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Expansion of Health Insurance Coverage For Small Businesses and Self-Employed – New Rules for Association Health Plans

Jan.11.2018

What a difference one word can make. In fulfilling one of President Trump’s mandates in his Executive Order last October, the Department of Labor (DOL) released a proposed rule under the Employee Retirement Income Security Act (ERISA) expanding the definition of the word “employer” in order to more easily provide alternative health insurance for small businesses and individuals under Association Health Plans (AHPs). The DOL predicts that up to 11 million uninsured individuals who work for small businesses or are self-employed could benefit from the proposed reform. AHPs already exist in limited form under the Affordable Care Act but are subject to very restrictive rules regarding establishment and use. Accordingly, only a small number of employers and their employees have taken advantage of them.

In general, the proposed rule would allow businesses (large and small), sole proprietors and self-employed individuals to band together based on industry, profession or geographic area (including cross-state metro areas) to form AHPs which would be subject to the ACA’s less-onerous large group health plan rules rather than the small group health plan rules. Under the proposed rule, AHPs would be considered self-funded or insured single-plan multiple employer welfare arrangements (MEWAs). In certain circumstances, an AHP could be established on a national level.  The devil, as always, is in the details concerning implementation - particularly when states have certain regulatory authority over both insured and self-insured MEWAs.

Proponents of the proposed rule maintain that AHPs will provide more choice and less expensive coverage by virtue of increased bargaining power, economies of scale and greater flexibility in design. Critics, however, have expressed concern that AHPs will provide substandard coverage and further weaken the Exchanges by attracting younger, healthier workers.  

Some of the highlights of the proposed rule, which are open for public comment for a 60-day period ending on March 6th, are as follows:

  • Sole Purpose AHPs - Unlike current restrictions regarding AHPs, a business group may be established for the sole purpose of setting up an insured or self-funded AHP for its member employers and their employees. In the past, AHPs needed some other pre-existing bona fide purpose.
  • Different Businesses May Group Together - Business groups do not have to be comprised of employers who are in the same industry in order to band together to establish an AHP in the same geographic area where they have their principal place of business. Under current AHP regulations, such employers need to have something in common beyond the desire to provide health coverage.
  • Geographic and Cross-State Metro Areas – Different employers may form AHPs based on geography such as state, city, county or a multi-state metropolitan area like D.C., Kansas City, and NYC. The DOL is requesting greater public input about the merits of expanding AHPs across state lines.
  • Nationwide Coverage for Certain Businesses - Nationwide businesses in a particular industry or profession could form insured or self-funded AHPs across state lines.
  • Self-Employed Coverage - Sole proprietors and other self-employed individuals may join AHPs. Certain hour and income tests apply.
  • Formal Structure Required - Participating employers would be required to establish control of the AHP by setting up a formal governing body, bylaws and exercise continued control by election or appointment of directors, officers or other representatives.
  • State Involvement - The proposed rule would not modify states’ authority to regulate health insurance issuers or insurance policies sold to AHPs. This could be a major limitation on the effective implementation on AHPs. However, the proposal notes that self-funded MEWAs may be exempt in the future from state regulation. The DOL requests comments concerning its exemption authority regarding state regulation of self-funded MEWAs.  
  • Fewer Restrictions - AHPs would not have to provide the 10 essential health benefits as currently required by the ACA (e.g., prescription drugs, mental health services, maternity and newborn care etc.).
  • Health Status/Pre-Existing Conditions - Participating employers could provide different levels and types of benefits to their participating employees but an AHP could not restrict employer or individual eligibility or charge higher premiums based on a person’s health status or medical history.
  • Varied Pricing Permitted - AHPs could charge different prices based upon different employment classes (e.g., full-time and part-time), industry, age, and location, provided the differing prices are not based on health status or pre-existing conditions.
  • Risk-Rating Prohibited - AHPs may not use risk-rating for participating employers based upon health status of their individual employees. They also are prohibited from segregating participating employers into “distinct groups of similarly-situated individuals” in order to set varying rates.
  • VEBAs – The EBSA is seeking comments on use of federal funding vehicles like Voluntary Employee Benefit Arrangements (VEBAs) to provide AHP coverage.

The proposed rule creates a significant shift in health care coverage. We will closely monitor developments over the coming months as the DOL and other agencies work to provide further guidance regarding AHPs.

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For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

David McFarlane
Partner – Los Angeles
Phone: +1 213.443.5573
Email: dmcfarlane@crowell.com