Association Health Plans

Bless their hearts, the U.S. Department of Labor (DOL) has issued proposed regulations to improve access to association health plan markets. Their two biggest ideas for improvement are to force existing bona fide associations to stop risk rating health plan coverage at the employer level and to start counting individuals as groups.

Where to begin…

In the beginning…association health plans owe their existence to the definition of “employer” under the Employee Retirement Income Security Act (ERISA).

The term “employer” means any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity. 29 USC § 1002(5) (emphasis added)

Thus, a group of different employers can collectively create a health plan for participating employers and be considered a single “employer” plan for purposes of ERISA.

Since at least 1982, DOL has interpreted the meaning of the phrase “association of employers” to mean a “cognizable, bona fide group or association of employers acting in the interests of member employers.” DOL Advisory Opinion No. 82-10A

Over the last three decades, the test for “bona fide” status under ERISA has been repeated and refined by DOL in many advisory opinions summarized in its guide for multiple employer welfare arrangement (MEWA) regulation. [All association health plans are also MEWAs whether bona fide or not].

In order for a group or association to constitute an “employer” within the meaning of Section 3(5), there must be a bona fide group or association of employers acting in the interest of its employer-members to provide benefits for their employees. In this regard, the Department has expressed the view that where several unrelated employers merely execute identically worded trust agreements or similar documents as a means to fund or provide benefits, in the absence of any genuine organizational relationship between the employers, no employer group or association exists for purposes of Section 3(5).

Similarly, where membership in a group or association is open to anyone engaged in a particular trade or profession regardless of their status as employers (i.e., the group or association members include persons who are not employers) or where control of the group or association is not vested solely in employer members, the group or association is not a bona fide group or association of employers for purposes of Section 3(5).

[page 8, MEWAs – Multiple Employer Welfare Arrangements under the Employee Retirement Income Security Act (ERISA): A Guide to Federal and State Regulation, U.S. Department of Labor, Employee Benefits Security Administration, Revised August 2013]

Now, DOL proposes that a health plan sold to an individual in the individual market can be a large group plan sold to the same person through an association that has been created for the sole purpose of sponsoring a large group health plan for sole proprietors and other employers whose only interest in common is that they live in the same state.

Here are some regulatory highlights:

(e) Dual treatment of working owners as employers and employees

  (1) A working owner of a trade or business may qualify as both an employer and as an employee of the trade or business for purposes of [bona fide association requirements]…

  (2) The term ‘‘working owner’’ as used in this paragraph (e) means any individual:

            (i) Who has an ownership right of any nature in a trade or business, whether incorporated or unincorporated, including partners and other self-employed individuals;

            (ii) Who is earning wages or self-employment income from the trade or business for providing personal services to the trade or business;

            (iii) Who is not eligible to participate in any subsidized group health plan maintained by any other employer of the individual or of the spouse of the individual; and

            (iv) Who either:

            (A) Works at least 30 hours per week or at least 120 hours per month providing personal services to the trade or business, or

            (B) Has earned income from such trade or business that at least equals the working owner’s cost of coverage for participation by the working owner and any covered beneficiaries in the group health plan sponsored by the group or association in which the individual is participating.

  (3) Absent knowledge to the contrary, the group or association sponsoring the group health plan may reasonably rely on written representations from the individual seeking to participate as a working owner as a basis for concluding that the conditions in paragraph (e)(2) are satisfied. [Federal Register / Vol. 83, No. 4 pg 636 / Friday, January 5, 2018 / Proposed Rules]


(c) Commonality of interest.

Commonality of interest of employer members of a group or association will be determined based on relevant facts and circumstances and may be established by:

            (1) Employers being in the same trade, industry, line of business or profession; or

            (2) Employers having a principal place of business in 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). [Id. 635]

In addition to erasing health plan market distinctions and traditional definitions of employer and employee, the proposed regulations would force every existing bona fide association qualified under existing rules to reconsider their health plan pricing to eliminate premium differences between employer groups if they are based upon loss experience or health underwriting.

