Definition of “Employer” under Section 3(5) of ERISA – Association Health Plans Final Rule Executive Summary

HFMA Executive Summary

On June 21, 2018, the Employee Benefits Security Administration (EBSA) of the Department of Labor published a final rule broadening the criteria for determining when employers can join together to provide health insurance to their employees, and be treated as a single employer under federal law and regulations. For more detailed information, download a full summary of the rule. 

Plans offered by groups of employers or trade groups banding together under this rule into “Association Health Plans” (AHPs) will be able, according to the EBSA, to achieve more economies of scale and to offer more affordable coverage because they will, upon the relevant effective date, be subject to fewer requirements on the establishment and maintenance of such plans.

By removing certain restrictions on the establishment and maintenance of AHPs under the Employee Retirement Income Security Act (ERISA), the regulation facilitates the adoption and administration of these entities, and expands access to affordable health coverage, particularly for employees of small employers, and certain self-employed individuals.

The regulation continues to distinguish employment-based plans, the focal point of Title I of ERISA, from commercial insurance programs and other service provider arrangements.

Major Provisions of the Final Rule
Under the final rule, EBSA defines more broadly several relevant terms and establishes more flexible requirements to permit more employers to form AHPs, more employers to join AHPs, and more association-sponsored plans to be considered a single employer group health plan.

Under the regulation:

• AHPs can form for the primary purpose of offering health coverage. 
• Sole proprietors and self-employed individuals are able to join into AHPs. 
• The existing requirement that AHPs must be offered to a group of employers with a common employment or business interest is expanded so that businesses or groups from different industries, if located in the same geographic area, would be considered to have a “commonality of interest.”

Affected Entities
The regulation affects AHPs, bona fide groups or associations of employers sponsoring such plans, participants and beneficiaries with health coverage under an AHP, health insurance issuers, and purchasers of health insurance not purchased through AHPs.

Impact Analysis
Although EBSA concluded that the rule meets the criteria requiring a regulatory impact analysis, it notes and includes numerous factors that complicate a prediction of the rule’s impact. 

EBSA says that “insuring more American workers, and offering premiums and benefits that faithfully match employees’ preferences, are the most important benefits of this rule.” It argues that the rule is designed to “prevent potentially adverse impacts on individual or small group risk pools that might otherwise carry social costs.” Potential effects on tax subsidies and revenue as well as on Medicaid are also noted. It intends for the proposal’s impacts, and of AHPs themselves, to net out to be positive although “the incidence, nature and magnitude of both positive and negative effects are uncertain.” EBSA notes that numerous factors complicate a prediction of the rule’s impact. These include:

• The dynamic and, in some cases, unstable conditions currently prevailing in local individual and small group insurance markets under existing ACA and state rules;
• A lack of data on the risk profiles of existing and potential associations and the individual and small group markets with which they intersect;
• A lack of data on the relative availabilities and sizes of subsidies and tax preferences for prospective AHP enrollees in individual market Exchanges or SHOP Exchanges versus in AHPs;
• Legislative proposals to amend or repeal and replace the ACA;
• States’ broad discretion to regulate AHPs, and variations in state practices; and
• Interactions with related initiatives per Executive Order 13813, including HRAs and short-term limited duration insurance policies. 

Because of these uncertainties, EBSA provides a mostly qualitative impact assessment.

Effective Date
The final rule is effective on August 20, 2018, and is applicable to fully-insured AHPs beginning on September 1, 2018; to existing self-insured AHPs complying with rules in effect prior to this final rule beginning on January 1, 2019, and to new self-insured AHPs formed pursuant to this rule, on April 1, 2019.

The final rule was developed in consultation with the Department of Health and Human Services, the Department of the Treasury, and the Internal Revenue Services.