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What Employers Need to Know

About the DOL’s Association Health

Plans Final Rule

Presented by:Lorie Maring

Phone: (404) 240-4225Email: lmaring@fisherphillips.com

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AGENDA

• Provide an overview of the U.S. Department of Labor’s (DOL’s) association health

plans final rule.

• Discuss the non-regulatory definition of “employer” and non-regulatory guidance on

association health plans.

• Describe how the association health plans final rule is different than non-regulatory

guidance.

• Discuss the challenges and potential solutions to forming a self-funded association

health plan.

• Explain how states currently regulate association health plans and discuss how

states may continue to regulate associations health plans, in light of the final rule.

• Discuss successful models of association health plans.

• Discuss how brokers can assist employers in joining or creating association health

plans.

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DOL Association Health Plan

Administration’s Goals:

• Give small employers access to large group market

• Allow sole proprietors and independent contractors to participate

• Avoid market reforms that make individual and small group coverage more costly

Final Rule Issued 6/19

• Modified the Proposed Rules

• Staggered Effective Dates beginning 9/1/2018 through 4/1/2019

• Failed to expand ERISA preemption

• Subject to a lawsuit by an expanding number of states

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What Changed from Proposed Rule?

Clarified that Pre-Rule Guidance is Still Good Law

• Two tracks for AHP/MEWAs

• New AHP Final Rules

• Existing (and presumably future) rulings

• Three types of AHP/MEWAs

• Bona Fide MEWA under pre-rule guidance

• AHPs under final regulations

• Non-Plan Level MEWAs under pre-rule guidance

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What Changed from Proposed Rule?

• Associations must have substantial business purpose unrelated to providing health

insurance

• Clarifies that AHPs may discriminate against one or more individuals based on non-

health factors such as age, gender, industry, occupation or geography

• Clarifies open enrollment periods to limit adverse selection

• Clarifies that AHPs under pre-rule guidance have more flexibility to discriminate in

premium rating by individual employers

• Made changes to rules for qualifying sole proprietors for AHP coverage

• Clarified wellness incentives allowed

• Clarifies that employer members must have control in form and substance

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AHP Effective Dates

• September 1, 2018 – fully-insured AHPs

• January 1, 2019 – existing self-insured AHPs that are

“Plan Level MEWAs” under existing DOL guidance

• April 1, 2019 – new self-insured AHPs formed under final

rule

While AHP rules are final at Federal Level – State activity

is increasingly hostile

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Pre-Rule AHP/MEWAs

MEWA: A multiple Employer Welfare Arrangement (“MEWA”) is defined as (1) an employee welfare benefit plan or (2) other arrangement that is established or maintained for the purpose of offering or providing medical or other welfare benefits to employees of TWO OR MORE unrelated employers, including self-employed individuals.

Unintentional MEWA

• (Un)related employers

• Independent Contractors

Intentional MEWA

• Self-Funded Trade Association Plan

• Insured Trade Association Plan

• Self-Funded Commercial MEWA

• Insured Commercial MEWA

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MEWA BASICS

• All MEWAs under Pre-Rule Guidance are Either a “Plan” or “Non-Plan” MEWA• ERISA applies to “employee benefit plans”

• To be an “employee benefit plan”, you need an “employer” sponsor

• A MEWA can be one employee benefit plan sponsored by one employer (a “Plan MEWA”) – or

• A MEWA can be multiple employee benefit plans sponsored by each employer in the MEWA (a “Non-Plan MEWA”)

• AHPs under Final Rule are generally treated as Plan MEWAs• But while Pre-Rule MEWAs apply to any welfare benefit program, AHPs under Final

Rule limited to health plans (any ancillary benefits in an AHP are at the employer level for ERISA compliance as a Non-Plan MEWA)

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MEWA BASICS

How do you know?

- Determined based on status of participating employers as a “single employer”

An “employer” is defined in ERISA section 3(5) as “any

person acting directly as an employer, or

indirectly in the interest of an employer, in

relation to an employee benefit plan; and

includes a group or association of employers

acting for an employer in such capacity.”

