In response to an Executive Order signed in October by President Trump, the Department of Labor (“DOL”) recently released proposed rules which - if finalized - would likely expand association health plans and create new health insurance coverage opportunities for employers and sole proprietors.
The proposed rules would allow a group of Iowa employers, including self-employed and sole proprietors, to purchase health insurance as a group through a formally organized association created in whole or in part for the purchase of insurance. The coverage could be purchased from an insurance carrier or self-insured.
What the rules means for trade associations, businesses, sole proprietors
It means a trade association can offer group health insurance to its employer members. It also means that a group of employers, including the self-employed, can create an association for the singular purpose of offering health insurance to its employer members in Iowa, regardless of the employer’s trade, business, or industry.
Under the current rules, a small business with five employees seeking to purchase insurance through an association health plan that covers 500 total employees would be offered a small group policy and rates based on its five employees. The policy would be:
- subject to the age rating limitations,
- required to offer essential health benefits, and
- at least a bronze level plan.
Under the proposed rules, an association health plan would offer the small business a large group plan purchased from an insurer or a self-funded plan. The small business would receive the same rates as other employers in the plan and these rates would be based on the entire pool of 500 employees. The plan would not have to cover essential health benefits and could offer plan options that provided for less coverage than a bronze level plan.
Proposed rule requirements
Association health plans (AHPs), sometimes referred to as small business health plans, are currently allowed. However, because most AHPs do not meet the DOL’s current “commonality of interest” requirements, employers within AHPs are individually rated and the insurance coverage must meet the same requirements as the insurance coverage personally purchased outside of the AHP. This often makes AHP coverage less attractive since the same rules and requirements apply within and outside the AHP.
Provided the AHP meets the following requirements, the proposed rules would consider an AHP as a single employer plan - the plan would be rated based on the number of employees in the entire group. The association:
- Exists for the purpose (in whole or in part) of sponsoring a group health plan that it offers to its employer members
- Has a formal organizational structure, with a governing body, bylaws, and other legal formalities, that is controlled through its employer members
- Complies with non-discrimination requirements that prevent it from declining coverage to an employer member based on the health status of the employer’s employees or rating the employer based on its health claims
- Is not itself a health insurance issuer
- Has a commonality of interest - members belong to the same trade, profession, or industry OR they have their principal place of business in the same region that does not extend beyond the same state, unless in the same metropolitan area, for example, Kansas City, MO/KS
In addition, employer members must:
- Be an employer of at least one employee who is a participant in the plan, but which can be a “working owner”
- Offer coverage only to employees, former employees, and their beneficiaries
Self-employed individuals are eligible for membership under the proposed rules, including unincorporated sole proprietorships, as long as the individual does not have subsidized group health plan coverage available to him/her through an employer or a spouse’s employer.
- Works 30 or more hours per week or 120 or more hours per month in their trade or business, or
- Earned income in the trade/business exceeds the cost of the insurance for them, including the cost for any beneficiaries
While the proposed rules present potential opportunities for employers, including small businesses and sole proprietors, these opportunities are not without challenges. AHPs are multiple employer welfare arrangements (“MEWAs”), which are restricted or prohibited in many states.
For example, Iowa considers self-funded MEWAs unauthorized insurers unless they meet specific requirements, including having been in existence and providing health insurance in Iowa since July 1, 1992. Unless this law is changed, new self-funded AHPs or self-funded AHPs established out of state wanting to enter Iowa for the first time, would not currently be allowed.
Premium savings in AHPs may be uncertain due to an unstable pool, fluctuation in membership, or adverse selection. In addition, in the past MEWAs have been susceptible to potential fraud and mismanagement resulting in insolvency and bankruptcies. It is also possible the proposed rules could further damage the individual and small group markets, limiting available coverage and increasing the costs.
If the proposed rules are finalized, businesses and individuals are likely to see a myriad of new options in the marketplace targeted to specific industries or offered to employers within the same state or region. Whether these plans will result in lower premiums likely depends upon the coverage offered and the size, stability, and health of the group.
The proposed rules are under public commenting stage until March 6, 2018.
Associations, businesses, and others seeking to establish an AHP should consult with legal counsel experienced in advising MEWAs to assist the AHP in determining the organizational structure; navigating the wide array of state and federal regulations which will be applicable to the AHP and its association sponsor, as well as drafting governing documents, plan documents, and participating employer agreements.
This blog is for educational purposes only, as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By using this blog, you understand that there is no attorney-client relationship between you and the blog. The blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.