June 20, 2018Client Alert

Expanded Access to Association Health Plans Means More Health Coverage Options for Small Employers

As previously discussed here, the President issued an Executive Order last fall which sought to expand access to association health plans (called AHPs).  The theory was that AHPs help small businesses compete with larger employers by allowing them to group together to self-insure or purchase large group health insurance. Larger employers often have an advantage when purchasing health coverage by having a larger risk pool and thereby securing lower insurance rates.

In response to that Executive Order, the Secretary of Labor issued guidance aimed at expanding access to health coverage by allowing more employers to form AHPs. The rule issued by the Secretary was finalized yesterday and is available here.

As stated in the AHP “fact sheet”, the final rule offers new options with respect to AHPs, including the ability to form an AHP based on a geographic test such as a common state, city, county, or a metropolitan area across state lines (rather than limiting the formation to employers in a like trade or industry). Under the new geography test, where the employer’s principal place of business is located is what controls. 

A few other highlights of the final rule include:

  • The new expansion of AHPs allows working owners without employees, including sole proprietors, to join AHPs.
  • The Secretary clarified/reconfirmed that the wellness program rules under HIPAA’s nondiscrimination rules continue to apply to AHPs.  As a reminder, the HIPAA health nondiscrimination rules generally permit rewards of up to the 30 percent of the total cost of coverage under the plan, except that the percentage is increased by an additional 20 percentage points (to 50 percent) to the extent that the additional percentage is in connection with a program designed to prevent or reduce tobacco use.
  • Previously existing AHPs, which were allowed under prior guidance, are not impacted by the new rules.

As is customary when issuing rulemaking, the Congressional Budget Office (CBO) performed an analysis of the likely impact of the regulations. In doing do, the CBO estimated that millions of people will switch their coverage to AHPs and achieve to more affordable premiums and more flexible coverage. The CBO also estimated that 400,000 previously uninsured people will gain coverage under AHPs.

New and existing associations that wish to take advantage of the new rules may do so on or after September 1, 2018 (if establishing a fully-insured AHP) or April 1, 2019 (if establishing a new self-funded AHP). Existing associations that sponsored a self-insured AHP on or before June 19, 2018, may start operating under the new rules as of January 1, 2019.

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