Many small businesses and self-employed individuals struggle to afford health insurance for themselves and their employees.
With record-low unemployment and an increase in open positions, along with reports that over 50 percent of employees are actively looking for a new job, benefits are a real inducement for new talent. In this environment, it’s essential for small to midsize employers to be able to offer a competitive benefits package.
Larger companies with more resources have access to benefits flexibility, bigger benefits packages, as well as the power to negotiate with providers for better rates. For years, certain small employer groups have been able to band together to offer benefits under association health plans (AHPs), but these had limitations. However, recent activity on the federal level has expanded the definition of an AHP as a potential solution to the affordability dilemma and allow smaller businesses to offer more attractive health benefits.
In October 2017, President Trump issued an executive order directing the Department of Labor (DOL) to expand access to association health plans. On January 5, DOL issued proposed regulations identifying new potential requirements for AHPs and opening a public comment period.
The feedback was very divided. Some saw a great opportunity for smaller employers to lower their healthcare costs as a result of more relaxed AHP guidance. However, other respondents anticipated greater risk in allowing associations to be formed for the purposes of providing benefits (based on issues that had previously arisen in similar groups decades before).
On June 19, the Department of Labor released a final rule. This final rule is similar to the proposed regulations in many ways, but it does contain some differences. Ultimately, it was designed to relax the association rules from those that exist today.
The key changes this final rule makes to the existing rule are:
- Defining two “commonality of interest” tests that employers could pass allowing them to create an association. These two tests are:
- Within the same industry or trade, or
- Within the same general geographic area. Examples are within a single state, or in a metropolitan area, even if it spans more than one state.
- The new rules require that an association have at least one alternative substantial business purpose other than offering healthcare coverage. These purposes can be very limited in scope.
- Each employer member of the association health plan must have at least one covered employee – and the employee can be an employed owner.
- The association health plan must have a formal organization structure and bylaws.
- Association health plans cannot discriminate based on the health conditions of the employees and cannot treat employers’ members as distinct groups. These plans cannot vary employer member premiums based on health conditions (although age and gender are not considered health factors for this purpose).
- State insurance laws and regulations still apply to association health plans. This is an important note because many of those who proposed regulations, encouraged the final rule to allow AHPs to claim an ERISA preemption to state insurance law, a comment that was not incorporated into the final rules.
The association health plan final rule goes into effect in a staggered rollout. Effective dates are as follows:
- September 1, 2018, for fully-insured AHPs
- January 1, 2019, for existing self-insured AHPs
- April 1, 2019, for new self-insured AHPs
Want to know more about AHPs? Check out our latest webinar below.