The Department of Labor has issue a proposed rule providing direction for sole proprietors and businesses to set up Association Health Plans (AHPs). This rulemaking stems from President Trump’s October 12, 2017 Executive Order 13813, “Promoting Healthcare Choice and Competition Across the United States,” which seeks to expand healthcare choice by modifying certain insurance regulations. A key component of this order is the promotion of AHPs, which allow individuals and employers to collectively purchase insurance.
To that end, the DOL’s proposed rule would amend the regulations under Title I of the Employee Retirement Income Security Act (ERISA) to make it easier for employers to band together and be treated as an “employer” sponsor of a single multiple-employer “employee welfare benefit plan” and “group health plan” under ERISA. By doing so, small businesses in particular gain better leverage to either self-insure or purchase large group health insurance.
Specifically, the rule would amend the regulations under ERISA section 3(5) to create a broader “commonality of interest” test for determining which groups or associations of employers could create AHPs. Under the proposed rule, this standard could be met via “common geography” or “common industry.” As described in the proposed rule, employers could form a coalition to offer health coverage if they are: “(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).”
With respect to the second criteria, examples of a “metropolitan area” include the “Greater New York City Area/Tri-State Region covering portions of New York, New Jersey and Connecticut; the Washington Metropolitan Area of the District of Columbia and portions of Maryland and Virginia; and the Kansas City Metropolitan Area covering portions of Missouri and Kansas.” Smaller geographic regions, such as a single city or county, would also suffice. The DOL is seeking public comment on whether additional clarification is needed to better define what constitutes a metropolitan area.
Regarding the “same industry” component, the rule clarifies that nationwide industry organizations, including trade associations, can sponsor nationwide AHPs. Moreover, the proposed rule would clarify that such associations could band together for the sole purpose of providing health insurance to their members. Under existing sub-regulatory guidance, groups or associations must exist for a bona fide purpose other than offering health coverage to be an employer for purposes of section 3(5) of ERISA.
The proposed rule would also allow individual business owners to act as employers for purposes of participating in an AHP.
Other requirements for forming AHPs include:
- Each employer member of the group or association participating in the group health plan must be an employer of at least one employee who is a participant covered under the plan.
- The group or association must have a formal organizational structure with a governing body and by-laws or other indications of formality.
- The functions and activities of the group or association, including the establishment and maintenance of the group health plan, must be controlled by its employer members.
- The health coverage offered must be only for employees of the member employers, former employees, and family members or other beneficiaries of those employees and former employees.
- The group or association and health coverage offered by the group or association must comply with certain nondiscrimination provisions. For example, the group or association may not discriminate against an employer or employee on the basis of a health factor.
- The group or association cannot be a health insurance issuer described in section 733(b)(2) of ERISA, or owned or controlled by such a health insurance issuer.
In a press release, the DOL claims:
[u]p to 11 million Americans working for small businesses/sole proprietors and their families lack employer-sponsored insurance. These 11 million Americans could find coverage under this proposal. . . . [AHPs] would close the gap of uninsured without eliminating options available in the healthcare marketplace. . . . small businesses and sole proprietors would have more freedom to band together to provide affordable, quality health insurance for employees.
The DOL is soliciting comments on this proposal, which are due by March 6, 2018.
By: Ilyse Schuman, Russell Chapman, and Michael J. Lotito at Littler Mendelson P.C.