Association Health Plans Final Rule
Association health plans (AHPs) have been around a long time. They have been a mainstay of Chambers of Commerce, Farm Bureaus and trade associations; providing members a valued benefit while serving as an association recruiting tool. And, these plans have had cycles of popularity and other times when they were less available. Association health plans gained renewed interest during the 2016 presidential campaign. Several candidates posited that association health plans would provide much needed rate relief to small businesses. And, for Republican candidates, association plans were seen as a preferred alternative to the Affordable Care Act (ACA). President Trump also came to embrace the concept of association plans. He issued an executive order in October, 2017 directing his administration to “consider issuing regulations…that would expand access to more affordable health coverage” through formation of AHPs. This issue of Legislative Review provides an overview of the final AHP rules which were issued in June, 2018.
This issue of Legislative Review provides an overview of the final AHP rules which were issued in June, 2018.
Bona Fide Groups or Associations of Employers
Who can form an association and the employers that can participate in one has been expanded under this new rule. Prior regulation required that an association
must exist for purposes other than providing health benefits. The new rule allows associations to be formed primarily for the purpose of providing health coverage as long as they have “at least one substantial business purpose unrelated to offering health coverage or other employee benefits” to members. The rules provide significant latitude for an association to meet the “substantial business purpose” requirement. The rule suggests that this could be offering classes, convening conferences or providing educational materials on business issues relevant to members. The rule also requires that the association have a formal organizational structure. This would include a governing body operating in legal form with by-laws and the like. As importantly, participating employers must control the functions and activities of the association for it to be considered bona fide. The control requirement is deemed necessary to meet ERISA requirements that the entity must act “in the interest of the employer members.” The need for control is also seen as a means to ensure an entity can’t claim to be an AHP while operating as a traditional health insurer except for the name. Notably, the rule specifies that insurers cannot sponsor an AHP. Associations are also required to have a “commonality of interest.” Employers in the same industry, profession or line of business or that have a principal place of business within a region meet this requirement. Of note, the region may be a metropolitan area that includes more than one state.
HIPAA nondiscrimination rules will apply for AHPs. This means the association cannot discriminate in “eligibility, benefits, or premiums against an individual with a group of similarly situated individuals based on a health factor.” Bona fide employment classifications are allowed. AHPs cannot rate employer-by employer on health factors. The rules acknowledge that states have a role in regulating AHPs including whether an AHP may discriminate based on non-health factors. Examples are included in the final rule to illustrate the nondiscrimination requirement.
Working Owners and Self-Employed Individuals
The rule explicitly allows working owners without common law employees to qualify for AHP participation. The rule allows for working owners to be considered as both employers and employees; allowing sole proprietors to participate in AHPs. The rule expounds on the reasoning why sole proprietors without another employee have been excluded from small group insurance. The final rule relaxed proposed standards to determine whether a person is, indeed, a working owner. The measure of earned income and hours of work was revised to an average of 20 hours per week or 80 hours a month and income that at least equals the cost of coverage. Plan fiduciaries have a responsibility to determine whether someone is truly a “working owner” or merely an individual who is seeking a work-around
for coverage. The rule allows for a person to aggregate hours worked and income across jobs or contracts. For example, a pianist could aggregate money earned from both providing lessons and performing. The final rule eliminates a provision that was in the proposed rule relating to other coverage. The proposed rule would have excluded from the definition of “working owner” an individual eligible to participate in any employer plan for which they were eligible. This was found to be akin to a “marriage penalty” that would be difficult to enforce. Also, the provision was found to not be a valid means to determine whether
someone was in a legitimate trade or business.
Essential Health Benefits
To level the playing ﬁeld between small and large employers, an AHP does not have to meet the essential health beneﬁts (EHBs) requirements for small group coverage. Instead, it must follow the rules for large employers. For example, if an AHP covers a beneﬁt that would be considered an EHB, the AHP must count
out-of-pocket spending for in-network services toward the maximum out-of-pocket.
AHPs also don’t have to oﬀer “minimum value” coverage. However, if they don’t an employer who is subject to the employer shared responsibility provisions (an ALE) could be penalized for not having met the standard.
The ﬁnal rule takes eﬀect for fully insured AHPs on September 1, 2018. Existing self-insured AHPs can use the new provisions as of January 1, 2019. New self-insured AHPs can begin on April 1, 2019. It’s important to note that self-insured AHPs are subject to all applicable state laws.
It remains to be seen how states will react to these rules. Also, whether insurers have any appetite for the AHP market is unknown at this time.