In Washington State, we saw the tightening of the Association Health Plan (AHP) markets when it was decreed that only AHPs that represented specific industries (denoted by NAICS codes) could continue to operate under large-group rating rules. At that time, our options for most employers were cut in half.
With the release of final AHP regulations in June, our State’s AHP options may be able to expand to “like groups” and “like geographies”. Plus Sole Proprietors, Partners, and other “working owners” could be added as eligible employers for AHP group-based coverage.
In Washington State, we saw the tightening of the Association Health Plan (AHP) markets when it was decreed that only AHPs representing specific industries (denoted by NAICS codes) could continue to operate under large-group rating rules. The result was that options for most employers were cut in half.
On June 21, 2018, the Department of Labor (DOL) published their final rules expanding the criteria that groups and associations can use when forming an Association Health Plan (AHP). This is important, since the final rules retain the option of AHPs to form (or continue) under the prior rules, meaning our current State AHPs will not be kicked to the curb. Just as important, the new regulations also amended the definition of “Employer” under ERISA Section 3(5) – opening the door for AHPs to allow Sole Proprietors, Partners, and other “working owners” to enroll for AHP group-based coverage.
The new rules kick in rather quickly. The DOL has provided a staggered approach:
Retaining the Current Rules
The new rules retain the current rules and expand them. This really matters. Current rules allow AHPs that are “bona fide” to rate each employer group under the AHP based on a number of factors including actual claims. More costly groups in the AHP can receive higher renewal rates than lower cost groups in the same AHP. Plus these AHPs can exercise “last look” where they can shave a few points off of a renewal if other carriers are coming in competitively on a group that is healthy.
The rules specifically note that rather than only grandfather “old AHP” program rules, the DOL is leaving the door open for groups or associations to continue to form new AHPs under these retained older rules.
A More Flexible “Commonality of Interest”
Under expanded AHP rules, a group or association will still be able to include employers in the same trade, industry, line of business, or profession (I’ll call this “like employers”). But they won’t need to follow a set of NAICS codes. They’ll also be able to compartmentalize their membership, an example might be including cloud storage companies, but not all IT companies; or including only restaurant owners who are also veterans. These “like employer” programs will be allowed to cross state lines and sell in all or some states.
In addition, new AHP rules would allow employers in “like geographies” to band together. This could be in an entire state or in a city, county, or other region within the boundaries of the same state. For example, an AHP could be provided to those in a city and the areas from which that city draws commuters. The same as “like employers,” a geographic program can winnow down employers who are eligible. For example, a group with the same shared moral convictions can sponsor an AHP, provided they satisfy the geography standard.
The “like geography” program rules include one exception that would allow the AHP to cross state lines – in the event that it provides membership to those in a metropolitan area that includes more than one state (a good example would be Vancouver, WA and Portland, OR). While the rules note that the Metropolitan Statistical Area listing could be used to determine the boundaries of a metropolitan area, they specifically state that no such listing must be followed (similar to the “like employers” rule not requiring the use of NAICS codes).
But don’t get too excited. These new types of AHPs will require the approval of the State’s Insurance Commissioner in every state that the AHP is offered. Fully insured AHPs will need to follow each state’s mandates, plus the Commissioner can require self-funded AHPs to comply with state mandates as well.
Definition of Employers
The rules also expand which businesses can be considered “Employers.” For the purposes of AHP eligibility, the group or association can include working owners even if they have no common law employees, or if they are partners in a partnership, whether incorporated or unincorporated. This expansion applies not only to the new types of AHPs, but also to the existing type. Again, don’t get too excited about this one – the regulations do not require AHPs, nor their underlying insurers, to include this new classification of employers as members of the AHP.
It should be noted that if an AHP includes working owners, the employer will need to provide verification that a business exists. If relying on hours worked, the rules set the bar at a minimum of 20 hours a week or 80 hours a month. If wages are relied upon, the working owner must have wages that are at least equal to the owner’s cost of coverage under the AHP.
Other Business Purpose
Existing AHP rules stipulate that a group or association cannot be formed solely to offer health benefits. This is not necessarily the case when forming an AHP under the new regulations. Of course, there are some caveats.
The group or association must have at least one “substantial business purpose” unrelated to providing health benefits, although it does not need to be their primary purpose. The regulations provide some examples of a “substantial business purpose” that would qualify: an organization that establishes business standards or practices or a program that advances the well-being of the industry in which its members operate. In addition, the new rules are clear that the group or association does not need to be a for-profit entity.
Additionally, the group or association must be controlled by its employer members. There must be by-laws and other similar indications of formality, there must be a formal organizational structure with a governing body, and the AHP must be controlled by employer members who are actually participating in the AHP.
Response from the States
There are three areas of litigation or rule-making to watch (so far):
Stay tuned for Part 2
Later this month, we’ll delve further into the nitty-gritty requirements outlined in the AHP expanded rules.
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I love numbers. I'm a math geek. I read benefits industry articles and periodicals for relaxation (but, honestly, I'm still a fun gal). I also like to share what I've learned and you'll find it all here.