Industry News

DOL Issues Final Guidance on Association Health Plans

On Thu, Jun 21, the Department of Labor published a final rule to expand the availability of Association Health Plans (AHP) to small employers and self-employed individuals. While the rule loosens the rules that define what is an eligible association, it does not loosen or modify the regulatory barriers that impede the formation of association health plans.

The rule broadens the definition of “employer” by creating an alternative pathway by which a group or association of employers, including certain self-employed individuals, can be deemed to be a single “employer” under ERISA Section 3(5). For an association to be eligible to offer a single employer health plan, employers must:

  1. Share a “commonality of interest,” and
  2. Control both the association that sponsors the plan and the benefit plan itself.

Commonality of Interest. Association members can meet the commonality of interest test by either:

  1. Being in the same trade, industry, line of business, or profession or
  2. Having a principal place of business within a single state or metropolitan area, even if the metropolitan area spans more than one state.

An association’s primary purpose may be to provide health coverage, however it must have at least one other substantial business purpose and must be viable as an association independent of offering health coverage. AHPs cannot be sponsored or controlled by health insurers or any other company in the health care delivery system. AHPs may only cover the employees, former employees, and beneficiaries of association employer members. Coverage cannot be sold to non-employer members or the general public.

Control. The employer members of the association must control its functions and activities. The employer members that participate in the AHP must control the health plan. There must be an organizational structure with a governing body, bylaws, and other legal formalities.

Rating Restrictions

Associations are prohibited from restricting membership to AHP based on any health factor. AHPs cannot medically underwrite each employer member’s rates or vary rates between employers due to health factors. AHPs can, however, vary rates between employer members using other non-health factors such as age, gender, industry, and geography. AHPs may also vary rates by bona fide business classifications such as full-time versus part-time status, membership in a collective bargaining unit, date of hire, length of service, current versus former employee status, and occupation.

Benefit and Coverage Design

AHPs are subject to the same coverage requirements imposed on large groups. Plans are not confined to restrictions imposed on the small group markets including metallic coverage levels and the 10 essential health benefits categories (e.g.: pediatric dental). AHPs can limit or exclude coverage for services, subject to state and federal laws.

Regulatory Barriers

The rule reaffirms that AHPs are still considered multiple employer welfare arrangements (MEWAs). MEWAs are regulated by each state in which they operate and the DOL. Due to a long history of abuses, MEWAs are scrutinized heavily by regulators. State and federal regulators impose licensing, registration, certification, financial reporting, annual filings, solvency, examination, audit, and other standards. States have the authority to regulate self-funded AHPs where state law is consistent with ERISA.

States will have to amend their laws and regulations to align with the changes created under this rule.

Effective Dates

  • Sep 1, 2018 for new and existing fully-insured AHPs
  • Jan 1, 2019 for self-funded AHPs that currently comply with the DOL’s pre-rule guidance and wish to expand the plan under the new rule
  • Apr 1, 2019 for new self-funded AHPs formed under this rule


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