The DOL has finalized regulations that expand the types of groups or associations that may sponsor a single "multiple employer" health plan under ERISA (83 Fed. Reg. 28912 (June 21, 2018) and ERISA § 3(5) (29 U.S.C. § 1002(5))). The DOL's final "association health plan" (AHP) regulations broaden the rules under ERISA's definition of employer for determining when employers may form groups or associations that are treated as a single, multiple-employer employee welfare benefit plan and group health plan under Title I of ERISA (see Practice Note, Title I of the Employee Retirement Income Security Act (ERISA): Overview and Group Health Plans Toolkit).

The DOL issued proposed AHP regulations earlier this year in response to the Trump Administration's Executive Order 13813 (October 2017), which called for facilitating the purchase of insurance across state lines (see Legal Updates, Trump Administration Calls for Expanded Use of Health Reimbursement Arrangements and DOL Proposed Association Health Plan Rules Would Expand Coverage Options for Small Employers). The executive order posited that large employers, owing to their larger pools of insurable individuals, obtain better terms on health insurance relative to smaller employers. The Trump Administration suggested that expanded access to AHPs, whether insured or self-insured, would help small employers band together to overcome this barrier and secure more affordable health care than is available under the Affordable Care Act (ACA) (see Practice Note, Affordable Care Act (ACA) Overview).

The final regulations include the following three applicability dates:

The final regulations are intended to permit small employers, sole proprietors, and other working-owners to join together more easily to provide health care coverage. Under current law, when a group or association sponsors health coverage, the association or group itself is disregarded in determining whether coverage obtained by a participating employer is small or large group coverage. Because of this look-through framework, the size of each participating employer determines the applicable compliance requirements, which vary as between the small or large group markets. As a result, different members of the same group or association may be subject to different requirements.

The final regulations contain a series of requirements that a bona fide group or association of employers must satisfy to establish an ERISA health plan. For example, the group or association must have a formal organizational structure with a governing body and by-laws (or other similar indications of formality) that is appropriate for the legal form in which the group or association is operated (29 C.F.R. § 2510.3-5(b)(3)).

Additional requirements for bona fide groups or associations of employers include:

Reflecting a theme of the DOL's preamble comments, the final regulations' control and commonality requirements are intended to distinguish employment-based benefit arrangements from commercial insurance marketing programs.

AHPs must also satisfy nondiscrimination standards under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the ACA (29 C.F.R. § 2510.3-5(b)(7); see HIPAA Nondiscrimination Requirements).

The final regulations include nondiscrimination requirements that build on existing health nondiscrimination rules for group health plans under HIPAA. HIPAA's health nondiscrimination rules generally prohibit health discrimination in eligibility for benefits and premiums within groups of similarly situated individuals based on a health factor (for example, claims experience). However, AHPs generally may make distinctions between groups of individuals based on bona fide employment-based classifications that are consistent with the employer's usual business practice. For example, a metropolitan AHP generally could offer different pricing to retailers and to restaurant owners.

A new example in the final regulations indicates that the wellness program provisions under HIPAA's health nondiscrimination rules also apply (29 C.F.R. §§ 2510.3-5(d) and 2590.702(f); see Practice Note, Wellness Programs: HIPAA Nondiscrimination).

The DOL's implementing regulations under the Mental Health Parity and Addiction Equity Act (MHPAEA) include an exemption for employers with a certain number of employees (see Practice Note, Mental Health Parity: NQTLs and Other Issues: Small Employer Exemption). Commenters noted uncertainty concerning which employees were counted for purposes of determining whether the MHPAEA applies, that is, either:

According to the DOL, the determination of whether the MHPAEA applies depends on the size of the AHP, which is based on the number of employees employed in the aggregate during the prior calendar year by the employer-members of the bona fide group or association.

Commenters also requested clarification concerning how COBRA's small employer exemption applies for employers with fewer than 20 employees that joined a bona fide group or association whose employer-members, collectively, employ 20 or more employees (see Practice Note, COBRA Overview: When Must COBRA Be Offered?). Because the coverage provisions under COBRA fall under the jurisdiction of Treasury and the IRS, the DOL indicated that it would consult with Treasury and IRS and provide future guidance on COBRA's applicability.

The DOL believes that its AHP final regulations will offer small businesses and self-employed individuals expanded access to group health coverage. A competing policy interest, however – reflected in many of the commenters' remarks – is to prevent the type of fraudulent and abusive practices that have made multiple employer welfare arrangements (MEWAs) a longstanding enforcement priority of the DOL (see Legal Updates, DOL Issues Cease and Desist Order for MEWA with Unpaid Claims and DOL Final Rules Target MEWA Abuses). Acknowledging these concerns, the DOL emphasized that the final regulations do not limit state authority – including through state insurance law to regulate AHPs (particularly those that are fully insured), health insurers offering coverage through AHPs, and others (see Practice Note, ERISA Litigation: Preemption of State Laws (Overview)).