What Small Employers Need to Know about new AHP Rule

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The new AHP rule would allow businesses in the same industry in different states, or in the same state but in different industries, to form associations.

The U.S. Department of Labor (DOL) recently issued a proposed regulation that will make it easier for small employers to join together in an employer group or association and collectively be treated as one employer sponsor of a health plan. These arrangements are commonly referred to as association health plans, also known as AHPs. The new AHP rule would make it easier to establish such associations.

Since the Affordable Care Act went into effect, employers in the small group health insurance market (generally, employers with 50 employees or less) have faced rising costs and limited coverage options. This is because, under the ACA, the small group and individual markets require plans to include essential health benefits and community rating.

One strategy for employers to get around the rules of ACA’s small group market is to band together under the new AHP rule.

AHPs and other similar arrangements give them a higher employee count, and thus, access to large group market health plan options with less regulatory restrictions. However, qualifying as an association that can form an AHP is difficult under current law.

In an effort designed to provide more affordable healthcare coverage options to more people, on October 12, 2017, President Trump issued Executive Order 13813. Among other provisions, the Order directed the DOL to consider proposing, or revising, existing guidance that would allow more U.S. employers to form AHPs.

How Does the Proposed New AHP Rule Work? How Will it Change Things?

This proposed regulation, consistent with the directions of the Executive Order, would make several technical changes to ERISA. It is designed to allow more businesses and individuals to join associations, and as a result, free themselves from the burdensome requirements of the ACA’s small group and individual market rules.

Association membership would not be limited in the way that it currently is under ERISA. Under current law, most associated health plans are not considered to be single ERISA-covered health and welfare plans. This means that when it comes to determining if they are subject to the small or large group market rules, the association is typically disregarded, and each employer within an association is typically considered on their own to make this determination. Under this proposed rule, it will be easier for an association to be considered a single ERISA-covered health and welfare plan.

The proposed rule would allow businesses in the same industry, but in different states, or in the same state, but different industries, to band together to form associations. In some cases, the associations could have members nationwide.

All of these proposed changes for associated health plans would help to make health insurance coverage more readily available across state lines. Without having to comply with the ACA’s EHB or community rating rules, these new associations could offer more “bare-bones” benefit plans than what individual employers used to offer. This may come as a surprise for some of the workers in these new associations.

The proposed rule would also change ERISA to allow sole proprietors or other working owners of trades or businesses with no employees to join AHPs if they work at least 30 hours a week, 120 hours a month or work enough to at least earn enough money to equal the cost of coverage in the AHP. This would allow individuals like Uber drivers for, example, to band together to buy coverage as a large group instead of having to purchase coverage through the ACA’s exchanges.

This change could mean that younger, healthier people working in the gig economy will leave their state’s exchange to join associations and leave an older and sicker pool of people in the exchanges, which could drive up premiums for exchange plans.

How Will These Changes Affect Employers?

This proposed rule essentially creates new loopholes to current laws under ERISA and the ACA that have raised costs for employers in the small group and individual market. By changing these rules, and allowing for more employers to have large group health plans, these employers should see lower costs, assuming that they want to deal with the administrative burdens that come with forming or joining an association. Even with the new, easier rules, many employers may still decide that they don’t want to deal with the “everyday” hassles of joining an association.

It’s also important to understand that the proposed rule for associated health plans is not law yet, and it could change before it’s finalized. The new rules are currently subject to a 60-day comment period.

In addition, this change does not preempt state regulation, which means that individual states could still take steps to try to make it more difficult for associations to form within their boundaries in order to reduce any adverse impact on their exchanges and health insurance markets.

What Should Employers Do Next?

Employers and sole proprietors in the small group and individual market that have been burdened by higher costs as a result of the ACA should review these new rules and discuss with their trusted advisors how they may be able to use them to their advantage.