Considerations for Association Health Plans
Association Health Plans- Final Regulations from the Department of Labor-July 22, 2018
Background: On June 19, 2018 The Department of Labor (DOL) released the final rule for Association Health Plans (AHPs) as directed by the October 12, 2017 Executive Order. The rule will be effective 60 days after publication in the Federal Record.
Timeline by segment:
-September 1, 2018, is the applicability date new for fully insured AHPs
-January 1, 2019 is the applicability date for existing self-insured AHPs (Note: “The new rule does not affect previously existing AHPs, which were allowed under prior guidance. Such plans can continue to operate as before, or elect to follow the new requirements if they want to expand within a geographic area, regardless of industry, or to cover the self-employed. New plans can also form and elect to follow either the old guidance or the new rules.” DOL Press release June 19, 2018)
-April 1, 2019 is the applicability date for new self-insured AHPs
The intent is to permit small employers and working owners to have access to the same benefit parameters as large employers thus using economies of scale to diversify risk and reduce costs. These new rules are subject to many of the Affordable Care Act (ACA) requirements including a ban on lifetime limits and adherence to existing pre-existing condition coverage regulations. The ten essential benefits required under ACA are not required under new AHPs and AHPs are subject to state regulations and benefit mandates. AHPs are limited to employer relationships including working owners defined as working at least 20 hours per week or 80 hours per month.
Other Key Points of Information
Commonality of Interest
“Under the Proposed Rule, commonality could be established by employers that (1) are in the same trade, industry, line of business, or profession; or (2) have a principal place of business within 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). The final rule adopts the commonality of interest test from the Proposed Rule without substantive change.” Page 41, Final Rule
Purpose of the Association
The draft proposed rule indicated that a group or association could act as an employer if the group or association existed for the purpose of sponsoring a health plan. Commenters suggested that this change from previous guidance was open to abuse.
“Accordingly, the Department is modifying this provision in the final rule to establish a general legal standard that requires that a group or association of employers have at least one 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.” Page 24, Final Rule
“…the AHP is subject to all ERISA provisions applicable to group health plans and employee welfare benefit plans, including Title I of ERISA.” Page 84, Final Rule
“The Department agrees that the final rule does not modify or otherwise limit existing State authority as established under section 514 of ERISA.” Page 92, Final Rule
Joint Employer Status Under Federal Law
“Therefore, nothing in the final rule is intended to indicate that participating in an AHP sponsored by a bona fide group or association of employers gives rise to
joint employer status under any federal or State law, rule, or regulation.” Page 91, Final Rule
Employer members must have control, in form and substance, over the functions and activities of the association/group. Organizations will need a governing body, bylaws and have control over the plan design.
“Thus, as ERISA-covered plans and MEWAs, AHPs will be subject to comprehensive disclosure requirements.” Page 101,Final Rule
“Thus, the final rule does not include any special disclosure requirements on bona
fide groups or associations of employers that sponsor AHPs or on AHPs established pursuant to the final rule.” Page 101, Final Rule
(Note: AHPs subject to all applicable ERISA reporting and disclosure requirements).
Essential Benefits under ACA and Community Rating
“AHPs formed under this rule will not be subject to federal mandates (e.g., the ACA’s ten categories of EHBs) and federal pricing rules (e.g., modified community rating rules) that apply exclusively to the individual and small group insurance markets” Page 104, Final Rule
Other elements of ACA remain such as no pre-existing condition exclusions, no lifetime/annual maximums for EHBs, and coverage for adult children to age 26. AHPs can’t refuse coverage due to health factors but premium-rating differences for bona-fide employment based classifications are permitted (location, occupation, part-time vs. full-time, etc.).
Intention to allow more employer based options:
“The final rule generally does this in four important ways. First, it relaxes the requirement that group or association members share a common interest, as long as they operate in a common geographic area, in order for the group or association to qualify as bona fide. Second, it confirms that groups or associations whose members operate in the same trade, industry, line of business or profession can sponsor AHPs under the final rule, regardless of geographic distribution.
Third, it clarifies the existing requirement that bona fide groups or associations sponsoring AHPs must have at least one substantial business purpose unrelated to the provision of benefits. Fourth, it permits AHPs that meet the final rule’s new requirements to enroll working owners without employees.” Page 109, Final Rule
➢ Carrier outreach: What is the Association’s/AHPs value proposition?
➢ Cross-reference Final Rule eligibility with existing membership categories to quantify the specific opportunity.
➢ When quantifying membership opportunity, cross-reference it with favorable vs. unfavorable states.
➢ How will the AHP have access to members? Digital such as email preferred, as direct mail is expensive with MLR issues.
➢ Are there any planned or existing member firm surveys indicating member interest?
➢ Understand the organizations risk management protocols with particular emphasize on the agent/distribution model.
➢ Discuss program design possibilities. Greater cost savings may result in higher member dissatisfaction
➢ What is the growth and sales strategy?
➢ What are the potential required investments that the organization can and will be able to make?
➢ Possible outsourcing functions:
1. Benefits administration and enrollment
2. Marketing and sales
3. Pricing and underwriting
4. Member communication and advocacy
5. Compliance and risk management
➢ Are there opportunities to promote other programs to the membership that fill gaps but don’t compete with existing programs? (Dental, vision, Rx, health and wellness etc.)
➢ Can the new HRA rules be incorporated into the offerings?
➢ Is there an opportunity to provide payroll and HR solutions to the small firms?
Next Steps: Affinity programs should assess their own current and prospective member base to ascertain if offering AHPs under the commonality of interest rules make sense. In the months, ahead, insurance carriers will determine the viability of these new offerings and potentially launch new fully insured AHPS. The viability of offering new self-funded AHPs can be assessed between now and the applicability date.
Note: Nothing in this document should be construed as legal or tax advice. Please consult your respective advisors. This summary is current as of July 22, 2018 and will be updated, as new information is available.
For questions please contact Dave Armstrong, DArmstrong@SassAdvisors.com