Update on DOL’s Association Health Plans Final Rule

On April 26, 2019, the Department of Justice (DOJ) filed an appeal in the court case that recently invalidated portions of the U.S. Department of Labor’s June 2018 association health plan (AHP) final rule. The DOL’s final rule broadened the definition of “employer” under the Employee Retirement Income Security Act (ERISA) to allow an additional way for employers or associations to sponsor a single ERISA-covered group health plan.

On April 29, 2019, the U.S. Department of Labor (DOL) issued a statement regarding its enforcement policy regarding the final rule. In light of the court’s decision, the DOL will not take enforcement action against:

  • employers and associations for potential violations stemming from actions taken before the court’s decision:
  • if the employer or association relied in good faith on the AHP final rule’s validity and
  • as long as the employers (and association) meet their responsibilities to association members and their participants and beneficiaries to pay health benefit claims as promised;
  • existing AHPs for continuing to provide benefits – to members who enrolled in good faith reliance on the AHP rule’s validity before the court’s order – through the remainder of the plan year or contract term that was in force at the time of the court’s decision.

This means that DOL will not enforce potential violations that may have occurred before March 28, 2019. However, DOL will enforce violations that occur on or after March 28, 2019. Because the DOL has not asked for a stay of the court order, associations cannot form self-funded AHPs under the final rule and existing AHPs must not market to new employer members or sole proprietors.

Employers and their employees who are currently participating in an insured AHP under the final rule can generally maintain their coverage through the later of the end of the plan year or contract term. However, at the end of the plan year, the issuer will only be able to renew coverage for an employer if the coverage complies with the relevant market requirements for that employer’s size, rather than the association’s size.

For example, if a small employer and a sole proprietor joined an insured AHP under the final rule, then at renewal, an insurer can only sell coverage that complies with the small group market rules to the small employer and that complies with the individual market rules to the sole proprietor.

On May 13, 2019, the DOL issued its Questions and Answers – Part Two that reiterates much of the information from its April 29, 2019 statement. However, the DOL clarifies two points.

First, although new AHPs formed under the DOL’s final rule cannot market to and sign up new employer members, existing AHPs can continue to enroll new employees upon HIPAA special enrollment events (for example, upon marriage, birth, adoption, placement for adoption, or loss of eligibility for other coverage) and consistent with the plan’s eligibility terms (for example, enrolling new hires) while DOL’s enforcement relief remains in effect.

Second, although AHPs are not required to obtain an advisory opinion from the DOL, AHPs with questions about whether they meet DOL’s pre-rule guidance for sponsoring an AHP can either request an official advisory opinion from the DOL or have an informal discussion with DOL’s employee benefits law specialists by contacting the DOL at:

Office of Regulations and Interpretations
Employee Benefits Security Administration
U.S. Department of Labor
200 Constitution Avenue, NW
Room N-5655
Washington, DC 20210
1-866-444-3272

In the upcoming months, the U.S. Court of Appeals for the District of Columbia Circuit will consider the legal arguments in this case. Employers in AHPs should keep apprised of future developments in this case.

Summary of Final Rule and Post-Rule Litigation

On June 19, 2018, the DOL published Frequently Asked Questions About Association Health Plans (AHPs) and issued a final rule that broadened the definition of “employer” and the provisions under which an employer group or association may be treated as an “employer” sponsor of a single multiple-employer employee welfare benefit plan and group health plan under Title I of the Employee Retirement Income Security Act (ERISA).

The final rule was intended to facilitate adoption and administration of AHPs and expand health coverage access to employees of small employers and certain self-employed individuals. Generally, it did this in four main ways:

  • It relaxed the requirement that group or association members share a common interest, as long as they operate in a common geographic area.
  • It confirmed that groups or associations whose members operate in the same trade, industry, line of business, or profession can sponsor AHPs, regardless of geographic distribution.
  • It clarified the existing requirement that groups or associations sponsoring AHPs must have at least one substantial business purpose unrelated to providing health coverage or other employee benefits.
  • It permitted AHPs that meet the final rule’s new requirements to enroll working owners who do not have employees.

