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January 10, 2018

On January 4, 2018, the Department of Labor (DOL) released a proposed rule aiming to make it easier to form association health plans (AHPs) that qualify as large group plans. The proposed rule would broaden participant eligibility in two ways. First, it would modify DOL’s current “commonality of interest” test, allowing employers from the same trade or industry, or the same metropolitan or geographic area, to band together and form a group or association.  Second, it would allow self-employed individuals (so-called “working owners”) to participate in AHPs, provided certain requirements are met.

The proposal also would impose nondiscrimination requirements on AHPs. The proposal notes that these requirements would build on the existing health nondiscrimination provisions applicable to “group health plans” under HIPAA (as amended by the ACA).

In its discussion of these requirements, the DOL appears to indicate that the underwriting for an AHP will be done at the AHP level (not at the individual employer level). Specifically, the DOL notes that permitting “employer-by-employer risk rating” within the AHP would undermine ERISA’s aim of limiting AHP sponsors to “employers” and to entities “acting in the interest” of employers. Moreover, such provisions promote a “level of cohesion and commonality” among entities acting on behalf of employers, employers themselves, and covered employees. Absent such nondiscrimination provisions, DOL notes that it would be extending ERISA coverage to entities that “seek to underwrite risk and are nearly—or entirely—indistinguishable from” commercial insurance arrangements that sell insurance coverage to unrelated common law employers/the sort of commercial insurance enterprises that ERISA intended to leave to state, rather than federal, regulation.

Notably, the proposed rule does not appear to preempt state regulations. As such, it is unclear how effective or useful the proposal would be at promoting and facilitating the formation of AHPs as large employer plans.

Comments on the proposed rule are due on March 6, 2018.

Click here for a memo detailing the proposal.