The Association Plan Final Rules Explained

Back in October, President Trump issued an executive order that, among other things, asked the Department of Labor to re-write the rules for Association Health Plans. On January 4, the DOL honored that request and issued proposed rules. After a comment period, those rules were finalized on June 19. Because the final rules are 198 pages long, we figured we’d save you some time and give you the high points.

President Trump’s Executive Order

Let’s start with executive order that President Trump signed on October 12, 2017. In it, he says the following about Association Health Plans (AHPs):

Large employers often are able to obtain better terms on health insurance for their employees than small employers because of their larger pools of insurable individuals across which they can spread risk and administrative costs. Expanding access to AHPs can help small businesses overcome this competitive disadvantage by allowing them to group together to self-insure or purchase large group health insurance. Expanding access to AHPs will also allow more small businesses to avoid many of the PPACA’s costly requirements. Expanding access to AHPs would provide more affordable health insurance options to many Americans, including hourly wage earners, farmers, and the employees of small businesses and entrepreneurs that fuel economic growth.

He goes on to ask the Department of Labor to revise the rules in order to allow more employers to form Association Health Plans:

Within 60 days of the date of this order, the Secretary of Labor shall consider proposing regulations or revising guidance, consistent with law, to expand access to health coverage by allowing more employers to form AHPs. To the extent permitted by law and supported by sound policy, the Secretary should consider expanding the conditions that satisfy the commonality‑of-interest requirements under current Department of Labor advisory opinions interpreting the definition of an “employer” under section 3(5) of the Employee Retirement Income Security Act of 1974. The Secretary of Labor should also consider ways to promote AHP formation on the basis of common geography or industry.

The Department of Labor complied with this request and recently finalized the new rules.

Final Rule on Association Plans

On June 21, the Department of Labor published the Final Rule for Association Health Plans in the Federal Register. Here are the high points from the final rule:

• Primary purpose can be providing health insurance: The rule modifies the definition of "employer" under ERISA regarding entities like associations that can sponsor group health plans. An association can now be formed primarily for the purpose of offering an association health plan (AHP) to its members, though there does have to be at least one other “substantial business purpose unrelated to offering and providing health coverage or other employee benefits to its employer members and their employees, even if the primary purpose of the group or association is to offer such coverage to its members.”
• Commonality of Interest definition expanded: Normally, an association must have a “commonality of interest” to offer health insurance. The definition of commonality of interest has been expanded to include associations:
  1. whose members are “in the same trade, industry, line of business, or profession,” or
  2. who maintain “their principal places of business in a region that does not exceed the boundaries of the same State,” or
  3. who are located “in the same metropolitan area (even if the metropolitan area includes more than one State).”
• Sole proprietors can participate: Sole proprietors will now be able to join association health plans to purchase health coverage for themselves and their families. The final rule expressly permits “participation of working owners without any common law employees in AHPs.”
• Treated as a single employer: Very importantly, members of an Association Health Plan organized under the new rules will be treated as a single employer group and will operate under the large or small group rules (for fully-insured AHPs) depending on the number of employees of the participating employers in the association.

In the past, according to the final rule, “health insurance coverage offered or provided through an employer trade association, chamber of commerce, or similar organization, to individuals and small employers” was “regulated under the same federal standards that apply to insurance coverage sold by health insurance issuers directly to these individuals and small employers, unless the coverage sponsored by the group or association constitutes a single ERISA-covered plan.” In other words, the “look through” doctrine specified that the type of coverage offered to association members was based on whether the coverage was offered to individuals, small employers, or large employers.

• Existing AHPs can choose their rules: There were some Association Health Plans in existence before the final rules were issued, and these plans can choose to continue to operate as before (under the old rules) or elect to follow the new requirements if they want to expand within a geographic area or cover sole proprietors.
• 4 million will participate: As noted in the final rule, the “U.S. Congressional Budget Office (CBO) predicted that 400,000 people who would have been uninsured will enroll in AHPs and 3.6 million people will enroll in AHPs who would have had other coverage, resulting in 4 million additional people enrolling in AHPs.”

What Now?

Right now, there’s not a lot to do. The final rules were just issued, and while they do seem to make it easier to form association health plans, it will take some time to see what these plans actually look like. While AHCP does not currently have any association plans for you to offer to your clients, our hope is that this does become a viable option. Both employers and individuals are in need of solutions, so any new option is certainly welcome.

Plus, even if Association Health Plans are successful at reducing the premium for individuals and employers compared with other options available to them. AHPs may still have higher deductibles and out-of-pocket limits than many people are comfortable with, and may require members to meet the calendar-year deductible before the insurance company pays a portion of the bill. In other words, there will still be a potential need for supplemental coverage for those covered by AHPs, and family members of eligible employees may still want to consider other, more affordable options if the participating employers do not subsidize their coverage. Whether you ultimately end up placing your clients with AHPs or not, there will be an opportunity to help people with AHP coverage.