The final rule was effective on August 20, 2018, and applied to fully-insured AHPs on September 1, 2018, to existing self-insured AHPs on January 1, 2019, and to new self-insured AHPs formed under this final rule on April 1, 2019.

The DOL used a staggered approach to implement this final rule so states and state insurance regulators would have time to tailor their regulations to the final rule and address a range of oversight and compliance assistance issues, especially concerns about self-insured AHPs’ vulnerability to financial mismanagement and abuse.

On March 28, 2019, the U.S. District Court for the District of Columbia (Court) found that the DOL’s final rule exceeded the statutory authority delegated by Congress under ERISA and that the final rule unlawfully expands ERISA’s scope. In particular, the Court found the final rule’s provisions – defining “employer” to include associations of disparate employers and expanding membership in these associations to include working owners without employees – are unlawful and must be set aside.

The Court’s order vacated the specific provisions of the DOL’s final rule regarding “bona fide group or association of employers,” “commonality of interest,” and “dual treatment of working owners as employers and employees.” The Court sent the final rule back to the DOL to consider how the final rule’s severability provision affects the final rule’s remaining portions.

The Court’s order does not affect employers who formed AHPs under the DOL’s previous guidance regarding the definition of “employer.” Both existing and new employer groups or associations that meet the DOL’s pre-rule guidance can continue to sponsor an AHP.

This order stops employers from sponsoring new self-insured AHPs under the final rule beginning on April 1.

Shortly after the Court’s decision, the DOL issued Questions and Answers. On April 26, 2019, the DOJ filed a notice of appeal in a court case. On April 29, 2019, the DOL issued its statement regarding its enforcement policy regarding the final rule, in light of the court’s decision.

For an employer that relies on the final rule’s expanded definition of “employer” to currently sponsor a fully-insured AHP or existing self-insured AHP, the employer should consult with its attorney as soon as possible. Based on the court order, associations cannot form self-funded AHPs under the final rule and existing AHPs must not market to new employer members or sole proprietors.

Background

Title I of ERISA covers most private sector employee benefit plans, which are voluntarily established by an employer, an employee organization, or jointly by one or more such employers. Title I applies to “employee welfare benefit plans” which requires there to be a plan (or fund or program), established or maintained by an employer, for the purpose of providing specific benefits to participants and beneficiaries. ERISA provides for a specific list of benefits, which includes medical, surgical, or hospital care or benefits.

Prior to this final rule, ERISA defined an “employer” as “any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.” To determine employer groups or associations that can act as an ERISA employer and sponsor a multiple employer plan, courts and the DOL analyze three sets of issues:

  • Whether the group or association is a bona fide organization with business/organizational purposes and functions unrelated to the provision of benefits;
  • Whether the employers share some commonality and genuine organizational relationship unrelated to the provision of benefits; and
  • Whether the employers that participate in a benefit program, either directly or indirectly, exercise control over the program both in form and substance.

Prior to this final rule, the “commonality of interest” was determined by whether or not the group or association has a sufficiently close economic or representational nexus to the employers and employees that participate in the plan. Prior to this final rule, even when an association health plan could form, it met obstacles. The Centers for Medicare and Medicaid Services’ (CMS) 2011 guidance provided a test for determining whether association coverage was subject to individual, small group, or large group market coverage under the Public Health Service Act. CMS ignored the backing of the association and assigned a group size to each individual employer or member within the association. This led to disparate requirements within the same plan as it related to community rating, medical loss ratio (MLR) provisions, single risk pool requirements, essential health benefit requirements, risk adjustment programs, and more. This final rule seeks to alleviate that disparity within the plan.

Requirements Under the Final Rule (Before the Court Decision)

To be clear, the final rule does not replace the DOL’s previous guidance regarding the definition of “employer.” Both existing and new employer groups or associations that meet the DOL’s pre-rule guidance can sponsor an AHP.

Instead, the final rule provides an additional way for employers or associations to meet the definition of an “employer” and sponsor a single ERISA-covered group health plan. The DOL explains that the expanded definition of “employer” will promote broader availability of group health coverage for small business owners and self-employed individuals, and will help alleviate the problems of limited or non-existent affordable healthcare options for these small businesses and self-employed individuals.