EBP •Employer/plan sponsor

EBP •Employer/plan sponsor

EBP •Employer/plan sponsor

EBPEmployer

/Plan Sponsor

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MEWA BASICS – PRE-RULE

Group or Association of Employers as a “Single Employer” under ERISA

DOL views only a very small number of MEWAs at the plan-level and as sponsored by a single employer – three general factors in DOL/Court rulings

• “Bona fide” group or association of employers –• not formed for purpose of obtaining insurance - pre-existing

relationships

• Not the same as “association plans” for underwriting/HIPAA

• Commonality of Interest –• how members solicited, purposes for which organization formed,

who actually participates

• Control • Employer-members must have special status and control (in form

and substance) over the MEWA

• DOL Advisory opinion 2003-13A provides any MEWA covering a working owner with no common law employees cannot be a Plan-level MEWA.

NON-PLAN

MEWAs

PLAN MEWAs

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AHP FINAL RULE

Qualifying AHPs as plan level MEWAs will be exempt from the following PHSA requirements on federal level as large group coverage:

• Community rating

• Premium rating restrictions of 3:1

• Requirement to provide EHBs

• Medical Loss Ratio requirements

• Guaranteed issue/renewability

• Single risk pool by issuer

• Risk adjustment program

Look Through Policy – CMS bulletin – 9/1/2011 – status as individual, large group or small group for federal law is based on status as an ERISA employer – if association is not a single employer, must look through to size of each participating group or individual for status

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AHP FINAL RULE

AHP as a “Single Employer” Although rules materially relax ERISA definition of employer, still designed to exclude commercial enterprises and focuses on employer status:

• Only employers and their employees/dependents can participate (no size limit) AHP must have formal structure and organization

• Employers must control the AHP in form and substance

• Must be an employer association (not a membership organization such as AAA) and cannot be an insurance carrier

• Same trade or industry or geographic restrictions

• Must have substantial business purpose other than insurance

• Working owners must show legitimate business

• Must not discriminate on health factors

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Primary Purpose

• Primary purpose may be to offer and provide health coverage to employer members and employees

• Must have at least one substantial business purpose other than providing insurance

• DOL Safe Harbor: “the group or association would be a viable entity in the absence of sponsoring an employee benefit plan”

• not required to be a for-profit activity

• Example: Association “convenes conferences and provides educational materials and opportunities to its members”

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Employer Members

• Each employer member of the AHP is a person acting directly as an employer of at least one employee covered under the plan

• Insurance carrier may participate in AHP as an employer of its covered employees

• For purposes of Final Rule AHPs only, working owners are treated as “employers” if: • Individual has an ownership right of any nature in a trade or business, including

partnership and self-employed

• Is earning wages or self-employment income from the business

• Either (1) works in the business 20 hours a week or 80 hours a month and (2) earns enough income to cover cost of health coverage for individual and dependents

• Determination of working owner status must be periodically confirmed by AHP

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Non-Discrimination

Generally, the ACA/HIPAA non-discrimination rules will apply at AHP level

• Membership in the group or association cannot be based on any health factor

• The group or association cannot establish eligibility rules that discriminate on the basis of a health factor

• The group or association cannot discriminate with regard to premiums based on health factors

• Prohibits eligibility distinctions and premium differences between individual employers based on health status (e.g. claims experience) – Pre-rule bona fide AHPs have more flexibility

However, associations can set rates based on bona fide employment-based classifications (such as part-time or full-time), age and gender, or based on geography or industry type

other laws may prohibit age and gender distinctions

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Commonality of Interest

DOL significantly relaxed the commonality of interest requirement in pre-rule guidance,– two ways to satisfy:

• Limited Geographic Area:

• Principal place of business in a single state or metropolitan area (safe harbor: an area that matches a Metropolitan Statistical Area or a Combined Statistical Area as defined by OMB)

• Being in the same trade, industry, line of business, or professions (not defined and to be construed broadly).

• North American Industry Classification System (NAICS) codes (also used in Form 5500 Annual Reports);

• Standard Industrial Classification codes (which precede the NAICS);• The OECD International Standard Industrial Classification;• Any other “generally-accepted classification system” of the same sort; and/or• The “line of business” test set forth in Treasury Regulations governing membership in a voluntary

employees’ beneficiary association (VEBA). Specifically, “employees of one or more employers engaged in the same line of business in the same geographic locale will be considered to share an employment-related bond for purposes of an organization through which their employers provide benefits.”

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Formation and Control

• Formal organizational structure.

• Generally look to state law – not required to be a non-profit

• Control by employer members: Control must exist in “form and substance” determined by relevant facts and circumstances, including:• Whether employer members regularly nominate and elect directors,

officers, trustees, or other similar persons that constitute the governing body or authority of the employer group or association and plan

• Whether employer members have authority to remove any such director, officer, trustees, or other similar person with or without cause; and

• