On June 21, 2018, the Department of Labor (the “DOL”) issued new regulations giving official status to a previously proposed new form of Association Health Plans (“AHPs”). A qualified AHP, while covering the employees of multiple employers, will be treated as a single group health plan for purposes of the Employee Retirement Income Security Act (“ERISA”). The AHP will also be considered to be a large employer plan, thus qualifying for exemption from the more restrictive rules that apply in the individual and small employer group markets.
Currently, in order for a plan sponsored by an association for the benefit of its employer-members (a so-called “bona fide association plan”) to be treated as a single plan, the plan must satisfy standards established through the years by the DOL through the issuance of Advisory Opinion Letters. These standards are referred to under the new AHP regulations as “sub-regulatory guidance.” No formal regulations governing bona fide association plan status have been issued by the DOL.
The DOL’s current sub-regulatory guidance remains available. Therefore, group health plans that currently qualify as bona fide association plans will remain qualified, and new plans may qualify themselves using these current standards. However, with the introduction of the new AHP regulations, associations and other groups of employers that wish to offer multiple employer plans now have a second option—the AHP.
Key Differences
The key differences between the two forms of plans are summarized below.
Two key conditions to qualify as a bona fide association plan under the current sub-regulatory guidance are:
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Employers covered under the plan must be in the same trade or business, and generally in the same geographical locale; and
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Only employers may participate in the plan. This means that sole proprietors and partnerships that do not have common-law employees cannot join the plan.
On the plus side, a bona fide association plan can treat each employer group separately for experience rating purposes, provided that the experience-rating is not directed toward any particular individual by reason of the individual’s health status.
In contrast, an AHP:
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Can cover employees who are not in the same trade or business, provided they are located in the same state or metropolitan area; and
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Can extend participation rights to sole proprietors and partners that qualified as “working owners” (as defined below).
On the negative side, an AHP cannot treat each employer group separately for experience rating purposes. However, distinctions based on a factor other than a health factor (such as industry, occupation, or geography) are permitted. For example, an AHP may rate construction industry employers differently than auto dealers. In addition, age and gender are not health factors, and therefore can be considered for rating purposes.
Working Owners
A "working owner" is defined as any individual:
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Who has an ownership right of any nature in a trade or business, whether incorporated or unincorporated, including partners and other self-employed individuals;
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Who is earning wages or self-employment income from the trade or business for providing personal services to the trade or business; and
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Who either:
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works at least 20 hours per week, or at least 80 hours per month, providing personal services to the trade or business; or
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has earned income from such trade or business that at least equals the working owner's cost of coverage for participation by the working owner in any covered dependents in the group health plan.
The determination of qualification as a working owner must be made when the individual first becomes eligible for coverage under the AHP, and continued eligibility must be periodically confirmed pursuant to reasonable monitoring procedures.
Self-Insurance Still Regulated
The AHP regulations do not modify or otherwise limit existing state authority to govern multiple employer plans. Therefore, states can regulate self-insured AHPs. As is currently the case, the scope of that regulation can include prohibiting self-insured AHPs from operating altogether.
Effective Date
The new AHP status is available to fully-insured plans effective as of September 1, 2018.
Comparison of Plans
A comparison of the current sub-regulatory bona fide association plan standards and the rules prescribed under the new AHP regulations is below.
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Current Bona Fide Association Plan Standards
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Association Health Plan Standards
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Purpose
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The group or association sponsoring the plan must exist for purposes other than providing health benefits.
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The group or association of employers sponsoring the AHP can be established for the primary purpose of offering coverage to its members.
However, the group must have at least one “substantial business purpose” unrelated to offering of health coverage to its employer members.
A “substantial business purpose” is considered to exist if the group or association would be a viable entity even in the absence of sponsoring an employee benefit plan.
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Organizational Structure
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There is no current requirement. But ERISA requires a written plan document that addresses the administration of the plan.
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The group or association must have “a formal organizational structure with a governing body,” as well as “by-laws or other similar indications of formality.”
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Commonality of Interest
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The employers within the group or association must share some commonality of interest and genuine organizational relationship unrelated to the provision of benefits.
Satisfaction of this standard generally requires that the employers covered under the plan be in the same trade or business, and in the same geographical locale.
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Employers will satisfy the commonality of interest standard if they either:
· are 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 or the same metropolitan area (even if the metropolitan area includes more than one state).
Determinations of what is a “trade,” “industry,” “line of business,” or “profession,” as well as whether an employer fits into one or more of these categories, are based on all the relevant facts and circumstances.
The DOL will consider the use of any generally-accepted business classification system (e.g., SIC) as sufficient to meet the commonality condition.
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Control of Plan
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The employers that participate in a benefit program must directly or indirectly exercise control over the program, both in form and substance.
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Functions and activities of the group or association itself must be controlled by its employer members.
In addition, the group or association’s employer members that participate in the group health plan must control the plan.
Control must be present both in form and in substance.
Whether the requisite control exists is determined under a facts and circumstances test.
In the DOL’s view, the following factors, although not exclusive, are particularly relevant for this analysis:
· whether employer members regularly nominate and elect directors, officers, trustees, or other similar persons that constitute the governing body or authority of the employer group or association and plan;
· whether employer members have authority to remove any such director, officer, trustees, or other similar person with or without cause; and
· whether employer members that participate in the plan have the authority and opportunity to approve or veto decisions or activities that relate to the formation, design, amendment, and termination of the plan (such as material amendments to the plan, including changes in coverage, benefits, and premiums).
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Sole Proprietor/Partners Coverage
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Sole proprietors and partnerships that do not have common-law employees (and thus which are not deemed to be employers) are not permitted to participate in the bona fide association plan.
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An AHP plan can offer coverage to “working owners” (as defined previously).
Consistent with the principles of the gig economy, hours worked in a trade or business can be aggregated across individual jobs or contracts.
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Experience Rating
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A plan may treat each employer-group member as a distinct group of similarly-situated individuals, and experience-rate each employer-group separately.
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An AHP plan cannot treat separate employers as distinct groups of similarly-situated individuals and experience-rate each employer-member.
However, distinctions based on a factor other than a health factor (such as industry, occupation, or geography) are permitted.
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