Under the final rule, commonality of interest will be determined based on relevant facts and circumstances and may be established by:

  1. Employers being in the same trade, industry, line of business, or profession; or
  2. Employers having 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).

For a geography-based AHP, the group or association can be a participating employer by having its principal place of business within the relevant state or metropolitan area. For an industry-based AHP, the group or association itself will be treated as being in the same trade or industry as the other employer members of the group or association.

While a group or association of employers will be permitted to join together solely for the purpose of providing health benefits, it must have at least one substantial business purpose unrelated to offering and providing health coverage or other employee benefits to its employer members and their employees. Under the final rule’s safe harbor, a substantial business purpose is considered to exist in cases where the group or association would be a viable entity, even in the absence of sponsoring an employee benefit plan.

Further, the group or association must have an organizational structure with a governing body and by-laws (or similar formal documentation). The employer members of the group or association that participate in the group health plan must control the plan, including its functions or activities, such as establishment and maintenance of the group health plan. Control must be present both in form and in substance.

The DOL will use a facts and circumstances test to determine whether the requisite control exists. An AHP will meet the DOL’s control test if:

  • Employer members regularly nominate and elect directors, officers, trustees, or other similar people that constitute the governing body or authority of the employer group or association and plan;
  • Employer members have authority to remove any such director, officer, trustees, or other similar person with or without cause; and
  • Employer members that participate in the plan have the authority and opportunity to approve or veto decisions or activities which relate to the formation, design, amendment, and termination of the plan, for example, material amendments to the plan, including changes in coverage, benefits, and premiums.

These provisions are intended to prevent commercial enterprises from calling themselves associations and offering AHPs solely for profit. Further, to avoid potential conflicts of interest, the final rule prohibits health insurance issuers, in their capacity as issuers, from participating in or controlling an AHP. However, an issuer can provide administrative services to an AHP. Similarly, the final rule explains that a group, association, or plan that is controlled by a network provider, a healthcare organization, or some other business entity that is part of the U.S. healthcare delivery system would not be a bona fide group, association, or AHP.

The final rule defines the groups of people (“eligible participants”) who can participate in a group health plan sponsored by the AHP:

  • Employees of a current employer member of the group or association,
  • Former employees of a current employer member of the group or association who became entitled to coverage under the group’s or association’s group health plan when the former employee was an employee of the employer, and
  • Beneficiaries of these individuals (for example, spouses and dependent children).

Under the final rule, working owners without common law employees may qualify as both an employer and as an employee for purposes of participating in an AHP. The final rule defines “working owner” as an individual who either works on average 20 hours per week or 80 hours per month providing services to the trade or business, or who has earned income from such trade or business that at least equals the working owner’s cost of coverage for the working owner and any covered beneficiary in the group health plan. Plan fiduciaries have a duty to reasonably determine that these conditions are satisfied and to monitor continued eligibility for coverage under the AHP.

The final rules subject AHPs to the nondiscrimination provisions that apply to group health plans under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the Patient Protection and Affordable Care Act (ACA). HIPAA prohibits group health plans and health insurers from discriminating based on health factors with regard to premiums, eligibility, or benefits. Under HIPAA, health factors are:

  • Health status
  • Medical condition (physical and mental)
  • Claims experience
  • Receipt of health care
  • Medical history
  • Genetic information
  • Evidence of insurability
  • Disability

This means that AHPs cannot exclude individuals who participate in dangerous activities or have a history of high health claims, or hinge eligibility of enrollees on evidence of insurability or “passing” a physical exam. AHPs cannot charge individuals different premiums based on the existence or absence of health factors. Health factors may not affect eligibility rules, which include rules relating to enrollment, effective dates, waiting periods, late/special enrollment, benefits (covered benefits, benefit restrictions, coinsurance, co-pays, and deductibles), continued eligibility, and terminating coverage.

