Updated November 3, 2020
(originally posted June 20, 2018)
On June 19, 2018, the Department of Labor (DOL) released final rules for Association Health Plans (AHP). In summary, the final rules will allow small businesses, including self-employed workers, to band together by geography or industry to obtain healthcare coverage as if they were a single large employer. The intent is to provide greater negotiating power for coverage that is typically only available to large employers.
Companies without common ownership will be able to form an association with other companies if the companies have sufficient commonality of interest, defined as:
- In the same trade, industry, line of business, or profession; or
- Have a principal place of business within a region that does not exceed the boundaries of the same state (e.g., a city or county) or the same metropolitan area (even if the metropolitan area includes more than one state).
The final rule includes the criteria for forming a “bona fide group or association of employers,” including the requirement to have a “formal organizational structure with a governing body that has by-laws or other similar indications of formality.” In other words, there will need to be formal documents establishing the group for the purpose of purchasing insurance. Furthermore, although providing health coverage can be the primary purpose of the group, the group must have at least one substantial business purpose other than the provision of health coverage to constitute a bona fide group or association of employers.
- September 1, 2018 – all associations (new or existing) may establish a fully-insured AHP under the new rule;
- January 1, 2019 – existing associations that sponsored an AHP on or before the publication date of the final rule in the Federal Register may establish a self-funded AHP under the new rule; and
- April 1, 2019 – all other associations (new or existing) may establish a self-funded AHP under the new rule.
The final rule does not modify the existing ERISA rules regarding multiple employer welfare arrangements (MEWAs), which generally allow states to regulate MEWAs despite the normal rule that ERISA preempts state laws that purport to apply to ERISA employee benefit plans. Given the fact AHPs will qualify as MEWAs, state law will need to be taken into consideration by any groups thinking of establishing an AHP.
In March 2019 the Federal District Court for the District of Columbia overturned portions of the final rule on the basis that the DOL exceeded its authority in issuing those portions of the final rule. In particular, the court set aside the bona fide association and working owner provisions of the final rule, significantly restricting the usefulness of the new rules. The DOL has appealed the court’s ruling and the appeal is currently pending. As a result of the court’s decision, the DOL issued guidance indicating that it would not take enforcement action against any AHPs that had relied on the final rule prior to the court’s decision, but that non-enforcement provision has since expired. Until the litigation is resolved, groups considering an AHP should work closely with qualified legal counsel to determine the impact of the court’s decision on their ability to establish an AHP.
Do you have questions about Association Health Plans? Contact your local Hays Representative or email us at firstname.lastname@example.org.
This document is provided for general information purposes only and should not be considered legal or tax advice or legal or tax opinion on any specific facts or circumstances. Readers are urged to consult their legal counsel and tax advisor concerning any legal or tax questions that may arise.
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