The Department of Labor (DOL) recently announced changes to the expansion of Association Health Plans or Small Business Health Plans, releasing an official Notice of Proposed Rulemaking or NPRM. This announcement follows an executive order issued by President Donald Trump instructing regulators to discuss new options for small businesses to form groups for the sake of purchasing larger health insurance plans, thus allowing them to qualify as Association Health Plans (AHPs). In theory, joining together in expanded associations would allow small businesses and sole proprietors to provide expanded coverage, including essential health benefits, by allowing reduced costs through the economies of scale, larger AHPs would achieve. But it will all depend greatly on the fine print. The specific details regarding the amount of flexibility these newly expanded AHPs will be given to avoid state laws and regulations will be crucial. So, who would qualify for this and how would it be implemented? At this point, the minutiae is still under discussion and no actual regulatory changes will be going into effect until further guidance is issued. However, the NPRM does provide some key details of what is likely to go into effect.
First, the proposed expansion would modify the current definition of “employer” to qualify for a “commonality of interest.” To meet the current conditions, interested employers must first pass a narrow “commonality of interest” test to form an AHP. The rules to qualify are strict and very few groups are able to meet them.
Employers offering benefits through most existing association plans are currently subject to the small group or individual health insurance rules of that particular employer. The DOL is proposing to expand the definition of “commonality of interest” so that more employers would be able to form large group AHPs. The NPRM offers two new AHPs-- those who share common industries or those residing in the same metropolitan area. Sole proprietors and independent contractors who qualify would also be allowed to join an AHP, even without other employees.
Current rules require that an association across multiple businesses must already exist for other business purposes before it can sponsor a health plan for its members. The newly proposed rules would allow such an association to exist solely for the purpose of offering health coverage. However, those associations that are formed for this purpose would require employers to have a formal organizational structure, including a governing body and a set of bylaws.
Under the proposed rules, individual states will continue to regulate self-insured AHPs as Multiple Employer Welfare Arrangements (MEWAs). State insurance laws differ by state and the newly formed AHPs will need to abide by these applicable state insurance laws, including the state’s right to regulate self-insured MEWAs. These regulations in many states include specific financial and state reporting requirements for these plans, making it challenging for the self-insured.
From now until March 6th, the Department of Labor is discussing options regarding the fine print, including exceptions to the rules to help AHPs avoid state-mandated MEWA regulations. These modifications will be important for those AHPs looking to provide benefits through a self-insured plan.
Existing HIPAA and ACA health nondiscrimination rules would also still apply to AHPs. Membership to an AHP cannot be denied due to a pre-existing condition, and nondiscrimination rules regarding eligibility, special enrollments, premiums, and other factors would still apply. The rules would also prohibit these associations from treating the separate employers differently from one another, so individual employers will be limited in their abilities to customize employer-by-employer underwriting or rating.
If the proposed new rules are finalized, formal guidance will need to be issued to allow small businesses the time to explore these new options with their employees, form alliances and sift through the effects. These expansions may allow employers increased health insurance options for their employees, but much will vary state by state for those that qualify. The DOL review period continues through March 6th and they will be providing further guidance in the latter part of the year.
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