HIPAA allows group health plans to impose restrictions in benefit plans if they apply to all similarly situated individuals. Plans can, in conformance with other laws, provide different benefits for different groups of similarly situated employees if the differences are based on a bona fide employment-related classification that is consistent with the employer’s usual business practice. Bona fide employment classifications might be part-time and full-time employees, employees working in different geographic locations, and employees with different dates of hire, lengths of service, or occupations, provided the distinction is consistent with the employer’s usual business practice.

The final rule clearly states that AHPs must not treat the employees of an employer member as a distinct group of similarly-situated individuals based on the employees’ health factors. The final rule provides 10 examples on this issue.

Example 1

Facts. Association A offers group health coverage to all members. According to the bylaws of Association A, membership is subject to the following criteria: all members must be restaurants located in a specified area. Restaurant B, which is located within the specified area, has several employees with large health claims. Restaurant B applies for membership in Association A and is denied membership based on the claims experience of its employees.

Conclusion. In this Example 1, Association A’s exclusion of Restaurant B from Association A discriminates on the basis of claims history, which is a health factor under § 2590.702(a)(1) of this chapter. Accordingly, Association A does not satisfy the requirement in paragraph (d)(1) of this section, and, therefore would not meet the definition of a bona fide group or association of employers under paragraph (b) of this section.

Example 2

Facts. Association C offers group health coverage to all members. According to the bylaws of Association C, membership is subject to the following criteria: all members must have a principal place of business in a specified metropolitan area. Individual D is a sole proprietor whose principal place of business is within the specified area. As part of the membership application process, Individual D provides certain health information to Association C. After learning that Individual D has diabetes, based on D’s diabetes, Association C denies Individual D’s membership application.

Conclusion. In this Example 2, Association C’s exclusion of Individual D because D has diabetes is a decision that discriminates on the basis of a medical condition, which is a health factor under § 2590.702(a)(1) of this chapter. Accordingly, Association C does not satisfy the requirement in paragraph (d)(1) of this section and would not meet the definition of a bona fide group or association of employers under paragraph (b) of this section.

Example 3

Facts. Association F offers group health coverage to all plumbers working for plumbing companies in a State, if the plumbing company employer chooses to join the association. Plumbers employed by a plumbing company on a full-time basis (which is defined under the terms of the arrangement as regularly working at least 30 hours a week) are eligible for health coverage without a waiting period. Plumbers employed by a plumbing company on a part-time basis (which is defined under the terms of the arrangement as regularly working at least 10 hours per week, but less than 30 hours per week) are eligible for health coverage after a 60-day waiting period.

Conclusion. In this Example 3, making a distinction between part-time versus full-time employment status is a permitted distinction between similarly-situated individuals under § 2590.702(d) of this chapter, provided the distinction is not directed at individuals under § 2590.702(d)(3) of this chapter. Accordingly, the requirement that plumbers working part time must satisfy a waiting period for coverage is a rule for eligibility that does not violate § 2590.702(b) and, as a consequence, satisfies paragraph (d)(2) of this section.

Example 4

Facts. Association G sponsors a group health plan, available to all employers doing business in Town H. Association G charges Business I more for premiums than it charges other members because Business I employs several individuals with chronic illnesses.

Conclusion. In this Example 4, the employees of Business I cannot be treated as a separate group of similarly-situated individuals from other members based on a health factor of one or more individuals under paragraph (d)(4) of this section. Therefore, charging Business I more for premiums based on one or more health factors of the employees of Business I does not satisfy the requirements in paragraph (d)(4) of this section.

Example 5

Facts. Association J sponsors a group health plan that is available to all members. According to the bylaws of Association J, membership is open to any entity whose principal place of business is in State K, which has only one major metropolitan area, the capital city of State K. Members whose principal place of business is in the capital city of State K are charged more for premiums than members whose principal place of business is outside of the capital city.

Conclusion. In this Example 5, making a distinction between members whose principal place of business is in the capital city of State K, as compared to some other area in State K, is a permitted distinction between similarly-situated individuals under § 2590.702(d) of this chapter, provided the distinction is not directed at individuals under § 2590.702(d)(3) of this chapter. Accordingly, Association J’s rule for charging different premiums based on principal place of business satisfies paragraph (d)(3) and (d)(4) of this section.

