- A final rule issued by the DOL earlier this year makes it easier for small employers to join together to form AHPs.
- The DOL’s guidance for AHPs summarizes ERISA’s consumer protections for these plans.
- Small employers that participate in AHPs do not automatically become subject to the ACA’s employer shared responsibility rules.
- September 1, 2018 – Final rule applies to fully insured AHPs.
- January 1, 2019 – Final rule applies to existing self-insured AHPs.
- April 1, 2019 – Final rule applies to new self-insured AHPs.
Both the Internal Revenue Service (IRS) and Department of Labor (DOL) have issued new compliance guidance for association health plans (AHPs). On June 21, 2018, the DOL published a final rule that expands the ability of employers to join together to form AHPs. According to the DOL, these changes will expand access to affordable, high-quality health insurance coverage for small businesses.
The new guidance issued by the IRS and DOL provides that:
- Participating in an AHP does not cause a small employer to become subject to the Affordable Care Act’s (ACA) employer shared responsibility rules.
- An AHP is a group health plan and a multiple employer welfare arrangement (MEWA) that is subject to ERISA’s requirements.
Small employers that are considering joining an AHP should understand their compliance obligations with respect to this type of plan. Although AHPs may avoid some ACA reforms for the small group market, these plans remain subject to many other legal requirements, including any applicable state regulations.
Association Health Plans
An AHP is a type of ERISA-covered group health plan that is sponsored by a group or association of employers (instead of a single employer) to provide health coverage to employees of the AHP’s members. Under ERISA, an AHP is both a group health plan and a MEWA.
On June 21, 2018, the DOL published a final rule that allows more employer groups and associations to join together as a single group to purchase health coverage. The final rule allows AHPs to offer coverage to some or all employers in a state, city, county or multistate metro area, or to businesses in a common trade, industry, line of business or profession in any area, including nationwide.
The final rule does not affect existing AHPs that were allowed under prior DOL guidance. These plans may continue to operate under the same rules as before or they can elect to follow the new rules. New plans can also form and elect to follow either the new rules or the old rules.
IRS Guidance – Employer Shared Responsibility Rules
The IRS has released a Q&A on the ACA’s employer shared responsibility rules to explain how these rules apply to employers that offer health coverage through an AHP. The ACA’s employer shared responsibility rules apply only to applicable large employers (ALEs), which are employers with 50 or more full-time employees (including full-time equivalent employees). These rules require ALEs to offer affordable, minimum-value health coverage to their full-time employees or pay a penalty.
According to the IRS’ Q&A, the employer shared responsibility rules do NOT apply if an employer that is not otherwise an ALE offers coverage through an AHP. Whether an employer that offers coverage through an AHP is an ALE subject to the employer shared responsibility provisions depends on the number of full-time employees (and full-time equivalent employees) the employer employed in the prior calendar year. The determination of ALE status is unrelated to whether the employer offers coverage through an AHP.
The only circumstance in which multiple employers are treated as a single employer for purposes of determining whether the employer is an ALE is when the employers have a certain level of common or related ownership.
DOL Guidance – ERISA Compliance
The DOL’s compliance assistance for AHPs clarifies when AHPs may be established under the final rule and summarizes how ERISA’s protections apply to these plans.
AHPs may be established under the new final rule as follows:
- All associations (new or existing) may establish a fully insured AHP starting on Sept. 1, 2018.
- Associations that sponsored a self-insured AHP on or before June 21, 2018, may expand within the context of the new AHP rule starting on Jan. 1, 2019.
- All other associations (new or existing) may establish a self-funded AHP starting on April 1, 2019.
Reporting and Disclosure
The DOL’s compliance assistance for AHPs addresses ERISA’s reporting and disclosure requirements for these plans. According to the DOL, three of the most important disclosures for AHPs are the following:
- Summary plan description (SPD) – A plain language summary of the plan and explanation of the plan’s rules. It must be comprehensive enough to inform participants of their rights and responsibilities under the plan. AHPs must provide it to each participant within 90 days of the individual becoming covered under the plan, and within 30 days after a written request.
- Summary of material modifications (SMM) – AHPs must also furnish an SMM to inform participants any time there is a material change to the AHP or the information required to be in the SPD.
- Summary of Benefits and Coverage (SBC) – The SBC is a disclosure that uses a uniform template to give AHP participants a clear, plain-language summary of the key features of a plan, such as covered benefits, cost-sharing provisions and coverage limitations. Plan administrators must provide an SBC as part of any written application materials, upon special enrollment, when coverage is renewed, and within seven business days of receiving a request.
In addition, AHPs, whether fully insured or self-insured, generally must file both a Form 5500 and a Form M-1 with the DOL. The Form 5500 is an annual report containing information about the plan, its finances and its operation. AHPs and other MEWAs must also file Form M-1s to register and report certain compliance information before operating in a new state, and on an annual basis.
Group Health Plan Requirements for AHPs
Anyone considering joining an AHP can use the DOL’s electronic Form M-1 database to determine whether the AHP has appropriately registered with the DOL. According to the DOL, since all AHPs must file the Form M-1, an AHP’s failure to register or to file a complete, accurate and timely Form M-1 is a red flag.
As ERISA-covered group health plans, AHPs are generally subject to the following requirements:
Group health plans must establish and maintain a claims procedure that participants and beneficiaries can use to apply for and receive the plan’s promised benefits. The DOL has issued rules setting minimum timing and content standards for benefit claims procedures and benefit determinations for ERISA plans (including insured and self-insured plans).
COBRA requires continuation coverage to be offered to covered employees, their spouses, their former spouses, and the dependent children when group health coverage would otherwise have been lost due to specific events. COBRA does not apply to employers with fewer than 20 employees. The DOL anticipates future guidance on the application of COBRA to AHPs that provide coverage to member employers with fewer than 20 employees.
ERISA establishes standards and rules governing the conduct of individuals and companies responsible for running group health plans, including AHPs. In general, employers that are members of an AHP have a fiduciary duty to monitor the AHP and get periodic reports on the fiduciaries’ management and administration of the AHP.
Various consumer protection provisions are also included in ERISA, including those contained in HIPAA, the ACA, the Mental Health Parity and Addiction Equity Act, the Newborns’ and Mothers’ Health Protection Act, the Women’s Health and Cancer Rights Act, and the Genetic Information Nondiscrimination Act, among others.
Regulatory Authority over AHPs
The DOL may issue a cease-and-desist order when it appears that a MEWA’s conduct is fraudulent, creates an immediate danger to the public safety or welfare, or is causing or can be reasonably expected to cause significant, imminent and irreparable public injury. The DOL may also issue a summary seizure order if it appears that a MEWA is in a financially hazardous condition. People marketing or maintaining AHPs may also face criminal penalties if they make false statements in connection with the sale or marketing of the MEWA. More comprehensive information on the MEWA provisions applicable to AHPs is available from the DOL.
In addition, states have authority to regulate MEWAs. States can regulate health insurance issuers and the health insurance policies sold to AHPs, and they can regulate self-insured AHPs to the extent the regulation is consistent with ERISA. The new final rule does not diminish state oversight. Employers and plan administrators should check with the applicable state insurance department for more information on that state’s insurance laws.
This Compliance Bulletin is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.
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