The Department of Labor (DOL) issued a proposed rule to expand the usefulness and availability of “association health plans” by reducing the restrictions on the types of employers that may join together to form “associations” for the purpose of offering health care coverage to employees. More specifically, the Proposed Rule would make it easier for a group or association of employers to be considered an “employer” sponsoring a multiple employer health plan (a multiple employer welfare arrangement, or MEWA) that qualifies as a single ERISA-covered plan. Association health plans have existed for many years, but under the existing rules, many employers participating in the plans were unable to take advantage of the size of the combined group of covered employees.
Through the Proposed Rule, the DOL intends to allow employers to join together to “reduce administrative costs through economies of scale, strengthen their bargaining position to obtain more favorable deals, enhance their ability to self-insure, and offer a wider array of insurance options.” It is anticipated that small employers and self-employed individuals will be particularly interested in joining existing or newly-formed associations to take advantage of their combined status as a “large group” health plan. While the DOL has focused its attention on the rule’s impact on small businesses, large employers will also be able to join these associations, which could provide them with even greater bargaining power and economies of scale. To accomplish these goals, the Proposed Rule provides for the following:
- The rule provides flexibility for different employers to participate in an association health plan, allowing employers to join together for the purpose of offering health coverage if they are either (1) in the same trade, industry, line of business, or profession; or (2) have a principal place of business in the same geographical area (such as a state or metropolitan area, even if the metropolitan area crosses state lines);
- Associations are required to have a formal organizational structure that allows for the association’s members (e., the employers) to control the association;
- Health coverage under the plan would only be available for employees and former employees of the association members, but for these purposes working owners may be treated as “employees” of their companies; and
- The association health plans must meet certain nondiscrimination requirements that prevent an association from denying membership based on health factors or charging different employer members higher premiums based on the health status of their employees.
The Proposed Rule is currently open for comments, and there may be revisions when the rule is finalized. While these revisions may impact some of the nondiscrimination or other compliance requirements relating to association health plans, it seems that the administration has set the expansion of eligibility for association health plans as a top priority.
If the rule is finalized, it would likely create additional opportunities for benefits professionals, including brokers and consultants, with their existing clients, as well as within a new segment of the market. Association health plans should allow benefits professionals to deliver value to their clients by connecting them with additional cost-effective solutions through association health plans. Benefits professionals are also likely to be an important source of information and guidance for employers looking to form associations and association health plans. Additionally, benefits professionals should look for opportunities to work with existing and newly-formed associations to assist with plan design and creation. By working with employers and the associations, savvy benefits professionals who are willing to adjust to these changes and to work through the “red tape” that will likely be involved can serve as the critical link between employers and association health plans.
For more information about anything discussed in this Client Alert, please contact a member of the Maynard Cooper & Gale Employee Benefits & Executive Compensation practice group.