The Department of Labor (DOL) has issued final regulations and FAQs on association health plans (AHPs). The regulations broaden the definition of an “employer” under the Employee Retirement Income Security Act (ERISA). The revised definition is intended to assist employers in joining together as a group or association of employers by geography or industry to sponsor a group health plan. This change in the regulations is significant because a plan treated as being adopted by a large single employer can potentially avoid some Affordable Care Act (ACA) reforms applicable to the individual and small group insurance markets, such as the requirement to provide essential health benefits.
Earlier this year, on January 5, 2018, the DOL issued proposed regulations to broaden the definition of employer. The regulations provided that, for purposes of establishing and maintaining a welfare benefit plan, an "employer" includes any person acting directly as an employer or any person acting indirectly in the interest of an employer in relation to an employee benefit plan. Under the proposed regulations, a group or association of employers would be a person able to act directly or indirectly in the interest of an employer and could, therefore, establish an employee welfare benefit plan. A group health plan is a type of employee welfare benefit plan.
The final regulations follow the proposed regulations with some changes:
- Commonality of Interest -- The final regulations, like the proposed regulations, allow employers to band together as a group to offer health coverage if they are either (1) in the same trade, industry, line of business, or profession; or (2) 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). The final regulations add a requirement that a group or association of employers have at least one “substantial business purpose” unrelated to offering and providing health coverage or other employee benefits to its employer members and their employees, even if the primary purpose of the group or association is to offer the coverage to its members. The final regulations do not define "substantial business purpose," but they include a safe harbor under which a substantial business purpose is considered to exist in cases where the group or association would be a viable entity even in the absence of sponsoring an employee benefit plan.
- Employer Control -- The proposed regulations set forth a requirement for employer control. As revised in the final regulations, the control test provides that the functions and activities of the group or association must be controlled by its employer members, and 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; control is determined based on a facts-and-circumstances test. The preamble identifies relevant factors and clarifies that members are not required to manage the day-to-day affairs of the group, association, or plan. The final regulations retain a requirement that a group or association cannot be a health insurance issuer as defined in ERISA, or be owned or controlled by such a health insurance issuer, although the prohibition does not apply to entities that participate in the group or association in their capacity as employer members of the group or association.
- Eligible Participants -- The final regulations modify the group of eligible participants to include employees of a current employer member of the group or association, former employees of a current employer member of the group or association who became entitled to coverage under the group’s or association’s group health plan when the former employee was an employee of the employer, and beneficiaries of such individuals (e.g., spouses and dependent children). For working-owner coverage (discussed below), a special provision provides that, except as may be required for purposes of COBRA continuation coverage, an individual eligible for coverage under the group health plan as a working owner (and the individual’s beneficiaries) cannot continue to be eligible for coverage under the group health plan for any plan year after it is determined that the individual does not meet the conditions for being treated as a working owner under the final regulations.
- Working Owners -- The final regulations provide that a working owner without common law employees may qualify as an employer and employee for purposes of an AHP. In addition, the DOL eliminated the attestation provision from the working-owner provision. The final regulations clarify that plan fiduciaries have a duty to reasonably determine that the conditions of the working-owner requirement are satisfied and to monitor continued eligibility for coverage under the AHP. The final regulations reduce the hours-worked provision for a working owner to an average of 20 hours per week or 80 hours per month (down from 30 hours per week or 120 hours per month in the proposed regulations). Finally, the subsidized health coverage provision, which provided that an individual would not be treated as a working owner if the individual was eligible to participate in any subsidized group health plan maintained by any other employer of the individual or the individual's spouse, was eliminated.
- Nondiscrimination -- Using existing nondiscrimination requirements under the Health Insurance Portability and Accountability Act (HIPAA), the regulations prohibit a group or association from restricting membership in the association based on any health factor. The HIPAA rules define a health factor as health status, medical condition, claims experience, receipt of healthcare, medical history, genetic information, evidence of insurability, or disability. The regulations also prohibit AHPs from treating member employers as distinct groups of similarly situated individuals. However, the final regulations clarify that AHPs are not precluded from making distinctions between employer members in all circumstances. Distinctions based on a factor other than a health factor (such as industry, occupation, or geography) are permitted, and several examples are provided in the regulations.
The regulations are effective as follows:
- September 1, 2018, for plans that are fully insured and that meet the requirements for being an AHP sponsored by a bona fide group or association of employers;
- January 1, 2019, for any plan that is not fully insured, is in existence on June 21, 2018, meets the requirements that applied before June 21, 2018, and chooses to become an AHP sponsored by a bona fide group or association of employers; and
- April 1, 2019, for any other plan established to be, and operated as, an AHP sponsored by a bona fide group or association of employers.
If you have any questions about the regulations, contact one of the attorneys in the Employee Benefits and Executive Compensation group at Bradley.