Rule Expands Access to Association Health Plans

As part of our regular business practices, we continue to monitor changes to the laws and rules affecting employee health benefit plans. This communication was developed to provide information about a U.S. Department of Labor rule titled, “Definition of ‘Employer’ under Section 3(5) of ERISA – Association Health Plans.” The rule was issued in response to the October 2017 Presidential Executive Order – “Promoting Healthcare Choice and Competition Across the United States.”

The U.S. Department of Labor has expanded the ability of a bona fide group or association of employers to sponsor a multiple employer welfare arrangement (MEWA) for their employees. Federal law generally classifies association health plans (AHPs) as MEWAs. Fully insured and self-funded plans are affected by the final rule.

For the first time, a self-employed business owner without other employees, including a sole proprietor, and their families could be covered under an AHP.

The rule, which was released in June, took effect Aug. 20, 2018, with staggered applicability dates. The rule does not affect existing association health plans. New plans can decide to follow either the old or new rule. The rule does not affect the ability of states to continue to regulate MEWAs.

The rule includes staggered applicability dates:

Criteria Applicable Date
An association sponsoring a fully insured AHP Sept. 1, 2018
An association in existence on June 21, 2018 that met the requirements that applied before June 21, 2018 and chooses to sponsor a self-funded AHP Jan. 1, 2019
An association sponsoring a fully insured or self-funded AHP April 1, 2019

Highlights of the Rule

  • Each employer of the group/association participating in the plan is a person acting directly as an employer of at least one employee who is a participant covered under the plan. A working owner of a business without common law employees may qualify as both an employer and as an employee of the business. Self-employed business owners who do not have other employees, including sole proprietors, and their families may be eligible for coverage.
  • Coverage is only available to a current employee of a current employer member of the group/association, or a former employee of a current employer member of the group or association who became eligible for coverage under the group health plan when the former employee was employed by the employer; or their spouses and dependent children.
  • The group/association has a formal organizational structure with a governing body and has by-laws or other similar indications of formality.
  • The functions and activities of the group or association are controlled by its employer members, and those that participate in the group health plan control the plan both in form and substance.

Commonality of Interest

  • Employer members are in the same trade, industry, line of business or profession; or
  • Each employer member has a principal place of business in the same region that does not exceed the boundaries of a single state or metro area (even if the metro area includes more than one state).

The group or association must not condition employer membership on any health factor of any individual who is or may become eligible to participate in the plan sponsored by the group/association, and the plan must comply with the nondiscrimination rules for eligibility of benefits. The group or association may not treat the employees of different employer members of the group or association as distinct groups of similarly-situated individuals based on a health factor of one or more individuals.

1Working owner means any person who a responsible plan fiduciary reasonably determines is an individual: i) who has an ownership right of any nature in a trade or business, whether incorporated or unincorporated, including a partner and other self-employed individual; ii) who is earning wages or self-employment income from the trade or business for providing personal services to the trade or business; and iii) who either: A) works on average at least 20 hours per week or at least 80 hours per month providing personal services to the working owner’s trade or business, or B) has wages or self-employment 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 plan sponsored by the group or association in which the individual is participating. The determination must be made when the working owner first becomes eligible for coverage under the plan and continued eligibility must be periodically confirmed pursuant to reasonable monitoring procedures. 2Health status; medical condition (including both physical and mental illnesses), as defined in § 2590.701–2; claims experience; receipt of healthcare; medical history; genetic information, as defined in § 2590.702–1(a)(3); evidence of insurability; or disability (29 C.F.R. § 2590.702) 3Prohibiting non-confinement and actively at work provision (29 C.F.R. § 2590.702(b))