On June 19, 2018, the Department of Labor (DOL) released a final rule, “Definition of an “Employer” under Section 3(5) of ERISA—Association Health Plans.” The rule is the final version of a proposed rule initially released in January 2018. It creates a new pathway for the formation of association health plans (AHPs) but does retain the existing pathway for formation of these plans. The rule is a response to an executive order called signed by President Trump in October 2017.

This final regulation broadens the criteria under federal law, the Employee Retirement Income Security Act (ERISA), that determines when employers can join together into an association that is treatment as an employer sponsor of a health plan. Specifically, this final regulation would allow employers to join together for the purpose of offering health coverage if they are:

• In the same trade, industry, line of business, or profession; or
• Have a principal place of business within a region that does not exceed the boundaries of the same state or metropolitan area.

Differing slightly from the proposed rule, this final rule establishes a general legal standard that requires groups or associations of employers to have at least one substantial business purpose unrelated to offering and providing health coverage or other benefits to its members and their employees. Groups or associations will also be required to have a formal organization structure with a governing body and member employers must also control the functions and activities of the association. Additionally, eligible participants for the AHPs include employees and former employees of employer members and their families or other beneficiaries. Nondiscrimination requirements will apply, including existing provisions applicable to group health plans under the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

Additionally, AHPs will be subject to federal and state laws that require the provision of certain benefits, including preventive services and any benefits mandated by states, as well as relevant ERISA provisions. The rule notes that it does not modify or otherwise limit state authority established under ERISA. Many state insurance regulators had expressed concern over how a rule would impact states and had sought further information from DOL in their public comments.

The Department of Labor has staggered the effective date for this regulation. The rule will become effective on September 1, 2018 for all associations, whether new or existing, that establish a fully-insured AHP, but will be effective on January 1, 2019 for establishing a self-funded AHPs if sponsored by an existing association that already sponsors an AHP. All other associations, whether new or existing will be able to establish these plans on or after April 1, 2019.

In the rule, the Department of Labor cites predictions from the Congressional Budget Office (CBO) that 3.6 million people who have had coverage will enroll in AHPs while 400,000 people who have not been insured will also enroll in an AHP. The CBO report estimates are for 2023 and later years. The administration is touting this rule as a way to expand access to health coverage, particularly for employees of small businesses and self-employed individuals. In addition, the DOL believes that AHPs may help to reduce the cost of health coverage by giving these organizations more bargaining power and creating new administrative efficiencies.