Example 6

Facts. Association L sponsors a group health plan, available to all its members. According to the bylaws of Association L, membership is open to any entity whose principal place of business is in State M. Sole Proprietor N’s principal place of business is in City O, within State M. It is the only member whose principal place of business is in City O, and it is otherwise similarly situated with respect to all other members of the association. After learning that Sole Proprietor N has been diagnosed with cancer, based on the cancer diagnosis, Association L changes its premium structure to charge higher premiums for members whose principal place of business is in City O.

Conclusion. In this Example 6, cancer is a health factor under § 2590.702(a) of this chapter. Making a distinction between groups of otherwise similarly situated individuals that on its face is based on geography (which is not a health factor), but that is directed at one or more individuals based on a health factor (cancer), is in this case a distinction directed at an individual under § 2590.702(d)(3) of this chapter and is not a permitted distinction. Accordingly, by charging higher premiums to members whose principal place of business is City O, Association L violates § 2590.702(c) of this chapter and, consequently, the conditions of paragraphs (d)(3) and (d)(4) of this section are not satisfied.

Example 7

Facts. Association P is an agriculture industry association. It sponsors a group health plan that charges employers different premiums based on their primary agriculture subsector, defined under the terms of the plan as: crop farming, livestock, fishing and aquaculture, and forestry. The distinction is not directed at individual participants or beneficiaries based on a health factor.

Conclusion. In this Example 7, the premium distinction between members is permitted under paragraphs (d)(3) and (d)(4) because it is not based on a health factor and is not directed at individual participants and beneficiaries based on a health factor.

Example 8

Facts. Association Q is a retail industry association. It sponsors a group health plan that charges employees of employers different premiums based on their occupation: cashier, stockers, and sales associates. The distinction is not directed at individual participants or beneficiaries based on a health factor.

Conclusion. In this Example 8, the premium distinction is permitted under paragraph (d)(3) and (d)(4) of this section because it is not based on a health factor and is not directed at individual participants and beneficiaries based on a health factor.

Example 9

Facts. Association R sponsors a group health plan that is available to all employers with a principal place of business in State S. Employers are charged different premiums based on their industry subsector, defined under the terms of the plan as: construction, education, health, financial services, information services, leisure and hospitality, manufacturing, transportation, natural resources, and other. In addition, within any employer, employees are charged different premiums based on part-time versus full-time status (part time status is defined, under the terms of the plan, as regularly working at least 40 hours, but less than 120 hours, per month). These distinctions are not directed at individual participants or beneficiaries based on a health factor.

Conclusion. In this Example 9, the premium distinctions between employer members of a State AHP based on industry, and between employees of employer members who are working part-time versus full-time, are permitted under paragraphs (d)(3) and (d)(4) of this section because these distinctions are not based on a health factor or directed at individual participants and beneficiaries based on a health factor.

Example 10

Facts. Association T sponsors a group health plan that offers a premium discount to participants who participate in a wellness program that complies with section 2590.702(f) of this chapter.

Conclusion. In this Example 10, providing a reward (such as a premium discount or rebate, a waiver of all or part of a cost-sharing mechanism, an additional benefit, or any financial or other incentive, as well as avoiding a penalty such as the absence of a premium surcharge or other financial or nonfinancial disincentive) in return for adherence to a wellness program that satisfies conditions of § 2590.702(f) of this chapter is permissible under this paragraph (d).

Application of Other Federal Laws

The final rule addresses public comments on whether and how certain federal laws may apply to AHPs.

