On April 29, 2024 the U.S. Department of Labor (DOL) released a final rule that rescinds regulations adopted in 2018 that would have expanded the formation and use of Association Health Plans (AHPs). DOL released its proposed rule in December 2023 and received 58 public comments. The agency is finalizing this rule largely as proposed, effective within 60 days of its publication in the federal register.
DOL notes that it is unaware of any AHPs that exist today in reliance on the 2018 regulations, limiting the impact of their rescission. The agency’s decision to rescind the full 2018 AHP rule is intended to resolve any lingering uncertainty over that rule and ensure that the agency’s guidance to the regulated community aligns with federal law. DOL is particularly concerned about fraudulent and mismanaged AHPs; the agency emphasizes the importance of limiting AHPs to “true employee benefit plans” that arise from a “genuine employment relationship” rather than an artificial structure created with the objective of escaping federal and state consumer protections.
Regulatory And Litigation Background
AHPs are generally formed to offer health insurance benefits to individuals and/or employers. Those that offer benefits to employer groups are considered multiple employer welfare arrangements (MEWA) under the Employee Retirement Income Security Act (ERISA). MEWAs can be either fully insured or self-funded. In either case, they are governed under both state and federal laws. MEWAs, particularly those that are self-funded, have a long history of insolvency and even fraud.
DOL is the federal agency charged by Congress with interpreting ERISA. The law provides that an association can only sponsor an employee health benefit plan when it is acting as an employer. Prior to 2018, DOL allowed an association of employers to sponsor a single “multiple employer” plan only if certain criteria are met. Once met, the group would be considered a “bona fide” single employer group and thereby gain exemptions from certain regulations that apply to the individual and small-group insurance markets.
If AHPs could not meet the criteria, federal regulators would disregard the existence of the association in determining whether the coverage was individual, small-group, or large-group market coverage. Referred to as the “look through” policy, that means that AHPs offering policies to small employers must comply with federal and state small-group market rules, including requirements to cover essential health benefits, meet rating and single risk pool standards, and participate in risk adjustment. Similarly, AHPs offering policies to individuals must comply with federal and state individual market rules.
In 2018, the Trump administration promulgated regulations in an attempt to expand the number of AHPs that would be considered single employer plans (and exempt from individual and small-group market rules). Specifically, the 2018 regulations loosened the criteria for an association to be considered an “employer” under ERISA and thus not subject to the look-through policy.
Those regulations were subsequently challenged by a coalition of states, led by New York, arguing that they were “arbitrary and capricious” and that DOL exceeded its statutory authority. In 2019, the U.S. District Court for the District of Columbia agreed with New York and their fellow plaintiffs, finding that much of the rule was based on an unreasonable interpretation of ERISA and inconsistent with congressional intent. The Trump Administration appealed that ruling, but the appellate court stayed action in the case while DOL reassessed its rulemaking.
Final Rule: A Return To Pre-2018 DOL Guidance
Prior to 2018, DOL’s approach to AHPs was largely articulated through a series of sub-regulatory advisory opinions issued over four decades. Collectively, these opinions outlined a set of three criteria designed to distinguish bona fide employer groups from arrangements that more closely resemble state-regulated private health insurance.
The three criteria were:
- Whether the group or association has a business or organizational purpose and functions unrelated to the provision of benefits (the “business purpose” standard);
- Whether the employers share a commonality of interest and genuine organizational relationship unrelated to the provision of benefits (the “commonality” standard); and
- Whether the employers participating in the benefit program exercise control over the program, both in form and in substance (the “control” standard).
Groups or associations that could meet the above three criteria would be considered a single group health plan, which in turn would determine whether they must comply with small-group market or large-group market rules under the Affordable Care Act.
