The Department of Labor (DOL) has issued guidance for establishing and maintaining association health plans (AHPs).
In June, the agency finalized regulations to expand the opportunity to offer employment-based health insurance to small businesses through Small Business Health Plans, also known as AHPs.
Under the DOL’s new rule, AHPs can serve employers in a city, county, state, or a multi-state metropolitan area, or a particular industry nationwide. Sole proprietors as well as their families will be permitted to join such plans. In addition to providing more choice, the new rule makes insurance more affordable for small businesses. Just like plans for large employers, these plans will be customizable to tailor benefit design to small businesses’ needs. These plans will also be able to reduce administrative costs and strengthen negotiating power with providers from larger risk pools and greater economies of scale.
The guidance, presented in a Q&A format, explains that provisions of the Employee Retirement Income Security Act (ERISA) apply to AHPs. “In general, an employee welfare benefit plan covered by ERISA is subject to reporting and disclosure requirements, claims procedure rules, and fiduciary rules. In addition, AHPs and other covered group health plans must comply with health care continuation coverage provisions under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), and the health care protections provided in Health Insurance Portability and Accountability Act (HIPAA), the Affordable Care Act (ACA), the Mental Health Parity and Addiction Equity Act and other group health plan laws,” the guidance says.
Plan sponsors must provide to participants the Summary Plan Description, Summary of Material Modifications and the Summary of Benefits and Coverage. AHPs must also have a written plan document and file a Form 5500 annually.
In addition, ERISA requires that plan assets be held in a trust by one or more trustees or by an insurance company as part of an insurance contract. The plan document must provide for one or more named fiduciaries to control and administer the AHP. “Under ERISA, fiduciaries must discharge their duties solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan. In discharging their duties, fiduciaries must act prudently and in accordance with ERISA and the documents governing the plan,” the guidance says.
The guidance document points out that ERISA includes a number of exemptions (called “statutory exemptions”) that allow AHPs to conduct necessary transactions that would otherwise be prohibited. The Labor Department may also grant additional “administrative” exemptions. In addition, the Department of Labor’s Voluntary Fiduciary Correction Program (VFCP) is available for AHPs to correct any errors.
States have some authority over AHPs. The DOL explains that ERISA expressly provides both the Department and state insurance regulators joint authority over AHPs. In addition, states can regulate health insurance issuers and the health insurance policies they may sell to AHPs, and they can regulate self-insured AHPs to the extent the regulation is not inconsistent with ERISA. “The new 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,” the agency suggests.
All associations (new or existing) may establish a fully-insured AHP starting on September 1 of this year. Existing associations that sponsored a self-insured AHP on or before the date the new rule was published may expand within the context of the new AHP rule starting on January 1, 2019. All other associations (new or existing) may establish a self-funded AHP starting on April 1, 2019.The complete guidance may be found here.