The U.S. Department of Labor has released a final rule that describes the criteria for establishing a “bona fide” association health plan under ERISA. This rule implements an October 2017 directive from President Trump to make association plans easier to form and available to more employers.
There is a lot of detail in the rule that is relevant to organizing and operating an association health plan, but here are three big-picture things employers should know about the rule at this early stage in its existence.
- Don’t Give Up Your Current Plan Just Yet. The DOL rule is intended to provide employers—particularly smaller employers—with additional options for purchasing health coverage, and the rule makes it easier to use an association structure to allow unrelated employers to jointly purchase coverage. But, there are still a lot of hoops to jump through to get a new association plan off the ground. Don’t expect to see them popping up overnight. And, if a new one does emerge, make sure you ask lots of questions before signing up. Not all association plans are created equal. Some are very well managed and provide a reliable source of coverage for employers and their employees. Others, not so much.
- Sharing Is Caring, But Do You Want to Share Health Expenses? One anticipated benefit of association plans is providing small employers with an alternative to purchasing insurance in the small group insurance market. Small group insurance coverage can be expensive due to the ACA requirement that all small group plans offered by an insurer must be rated together, effectively requiring all employers participating in those plans to share their health care expenses. But guess what? A similar requirement applies to association plans established under the new DOL rule. All employers participating in a single association plan generally must be rated together. This is designed to prevent singling out less-healthy groups, but it could translate into increased costs for some employers participating in the pool.
- Be Sure to Check Your Local Listings. The DOL rule addresses federal requirements for creating bona fide association plans. But association plans (sometimes also called “MEWAs” or “multiple employer welfare arrangements”) are subject to state regulation as well, and states historically have not viewed them favorably. In Kansas, it was generally considered “illegal” to establish and operate a self-insured association plan prior to 2014, unless you fit within one of a handful of narrow exceptions. There is now more leeway on that, but the requirements do not align perfectly with the new DOL rules. Any new association plan would need to check out under both the DOL rule and state law.
Expanded opportunities to form association health plans will likely benefit many employers looking for alternatives to traditional single-employer health plans. However, these are complex arrangements that will take some time to design and set up in a stable and cost-effective manner.