exempt from the ACA's rating restrictions for the small group market, which means that AHPs may base premiums on factors such as age, industry and gender.
Critics of expanding AHPs have also raised concerns about the potential for consumer fraud in connection with these arrangements. In the final rule, the DOL notes that it anticipates close cooperation with state regulators to guard against fraud and abuse. However, since the issuance of the final rule, at least two states (New York and Massachusetts) have announced their intentions to file suit against the Trump Administration over the expansion of AHPs, as a result of their concerns.
For More Information
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