The U.S. Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) has issued a final rule revoking its Association Health Plan (AHP) regulations. The agency expects to replace these regulations with a stricter version that provides more employee protections.

The group health plan market consists of small and large group markets based on the employer’s size. Under the Affordable Care Act (ACA), different rules apply to small and large group markets. For example, in the small group health plan market, health insurance must be “community rated.” The plan must meet rigid underwriting requirements calculated to avoid varying premiums based on health factors to meet this definition. Furthermore, small group market plans must also cover all essential health benefits (EHBs) without annual or lifetime limits. However, these rules are inapplicable to plans within the large group health plan market.

The ACA permits a “bona fide” group or association of employers to sponsor a “multiple employer” group health plan that covers multiple small employers. In this scenario, the group or association constitutes the “employer” for purposes of the ACA. As a result, these plans are subject only to the large group, not the small group market rules.

In June 2018, the DOL issued final regulations that expanded the definition of “bona fide” employer groups or associations that could sponsor a single group health plan under the ACA. However, the DOL now says that the 2018 regulations deprived employees of small employers with plans sponsored by these employer groups of the protections and benefits of the small group market rules. The DOL contends that Congress did not intend for these plan participants to forego the benefits of the small group market rules when permitting bona fide employer groups or associations to sponsor single group health plans. The agency claims that the 2018 rules disregard the employer-based relationship that ERISA requires.

As a result, until the DOL replaces the 2018 rules, pre-2018 guidance on this issue will remain in effect. Under this guidance, a “facts-and-circumstances” approach is used to determine whether a group or association is a bona fide group or association to sponsor an ERISA plan on behalf of its employer members. The major criteria to consider under this inquiry include the following:

  • Whether the entity has business or organizational purposes and functions unrelated to the provision of benefits.
  • Whether the employers share a commonality and genuine organizational relationship unrelated to the provision of benefits.
  • Whether the employers that participate in a benefit program, either directly or indirectly, exercise control over the program, both in form and substance.

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.