Our Perspective

Proposed Rules for Association Health Plans

Last October President Trump signed an executive order directing the Department of Labor (DOL), Health and Humana Services (HHS) and Treasury to consider proposing new regulations or to revise guidance to expand Association Health Plans (AHP), expand Short Term Medical Limited Duration Insurance (STLMDI) and expand the flexibility under a Health Reimbursement Account (HRA). At that time, we wrote a blog post addressing the executive order pointing out that nothing had happened except a directive to consider the topic and if appropriate, make a proposal.

On January 5, 2018 President Trump proposed new rules regarding Association Health Plans (AHP’s) to expand the definition of an employer under ERISA to allow employers to band together for the single purpose of obtaining health coverage. Once again, nothing has happed that changes any rules as of today. These are proposed rules and have entered a 60-day comment period. Until final rules are adopted this is all talk, but it appears the Trump administration is supportive of AHP’s.

The proposed rules do have some parameters.

The proposed rules allow employers to band together under the following circumstances:

  • Employers in the same trade, industry, line of business or profession; or
  • Have a principle place of business within a region that does not exceed the boundaries of the same state or some metropolitan area.

The proposed rule does seek comments on possible other condition to define commonality of interest as well as other processes to determine the geographic place of business.

The group or association must have an organizational structure and be functionally controlled by its employer members.

Under the proposed rules the AHP must have a formal organizational structure with governing by-laws, and the group’s member employers control the function and activities of the AHP. This is to avoid the formation of commercial enterprises that claim to be an AHP, but in reality, operate in a similar way as traditional insurers in the group market.

Group or association plan coverage must be limited to employees of employer members and treatment of working owners.

The proposed rule states that only current and former employees of employer members, and their family members and beneficiaries, can participate in the group health plan. It goes on to say that groups and associations sponsoring the covered AHP’s are bona fide employment based associations and not mere general membership organizations essentially operating as an unlicensed health insurance providers.

There is also the question of the owner of a company without common law employees. Under the proposed rule the AHP’s may consider this type of employer if:

  • The individual is earning an income from the trade or business and working on average 30 hours a week or 120 hours a month; and
  • Is not eligible for subsidized group coverage sponsored by another employer or spouse’s employer.

The proposed rule is intended to cover genuine employment-based relationships, not to provide cover for the marketing of individual insurance masquerading as employment based coverage.

Health nondiscrimination protections under the proposed rule:

The proposed rule applies existing nondiscrimination provisions under HIPAA and the ACA to AHP’s. Under the proposed rules, the group or association cannot restrict me3mbership based upon any health factor and cannot treat any member employers as distinct groups of similarly situated individuals.

Our Perspective

This innovation is not new. In years past there was a robust association health plan market. In years past many of these MEWAs (Multiple Employer Welfare Associations) offered what were substandard plans and service to an unsuspecting public that gave the entire industry a black eye. Many of these “associations” turned out to be a shill for a carrier that operated an association in name only as a means to distribute product with the promise of lower rates. In those days, many of these plans were heavily underwritten on the front end and re-underwritten on a regular basis to continue eligibility. Either that or the plans had easy entry, but were heavily underwritten at the point of claim. Sometimes with disastrous results. The bottom line is that during this time there were few rules. The public was harmed and the industry took a black eye.

The proposed rules seem to recognize these past problems and have addressed some of these by requiring commonality by type of business or geographic location, that there be an actual association with bylaws and structure, and that single employee groups be credible and not a dodge on the individual market. Additionally, the proposed rules are in a comment period where they want to hear from the public or concerned entities on how to augment these rules to assure a true association plan with protections for the public.

There are outside issues that may have an impact on any marketable products.

  • The first issue is getting a carrier to underwrite these plans. We have all heard of associations interested in forming a health plan for their members. They normally want to use it as a recruitment tool. Carriers have historically been hesitant to underwrite and administer such plans due to fear of a poorly governed plan resulting in excess losses. One of the positions we hear most often is that the carrier has no way to enforce contract requirements in an association.
    • Example: Association A has a contract with Carrier B. Association A member employer X allows their participation in the plan to dwindle to 15%, far below the carrier requirement of 50%. The carrier is powerless to enforce the contract on employer X since their contract is with association A and not Employer X leaving the real possibility that employer X has a serious adverse selection risk that could impact the entire association.
  • There is also the State Regulatory issue. It is unclear what impact the State DOI will have on any AHP’s operating in Texas. While the federal government may allow the formation of AHP’s it is unclear if the state will have the authority to further regulate AHP’s under the new rules. We will not know how this will play out until the federal rules are finalized.

Remember, these are not final rules and there have been no immediate changes. When and if final rules are adopted we will post information on this site to inform our agents and offer our perspective.

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