The Department of Labor (“DOL”) has revoked its Association Health Plan (“AHP”) regulations and expects to replace them with stricter standards that provide additional employee protections.
Background. The group health plan market is divided into the small group and large group markets. The size of the individual employer determines whether that employer’s coverage is subject to the small group or large group market rules.
Under the Affordable Care Act (“ACA”), health insurance provided in the small group market must be “community rated,” meaning that it must satisfy rigid underwriting requirements designed to avoid different premiums based on health factors. It must also cover all essential health benefits (“EHBs”) required by the ACA without annual or lifetime limits. These requirements do not apply to health insurance offered in the large group market.
Under the ACA, a “bona fide” group or association of employers may sponsor a single “multiple employer” group health plan even though the plan covers many small employers. In instances where a group or association of employers is sponsoring the group health plan, the association itself is deemed the “employer.” Therefore, a bona fide group of small employers could be considered to be a single large employer for group market purposes and exempt from the small group market rules.
On June 21, 2018, DOL issued final regulations (the “2018 AHP rule”) intended to broaden the types of employer groups and associations that could sponsor a single group health plan under the ACA. DOL now says the 2018 regulations may deprive employees of small employers of protections Congress thought they needed when enacting the ACA.
DOL’s Rescission of the 2018 AHP rule. According to DOL, the 2018 AHP rule “reflected a substantial departure from the Department’s longstanding pre-rule guidance on ERISA’s definition of ‘employer.’ The rule struck the wrong balance between ensuring a sufficient employment connection and enabling the creation of AHPs. The employment relationship is at the heart of what makes an entity a bona fide group or association of employers capable of sponsoring an AHP. It’s also at the heart of what separates bona fide employer associations from commercial ventures that sell insurance to unrelated individuals and employers.”
DOL goes on to say that, “The approach taken in the 2018 AHP Rule does not agree with the better reading of the statute. It goes too far in disregarding ERISA’s focus on employment-based relationships. The pre-rule guidance rightly insists on those relationships.” The rescission of the regulation will allow for a reexamination of the criteria for a group or association of employers to be able to sponsor an AHP; and ensure that guidance being provided to the regulated community is in alignment with ERISA’s text, purposes, and policies. In the meantime, the pre-regulation guidance will be applicable.
This pre-regulation guidance applies a facts-and-circumstances approach to determine whether a group or association of employers is a bona fide employer group or association capable of sponsoring an ERISA plan on behalf of its employer members. Under this approach, there are three general criteria:
- whether the entity has business or organizational purposes and functions unrelated to the provision of benefits;
- whether the employers share a commonality and genuine organizational relationship unrelated to the provision of benefits; and
- whether the employers that participate in a benefit program, either directly or indirectly, exercise control over the program, both in form and substance.
DOL does not believe that rescinding the 2018 AHP Rule will result in any regulatory costs or burdens to employers and is not aware of any groups relying on the 2018 AHP rule.
The DOL’s rescission document is available at: https://www.federalregister.gov/documents/2024/04/30/2024-08985/definition-of-employer-association-health-plans.