  • For those AHPs that choose to offer coverage to applicable large employers subject to the ACA’s employer shared responsibility provisions, the large employers face the possibility of having to make an employer shared responsibility penalty payment if the AHP does not provide affordable, minimum value coverage.
  • An AHP sponsored by a bona fide group or association is subject to all ERISA provisions applicable to group health plans and employee welfare benefit plans, including Title I of ERISA.
  • AHPs must provide coverage for certain recommended preventive services without imposing cost-sharing.
  • AHPs are subject to Title VII of the Civil Rights Act, as amended by the Pregnancy Discrimination Act, and must generally reimburse pregnancy-related expenses for employees and their spouses in the same manner as expenses incurred for other medical conditions.
  • To determine whether an AHP is subject to the mental health and substance use disorder parity requirements under the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA), the AHP would calculate its size based on the number of employees employed in the aggregate by the employer members of the bona fide group or association. Generally, if an AHP members’ employees total over 50 in the aggregate during the preceding calendar year, then the MHPAEA applies.
  • If an AHP covers a benefit that would be considered an essential health benefit (EHB), all such benefits must be covered without any annual or lifetime dollar limit. Further, the AHP must count an individual’s out-of-pocket spending for in-network provision of that benefit toward the maximum out of pocket limit (MOOP). Any EHBs in excess of the MOOP must be covered without cost-sharing.
  • The DOL will consult with the IRS and U.S. Treasury and will issue guidance in the future on how COBRA would apply to employers with fewer than 20 employees who join a bona fide group or association whose member employers, collectively, employ 20 or more employees.

AHPs as MEWAs

Currently, some states permit groups of unrelated employers to offer group health plans under a plan known as a “multiple employer welfare arrangement” or MEWA. ERISA gives the DOL and state insurance regulators joint authority over MEWAs, including AHPs, to ensure consumer protections for employers and employees who rely on an AHP for healthcare coverage. The final rule maintains this joint structure and reiterates the historically broad role of the states when it comes to regulating MEWAs.

MEWAs are subject to strict state and federal scrutiny and are an enforcement priority for the DOL. Further, the final rule expressly states that AHPs are plan MEWAs and subject to existing federal regulatory standards governing MEWAs.

For example, the ACA expanded reporting and required registration for MEWAs with the DOL. Plan MEWAs and non-plan MEWAs must file Form M-1. All AHPs under the final rule will be MEWAs and will be required to file the Form M-1 regardless of the plan size or type of funding. Further, all employee welfare benefit plans that are MEWAs subject to the Form M-1 requirements, including AHPs under the final rule, will be required to file Form 5500, regardless of the plan size or type of funding.

State Regulation

The final rule does not change existing ERISA preemption rules that authorize broad state insurance regulation of AHPs, either through the health insurance issuers through which they purchase coverage or directly in the case of self-insured AHPs.

If an AHP is fully insured, ERISA provides that state laws that regulate the maintenance of specified contribution and reserve levels (and that enforce those standards) may apply. Further, state insurance laws are generally saved from preemption when applied to health insurance issuers that sell policies to AHPs and when applied to insurance policies that AHPs purchase to provide benefits. In the case of fully-insured AHPs, ERISA clearly enables states to subject AHPs to licensing, registration, certification, financial reporting, examination, audit, and any other requirement of state insurance law necessary to ensure compliance with the state insurance reserves, contributions, and funding obligations.

If an AHP is not fully insured, then any state law that regulates insurance may apply to the AHP to the extent that such state law is not inconsistent with ERISA. The final rule provides the following two examples of state regulation. First, states can require self-insured AHPs to meet the same solvency and governance standards as issuers and to participate in guaranty funds that protect policyholders when issuers fail. Second, states can also clarify or enact laws allowing their insurance departments to place AHPs into receivership, if needed.

Updates

On August 20, 2018, the IRS added a new Q&A 18 to its Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act. Q&A 18 confirms that:

  • An employer that is not an applicable large employer (ALE) under the employer shared responsibility provisions does not become an ALE due to participation in an AHP
  • An employer that is an ALE under the employer shared responsibility provisions continues to be an ALE subject to the employer shared responsibility provisions regardless of its participation in an AHP
  • Multiple employers are treated as a single employer for determining whether the employer is an ALE only if the employers have a certain level of common or related ownership

On August 20, 2018, the DOL posted its Association Health Plans ERISA Compliance Assistance fact sheet. Although much of the fact sheet does not cover new ground regarding AHPs, below are items that weren’t extensively discussed in the final rule.

The fact sheet confirms that AHPs are employee welfare benefit plans under ERISA and must comply with the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Patient Protection and Affordable Care Act (ACA), the Mental Health Parity and Addiction Equity Act (MHPAEA), and other group health plan laws. Specifically, the fact sheet states that the DOL anticipates future guidance on the application of COBRA to AHPs that provide coverage to member employers with fewer than 20 employees.