Business Purpose Standard
The 2018 rule, had it stood, would have eliminated the requirement that the association or group exist for a purpose other than providing health benefits. Indeed, under the expanded 2018 criteria, an association could have had as its primary purpose the provision of health coverage. DOL received a number of public comments objecting to this provision of the 2018 rule, arguing that the provision makes AHPs functionally indistinguishable from health insurance issuers. They also argued that it would encourage unscrupulous promoters to establish AHPs, increasing the prevalence of fraudulent practices. No public comments explicitly defended the 2018 rule’s business purpose standard, although one commenter suggested revising rather than rescinding it.
Geographic Commonality Standard
The 2018 rule would have enabled associations to meet the commonality standard solely through the geographic proximity of its members, such as being located within the same state, without having any other common interests. DOL notes, however, that the 2018 rule never explained how geography alone, without any other common business nexus, could provide the commonality of interest among AHP members that ERISA requires. Most public comments supported rescinding the 2018 rule’s geography-based commonality standard, with several noting that the standard is so broad that employers with no common interests at all could participate in an AHP, making it indistinguishable from a commercial insurance arrangement. Other commenters noted that a state-based geography standard would make it more difficult for state regulators to oversee AHPs that operate across state lines and could result in more fraud and insolvencies.
“Working Owner” Standard
In addition, in what DOL calls a “particularly striking” departure from ERISA’s intent and structure, the 2018 rule would have allowed self-employed individuals (“working owners”) without any employees to participate in AHPs, suggesting that they could effectively be both an employer and an employee at the same time. However, an employer-employee relationship is central to ERISA’s statutory framework; DOL notes this is “the heart” of what makes an entity a bona fide group capable of sponsoring an AHP.
DOL received some public comments opposing the rescission of this provision, but DOL finds they offered “little reasoning as to why.” Most commenters supported rescinding the working owner provision, observing in concert with DOL that an AHP comprised of working owners is “clearly inconsistent” with ERISA.
Nondiscrimination Rules
The 2018 rule would have applied nondiscrimination standards under the Health Insurance Portability and Accountability Act (HIPAA) that prevent the use of claims experience to determine the premium rate for employer groups. However, associations would not have been subject to the essential health benefit, single risk pool, or risk adjustment requirements of the Affordable Care Act. They also could have used non-health rating factors, such as age and industry, to set premiums for each member-employer group. The Trump administration’s own analysis of its rule projected that allowing AHPs to escape these requirements would lead to risk selection, which in turn would prompt premium increases in the individual and small-group markets between 0.5 and 3.5 percent.
Other Options: Partial Rescission And Codifying Pre-2018 Guidance
DOL sought comment on whether to adopt a partial instead of full rescission of the 2018 rule. One commenter argued that the agency should rescind only those portions of the 2018 rule that the district court found invalid. However, many commenters argued that the entire 2018 rule should be rescinded, noting that it would be “nonsensical” if it were codified without the sections invalidated by the court. DOL ultimately agreed with other commenters who argued that only a full rescission would ensure a return to the pre-2018 status quo, which better aligns with judicial precedent, is supported by state regulatory infrastructure, and does not undermine the Affordable Care Act.
DOL also considered rescinding the 2018 AHP rule and codifying its pre-rule guidance on AHPs into regulations. The agency acknowledges that its advisory opinions do not have the same authority as regulations. However, many commenters argued that it was not necessary to codify the pre-2018 guidance because the current approach is adequate. Others suggested that DOL undertake future rulemaking to incorporate and expand on the principles in its pre-rule guidance, including rules to enhance oversight of MEWAs, establish mandatory benefit levels, and increase financial reporting. In this final rule, DOL decided not to codify its pre-2018 guidance, but public comments on the issue could inform future regulatory actions.
Authors Note
The Robert Wood Johnson Foundation provided grant support for the author’s time researching and writing this post.
Sabrina Corlette, “Final Rule Rescinds Trump-Era Association Health Plans,” Health Affairs Forefront, April 30, 2024, https://www.healthaffairs.org/content/forefront/final-rule-rescinds-trump-era-association-health-plans. Copyright © 2024 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.
