On Jan. 5, 2018, the Department of Labor (DOL) issued a proposed rule that would make it easier for small businesses to join together to purchase health insurance.
This is not a completely new concept. Unrelated small employers can join together to purchase health insurance today. Under current guidance, however, these types of plans are generally not considered a single ERISA plan. The result is that each participating employer in one of these plans is typically treated as maintaining its own ERISA plan. That means that each employer is separately responsible for complying with the myriad requirements applicable to group health plans, such as HIPAA, COBRA and the Affordable Care Act. Moreover, participating employers with fifty or fewer employees are typically subject to additional insurance-based requirements under the Affordable Care Act, including the requirement to offer certain “essential health benefits” and the requirement to comply with restrictive community rating rules when determining premiums. The combination of additional administrative complexity and increased costs currently makes fully-insured association health plans a non-starter for most small employers.
The association health plan will likely become a much more attractive option for small employers if the DOL’s proposed association health plan regulations are finalized. As proposed, these regulations would make it much easier for an association health plan to qualify as a single ERISA plan by broadening the definition of “employer” under ERISA and related regulations. Specifically, the regulations would:
- Allow employers to form an association health plan if the association members are either:
- In the same trade, industry, line of business, or profession (with or without a geographic nexus) OR
- In the same geographic vicinity (e.g., same state, county or metropolitan area) (with or without a trade, industry, business or profession nexus)
- Allow sole proprietors to join association health plans to provide coverage for themselves and their spouses and children
There are other requirements. For example:
- The sponsoring association must have a formal organizational structure with a governing body and bylaws
- The functions and activities of the sponsoring association must be controlled by its employer members
- The association health plan must meet certain nondiscrimination requirements
However, a properly formed association health plan would be treated as a single ERISA plan, potentially creating cost-savings opportunities through administrative efficiencies and the ability to avoid the Affordable Care Act insurance mandates. This could be a win-win for participating employees, participating employers and the sponsoring association. For employees, association health plans may provide an attractive, more cost-effective alternative to the current Obamacare plans. For small employers, the ability to provide coverage that is exempt from some of the onerous Affordable Care Act insurance requirements, and the ability to join together to take advantage of economies of scale to reduce administrative costs, should provide an attractive option for offering more affordable coverage to employees. And, for the sponsoring associations, offering an association health plan may be a very valuable tool for attracting and retaining members.
The deadline for providing comments on these proposed regulations is March 6, 2018, which means the DOL could issue final regulations as early as late spring or early summer. These days, employers are thinking further and further ahead when it comes to health coverage. In fact, we have already started working with some of our clients to analyze whether this might be a good option for 2019 and beyond. Given the ongoing trend of rising health plan costs, now may be a good time for associations and small employers to begin looking at this option.