On June 19, 2018, the Department of Labor issued its final rules governing Association Health Plans (AHP).  The rules were issued in accordance with an Executive Order entitled “Promoting Healthcare Choice and Competition Across the United States” that directed the Secretary of Labor to consider proposing regulations to expand access to affordable health coverage by allowing more employers to form AHPs.  The rules do this by expanding the definition of “employer” eligible to sponsor an employee welfare benefit plans or group health plan under section 3(5) of ERISA by creating a more flexible “community of interest” test.  The rules are intended to help small employers and self-employed individuals reduce the costs of health insurance by exempting AHPs from some of the Affordable Care Act’s regulatory requirements applicable to small businesses and individuals.

            In short, the final rules allow employers to band together to form associations for the express purpose of offering health coverage if they either are (1) 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. 

            Although the primary purpose of an association may be to provide health coverage, it must have at least one substantial business purpose unrelated to providing health benefits to be eligible to form an AHP.  This business purpose may include promoting the common business interests of its members.  Each employer member of the association must have at least one employee who is a participant under the plan, but in this regard a sole proprietor can be considered both an employer and an employee.  In addition, the association must have a formal organizational structure with a governing body and by-laws or other similar governing document; the employer members of the association must control it in form and in substance; and the association must have a “commonality of interest” based either on geography or industry.  Lastly, the association may not make health insurance available to individuals other than employees, former employees, or their dependents or be a “health insurance issuer” as defined by ERISA.  The purpose of these requirements is to ensure that groups or associations do not act as unlicensed health insurers.

            AHPs will not be required to provide the Essential Health Benefits required under the ACA (such as mental health, maternity, and emergency services), but they are not prohibited from doing so.  AHPs will also not be required to follow the ACA’s federal pricing rules (the modified community rating rules), meaning that they will be allowed to set lower premiums for lower risk groups and higher premiums for higher risk groups. The rationale behind lifting these requirements is to allow AHPs more flexibility to design benefits for their members and to lower their costs.  AHPs will, however, be subject to non-discrimination requirements, including a prohibition on conditioning employer membership in the association based on health factors such as pre-existing conditions or from charging higher premiums based on health factors.  Any AHP that offers dependent coverage will also be required to cover dependent children up to age 26.