(4) In applying the nondiscrimination provisions of paragraphs (d)(2) and (3) of this section, the group or association may not treat different employer members of the group or association as distinct groups of similarly-situated individuals.

Example 4. (i) Facts. Association G sponsors a group health plan, available to all employers doing business in Town H. Association G charges Business I more for premiums than it charges other members because Business I employs several individuals with chronic illnesses.

(ii) Conclusion. In this Example 4, Business I cannot be treated as a separate group of similarly situated individuals from other members under paragraph (d)(4) of this section. Therefore, charging Business I more for premiums based on one or more health factors of the employees of Business I violates § 2590.702(c) of this chapter and, consequently, the requirement in paragraph (d)(3) of this section. [Id.]

Consider how the above example and proposed regulation differs from existing regulations adopted by Health and Human Services to implement health care reform.

45 CFR § 146.121 Prohibiting discrimination against participants and beneficiaries based on a health factor.

(c)Prohibited discrimination in premiums or contributions –

… (2)Rules relating to premium rates –

            (i) Group rating based on health factors not restricted under this section. Nothing in this section restricts the aggregate amount that an employer may be charged for coverage under a group health plan. But see § 146.122(b) of this part, which prohibits adjustments in group premium or contribution rates based on genetic information.

Example 1.

            (i) Facts. An employer sponsors a group health plan and purchases coverage from a health insurance issuer. In order to determine the premium rate for the upcoming plan year, the issuer reviews the claims experience of individuals covered under the plan. The issuer finds that Individual F had significantly higher claims experience than similarly situated individuals in the plan. The issuer quotes the plan a higher per-participant rate because of F’s claims experience.

            (ii) Conclusion. In this Example 1, the issuer does not violate the provisions of this paragraph (c)(2) because the issuer blends the rate so that the employer is not quoted a higher rate for F than for a similarly situated individual based on F’s claims experience. (However, if the issuer used genetic information in computing the group rate, it would violate § 146.122(b) of this part.)

Naturally, the proposed rules create dozens more questions than this brief introduction of federal health insurance policy. Here are a few observations about the DOL explanation for the proposed regulation for those who don’t want to read the fine print.

  • Most of the protections claimed under the proposal already exist, e.g., cannot exclude employers from membership based upon health conditions.
  • DOL observes that Obamacare’s rules governing different markets, medical loss ratios, community rating, and other coverage standards create “a complex and costly compliance environment for coverages provided through associations“.  In fact, the opposite it true – bona fide association plans largely avoid most of these complexities.
  • DOL spends a significant number of words explaining the benefits of expanding the definition of “bona fide” employer associations when these benefits largely derive from eliminating distinctions between bona fide and non-bona fide associations – “AHPs that buy insurance would not be subject to the insurance “look-through” doctrine…” (Hmmm, didn’t know it was a doctrine to identify the size of the employer purchaser.)
  • DOL confuses HIPAA bona fide association standards with its own ERISA standards touting the absence of a requirement “that the group or association be a pre-existing organization.” This is not a requirement now for satisfying ERISA’s bona fide association standards; otherwise, there could never be another trade association created that offers its employer members a health plan. Which reminds me…what about those HIPAA bona fide definitions?
  • The proposal seeks to enable AHPs to assemble large, stable risk pools.” How? The greater concern will be retention and new instability caused by guaranteed issue and guaranteed renewability in associations with individuals having the right to move in and out of associations.

Here’s a fun fact: Under existing federal regulations, if an association pulls the plug on health plan programs, the carrier must continue to renew coverage:

“[W]ith respect to group coverage offered only through associations, the option of guaranteed renewability extends to include employer members of an association. This provision means that all employers covered by an issuer through an association have the right to renew the coverage they received if the association ceases to serve its members, regardless of the reason.” [Federal Register / Vol. 62, No. 67 / Tuesday, April 8, 1997 / Rules and Regulations 16905]

Stayed tuned for Part 2, Part 3, Part 4 of the DOL proposal.

Teaser – Can DOL do this by rule? What about other association plan rules? What about individual and small group market rules? How does Poisson regression analysis affect contingency tables?