Association Health Plan Regulations

Monday, March 25, 2024 16:54 Posted by Admin

DOL Issues Final Regulations on Association Health Plans   

Issue: Association Health Plan Regulations

Action Taken: On June 19th, 2018 the Department of Labor (DOL) issued, in final form, a regulation intended to facilitate the formation of Association Health Plans (AHPs).

Background: As the Department has stated, the purpose of the regulation is to facilitate the ability of small employers – including sole proprietors – to form or join an AHP to obtain health insurance coverage in the large group market.  The large group insurance market is not subject to the requirements and mandates imposed by the Affordable Care Act (ACA) and may be more affordable than coverage in the small group and individual market.  DOL anticipates that most AHPs will be large employer plans.  In the regulation, the DOL outlines the following rules and parameters by which an AHP may form:

  1. In addition to providing health insurance coverage for its members, the association must also have at least one “substantial business purpose.”  According to the DOL, a substantial business purpose is considered to exist if the association would be a viable entity without offering health coverage.  Business purposes may include functions that promote the common business interests of its members.
  2. Each employer member in the association must employ at least one person who is covered under the plan.  This covers sole proprietors and other self-employed individuals who are considered “working owners” under the regulation.
  3. The association must have a formal organizational structure with a governing body and by-laws, and the functions and activities of the association must be controlled by its members.
  4. Association members must have “commonality of interest,” which according to the DOL means that employer members must be: 1) in the same trade, industry, or profession, or 2) must have a principal place of business in the same region which does not exceed the boundaries of a single state or metropolitan area.
  5. The association will only make health insurance coverage available to association member employees, former employees of current employer members (if the former employee was eligible for enrollment in the group health plan), and spouses and dependent children.
  6. The association is precluded from conditioning its health coverage availability, premiums, and benefits on any health factor, including preexisting conditions or other health history of an employer member’s employees.
  7. The association may not be a health insurer or owned or controlled by a health insurer.
  8. The rule also prohibits insurers and their networks from establishing AHPs, but it does allow them to administer them for the AHP. Insurance agents and brokers would be allowed to sell insurance to an AHP, and/or to act as a third-party administrator to an AHP.

The rule does not preempt state regulation. AHPs would be subject to all state-level coverage rules that are imposed on health insurance plans.

The Administration has long touted AHPs as a solution for lowering health insurance costs for small businesses.   The Congressional Budget Office estimates that four million Americans will be covered by AHPs by 2023, including approximately 400,000 who are currently uninsured.  Moreover, DOL estimates that cost savings in annual premiums for small businesses will range from $1,900 to $4,100, and from $8,700 to $10,800 for individuals, depending on the generosity of AHP coverage offered.

Opponents of the rule remain concerned that growth in AHPs could lead to higher premiums for those in the small group and individual markets.  Opponents argue that AHPs could consist of employers with a mostly younger and healthier workforce, resulting in adverse selection and therefore higher premiums for older and less healthy workers in the small group and individual markets.  The rule’s economic impact analysis acknowledges the likelihood of some adverse selection, but it indicates that the benefits of less expensive insurance will likely outweigh the possible negative effects on the small group and individual markets.

The DOL regulation becomes effective in the following stages:  On September 1, 2018, all associations – new or existing – may establish a fully-insured AHP under the new rule.  On January 1, 2019, existing associations that sponsored an AHP may establish a self-funded AHP.

On April 1, 2019, all other associations – new or existing – may establish a self-funded AHP.

More Resources: 

Final AHP Regulation

DOL Fact Sheet on AHPs

NAIFA Staff Contact: Steve Kline, Director – Government Relations

Written by Todd Taylor

Todd Taylor

Todd Taylor oversees most of the marketing and client administration for the agency with help of an incredible team. Todd is a seasoned benefits insurance broker with over 35 years of industry experience. As the Founder and CEO of Taylor Benefits Insurance Agency, Inc., he provides strategic consultations and high-quality support to ensure his clients’ competitive position in the market.

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