The fact sheet identifies certain disclosures that AHP plan administrators must make, including a Summary Plan Description, Summary of Material Modifications (as needed), and Summary of Benefits and Coverage.

The fact sheet also discusses benefit claims administration and fiduciary duties under ERISA, including administrative exemptions that the DOL may grant. Generally, if an AHP fiduciary hires one of its association’s member employees or an affiliated company to provide services to the AHP, then the arrangement would be a prohibited transaction. However, an AHP fiduciary can apply to the DOL for an administrative exemption if it wants to hire affiliates or related people or companies and charge normal fees, but the application would have to prove the arrangement was in the interest of and protective of the plan and its participants and beneficiaries.

The fact sheet explains DOL programs that may be available to employers who make mistakes in operating an AHP, including:

The fact sheet discusses the DOL’s enforcement authority over AHPs because of their status as MEWAs. Specifically, the DOL may issue a cease-and-desist order when it appears that a MEWA’s conduct:

  • is fraudulent,
  • creates an immediate danger to the public safety or welfare, or
  • is causing or can be reasonably expected to cause significant, imminent, and irreparable public injury.

The Department may issue a summary seizure order if it appears that a MEWA is in a financially hazardous condition. Further, people who market or maintain AHPs may face criminal penalties if they make false statements in connection with the sale or marketing of a MEWA.

Finally, the fact sheet alerts employers that AHPs, whether fully insured or self-funded, must generally file both a Form 5500 and a Form M-1 with the DOL. To determine whether an AHP has appropriately registered with the DOL, employers should use the DOL’s electronic Form M-1 database before joining an AHP. Because all AHPs must file the Form M-1, a failure to register or to file a complete, accurate, and timely Form M-1 is a red flag. If an employer realizes that an AHP has a filing failure, then the employer should consult with its attorney and use extreme caution before enrolling in the AHP.

On December 3, 2018, the DOL published its “10 Tips for Filing Form M-1 For Association Health Plans And Other MEWAs That Provide Medical Benefits” that provides plan administrators with information on when to file and how to complete portions of Form M-1. The DOL emphasizes that all MEWAs that provide medical benefits, including AHPs that intend to begin operating under the new rule, are required to file an initial registration Form M-1 at least 30 days before any activity including, but not limited to, marketing, soliciting, providing, or offering to provide medical care benefits to employers or employees who may participate in an AHP.

Requirements Under the Final Rule (After the Court Decision)

The Court’s decision sets aside the following aspects of the final rule:

  • The definition of “employer” to include associations of disparate employers
  • Association membership expansion to include working owners without employees
  • Specific provisions regarding “bona fide group or association of employers,” “commonality of interest,” and “dual treatment of working owners as employers and employees.”

Conclusion

At this time, an employer should not join a self-funded AHP that is formed under the final rule because the Court order prohibits these types of self-funded AHPs. Generally, an employer should exercise caution and consult with its attorney before joining a self-funded AHP. Historically, self-funded AHPs have been at greater risk of fraud and financial mismanagement. Further, some states have implemented regulations and strengthened their enforcement of self-funded AHPs in response to this final rule.

Because of the Court’s order vacating provisions of the DOL’s final rule regarding “bona fide group or association of employers,” “commonality of interest,” and “dual treatment of working owners as employers and employees,” an employer that is relying on the final rule’s expanded definition of “employers” to sponsor an AHP should consult with its attorney as soon as possible.

Based on the court order, existing AHPs must not market to new employer members or sole proprietors. If an employer is currently in a fully-insured AHP under the final rule or an existing self-funded AHP under the final rule, the employer should ensure that the AHP is not marketing to new employer members or sole proprietors and that the AHP is continuing to pay claims.

In the upcoming months, the appellate court will consider this case. Employers in AHPs should keep apprised of future developments in this case.

6/20/2018

Updated 8/20/2018

Updated 12/10/2018

Updated 4/2/2019

Updated 4/30/2019

Updated 5/13/2019