New Health Plan Opportunities for Small Businesses
Under new guidance, small businesses now have more opportunity to offer affordable health care coverage to their employees. In June, the Department of Labor issued a Final Rule on Association Health Plans (AHPs) that will allow small employers to group together to buy insurance. The Final Rule is intended to help small businesses and self-employed individuals obtain health care coverage at a lower cost and increase their bargaining power with insurance companies.
The new rules focus on how ERISA defines “employer” for purposes of sponsoring a health plan. Under ERISA Section 3(5), the term “employer” is defined as “. . . any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.” Under ERISA, bona fide employer groups or associations could sponsor a joint welfare plan only by satisfying a very high standard. Specifically, employers intending to establish an association benefit had to demonstrate both a commonality of interests unrelated to providing benefits and a certain level of control over the plan and trust. Employers were prohibited from banding together for the sole purpose of establishing a welfare benefit plan. If an association or group of employers could meet these criteria, the association or group would be treated as an employer sponsoring a single health plan for its employer members and the plan will be regulated as a group health plan under ERISA.
The Final Rule expands the definition of employer for this purpose and, among other things, allows sole proprietors to participate in AHPs. Under the Final Rule, a bona fide group or association of employers will be treated as a single employer sponsoring a single health plan for its employer members (an AHP) if the following criteria are met:
- Purpose. The primary purpose may be to offer health coverage to employer members and their employees only if there is one substantial business purpose for the association that is unrelated to the provision of health coverage. A substantial business purpose exists if the group or association would be a viable entity absent the sponsorship of the health plan. Substantial business purposes include promoting common business or economic interests of a trade or community, and do not have to be for-profit.
- Employer Members Acting Directly As Employers. Each employer member must act directly as an employer of at least one employee participating in the plan.
- Organizational Structure. The employer members must have a formal organizational structure, including a governing body and bylaws (or similar formality).
- Control. The employer members must maintain control over the functions and actions of the association, as well as what employers may become employer members and participate in the plan.
- Commonality of Interest. The employer members must either be in the same trade or industry, or maintain their principal place of business in the same state or metropolitan area. A metropolitan area may include more than one state if the metropolitan area sprawls across state lines.
- Participation. Participation in the plan must be limited to the employees or former employees (and their beneficiaries) of employer members.
- Nondiscrimination. The plan must comply with ERISA’s group health plan nondiscrimination rules governing eligibility conditions, premiums, and contributions. Additionally, the plan cannot condition employer membership on a health factor of an individual who might become eligible to participate.
- Sponsor Cannot be a Health Insurance Issuer. The group or association sponsoring the plan cannot be a health insurance issuer or owned or controlled by a health insurance issuer. However, health insurance issuers can participate in the group or association as an employer member.
The Final Rule also expressly allows “working owners” to receive dual treatment as an employer and an employee simultaneously, which permits working owners to participate in AHPs. For purposes of the Final Rule, a “working owner” includes anyone who: (1) has an ownership right in a trade or business (including partners and self-employed individuals); (2) earns wages or self-employment income; and (3) either works 20 hours per week (80 hours per month) or earns wages that cover the working owner’s cost of coverage.
Finally, the Final Rule ensures that no joint-employer liability attaches to the employer members sponsoring an AHP. The Final Rule states “nothing in the final rule is intended to indicate that participating in an AHP sponsored by a bona fide group or association of employers gives rise to joint employer status under any federal or State law, rule or regulation.”
For fully-insured health plans, the rule will take effect starting September 1, 2018. New self-insured AHPs may operate under the new rule starting on April 1, 2019, and for any existing, self-insured AHPs the rule will be effective January 1, 2019.
If you have any questions regarding the Final Rule or AHPs, please contact one of our employee benefits attorneys.