In response to an October 2017 Executive Order that we reported on in a prior Compliance Buzz, the Department of Labor (“DOL”) recently released proposed rules that would make it easier for small businesses and sole proprietors to band together to purchase and provide health insurance through association health plans (“AHPs”). Specifically, the new rules would allow employers in the same geographic or metropolitan area or in the same industry to commonly sponsor a single group health plan for their employees. The proposed rules would also clarify that such associations may band together for the sole purpose of providing health insurance to their members. This would be a change from the existing regulatory guidance that limits AHP arrangements to groups or associations of employers that exist for a bona fide purpose other than merely offering health insurance coverage to their members.
The proposed rules would require the group or association to have a formal organizational structure with a governing body and by-laws and to be functionally controlled by its employer members. In addition, the group or association health plan coverage offered through an AHP must be limited to employees and former employees of participating AHP members.
Although no size limit would apply to employers seeking to form or join an AHP, the proposed rules are principally aimed at small employers with fewer than 50 employees. The new rules are intended to provide small employers with more bargaining power to enable them to purchase and offer less expensive health insurance options to their employees.
Certain Affordable Care Act (“ACA”) protections would apply to coverage offered by AHPs. For example, the plans would be prohibited from charging individuals higher premiums or refusing to cover them based on health factors, including pre-existing conditions. In addition, there would still be caps on how much an individual would have to pay out-of-pocket in a year, as well as bans on lifetime or annual limits for services covered by the plan. The plans would also be required to provide preventative services at no cost to the participant.
Despite the protections noted above, however, plans offered by AHPs would not be required to comply with certain other ACA mandates, including the requirement to provide certain “essential health benefits,” such as maternity care and coverage for mental health and substance abuse issues. This has led critics to assert that insofar as AHPs are likely to be cheaper than fully-ACA-compliant plans, AHPs will tend to attract employers with younger, healthier workers, leaving behind sicker people in the more comprehensive, more expensive plans that fully comply with the ACA. This may, in turn, drive up premiums for ACA-compliant plans, further destabilizing the individual health insurance marketplace.
The proposed rules were published in the Federal Register on January 5, 2018, and there is a 60-day public comment period.