Update on DOL’s Association Health Plans Final Rule

On April 29, 2019, the U.S. Department of Labor (DOL) issued a statement regarding its enforcement policy regarding the final rule. In light of the court’s decision, the DOL will not take enforcement action against:

• Employers and associations for potential violations stemming from actions taken before the court’s decision:
  • If the employer or association relied in good faith on the AHP final rule’s validity and
  • As long as the employers (and associations) meet their responsibilities to association members and their participants and beneficiaries to pay health benefit claims as promised;
• Existing AHPs for continuing to provide benefits – to members who enrolled in good faith reliance on the AHP rule’s validity before the court’s order – through the remainder of the plan year or contract term that was in force at the time of the court’s decision.

This means that the DOL will not enforce potential violations that may have occurred before March 28, 2019. However, the DOL will enforce violations that occur on or after March 28, 2019. Because the DOL has not asked for a stay of the court order, associations cannot form self-funded AHPs under the final rule and existing AHPs must not market to new enrollees or sole proprietors.

Employers and their employees who are currently participating in an insured AHP under the final rule can generally maintain their coverage through the later of the end of the plan year or contract term. However, at the end of the plan year, the issuer will only be able to renew coverage for an employer if the coverage complies with the relevant market requirements for that employer’s size, rather than the association’s size.

For example, if a small employer and a sole proprietor joined an insured AHP under the final rule, then at renewal, an insurer can only sell coverage that complies with the small group market rules to the small employer and that complies with the individual market rules to the sole proprietor.

In the upcoming months, the U.S. Court of Appeals for the District of Columbia Circuit will consider the legal arguments in this case. Employers in AHPs should keep apprised of future developments in this case.

Summary of Final Rule and Post-Rule Litigation

On June 19, 2018, the DOL published Frequently Asked Questions About Association Health Plans (AHPs) and issued a final rule that broadened the definition of “employer” and the provisions under which an employer group or association may be treated as an “employer” sponsor of a single multiple-employer employee welfare benefit plan and group health plan under Title I of the Employee Retirement Income Security Act (ERISA).

The final rule is intended to facilitate adoption and administration of AHPs and expand health coverage access to employees of small employers and certain self-employed individuals. Generally, it did this in four main ways:

• It relaxed the requirement that group or association members share a common interest, as long as they operate in a common geographic area.
• It confirmed that groups or associations whose members operate in the same trade, industry, line of business, or profession can sponsor AHPs, regardless of geographic distribution.
• It clarified the existing requirement that groups or associations sponsoring AHPs must have at least one substantial business purpose unrelated to providing health coverage or other employee benefits.
• It permitted AHPs that meet the final rule’s new requirements to enroll working owners who do not have employees.

The final rule was effective on August 20, 2018, and applied to fully-insured AHPs on September 1, 2018, to existing self-insured AHPs on January 1, 2019, and to new self-insured AHPs formed under this final rule on April 1, 2019.

The DOL used a staggered approach to implement this final rule so states and state insurance regulators would have time to tailor their regulations to the final rule and address a range of oversight and compliance assistance issues, especially concerns about self-insured AHPs’ vulnerability to financial mismanagement and abuse.

On March 28, 2019, the U.S. District Court for the District of Columbia (Court) found that the DOL’s final rule exceeded the statutory authority delegated by Congress under ERISA and that the final rule unlawfully expands ERISA’s scope. In particular, the Court found the final rule’s provisions – defining “employer” to include associations of disparate employers and expanding membership in these associations to include working owners without employees – are unlawful and must be set aside.

The Court’s order vacated the specific provisions of the DOL’s final rule regarding “bona fide group or association of employers,” “commonality of interest,” and “dual treatment of working owners as employers and employees.” The Court sent the final rule back to the DOL to consider how the final rule’s severability provision affects the final rule’s remaining portions.

The Court’s order does not affect employers who formed AHPs under the DOL’s previous guidance regarding the definition of “employer.” Both existing and new employer groups or associations that meet the DOL’s pre-rule guidance can continue to sponsor an AHP.

This order stops employers from sponsoring new self-insured AHPs under the final rule beginning on April 1, 2019.

Shortly after the Court’s decision, the DOL issued Questions and Answers. On April 26, 2019, the DOJ filed a notice of appeal in the court case. On April 29, 2019, the DOL issued its statement regarding its enforcement policy regarding the final rule in light of the court’s decision.

For an employer that relies on the final rule’s expanded definition of “employer” to currently sponsor a fully-insured AHP or existing self-insured AHP, the employer should consult with its attorney as soon as possible. Based on the court order, associations cannot form self-funded AHPs under the final rule and existing AHPs must not market to new enrollees or sole proprietors.

Read the full Advisor

6/20/2018
Updated 8/20/2018
Updated 12/10/2018
Updated 4/2/2019
Updated 4/30/2019