Under current guidance, it is difficult for small employers and the self-employed to band together to purchase health insurance coverage without having such coverage subject to the applicable small group or individual market requirements. Generally, this is because an association or group of employers does not qualify as an “employer” eligible to sponsor a single ERISA plan, unless it meets several requirements to be considered a bona fide association acting in the capacity of an employer.
Proposed Regulation
The proposed regulation would reduce these restrictions and allow employers to join together to offer health coverage through an association if the employers either: (1) are 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 crosses state lines). The proposal would also eliminate requirements that the association has a business purpose other than providing insurance, and that it has existed for any significant period of time.
Under the proposal, the group or association must meet the following requirements:
- The group or association must have a formal organizational structure with a governing body and by-laws or other appropriate formalities
- Each employer member must act directly as an employer of at least one employee who is a participant under the plan
- Member employers must control the association’s functions and activities, including the establishment and maintenance of the group health plan, either directly or through the regular election of directors, officers, or other similar representatives
- The group or association cannot provide health coverage through the association to anyone other than employees and former employees of employer members and family members, or other beneficiaries of those employees and former employees
Commentators expect that these rules, if adopted, will expand small employers’ choices regarding health care coverage, including by providing access to plans that are less expensive but offer less coverage than would be required in the individual or small group markets. Some commentators are concerned that this could destabilize the marketplaces by causing younger, healthier individuals to leave the marketplace.
Nondiscrimination Protections
In response to stakeholder concerns that permitting employer groups or associations to sponsor AHPs could result in risk selection, the proposed regulation includes nondiscrimination provisions that prevent a group or association from restricting membership based on any health factor. These provisions build on the existing health nondiscrimination provisions applicable to group health plans under HIPAA, as amended by the Affordable Care Act, and clarify how to apply those rules to association coverage.
Conclusion
The proposed regulation would increase the flexibility for small employers to join groups or associations to offer insured health coverage in the large group market at potentially more favorable pricing with less restrictive requirements. However, it also raises questions regarding the impact of such plans on the existing marketplaces, how such associations would be formed and marketed, the types of coverages that would be offered, and the impact of state laws (especially for plans that are not fully insured, and which remain subject to state insurance laws as a general matter).
Comments are due 60 days from the date of publication in the Federal Register, or March 6, 2018.
Client Alert 2018-008
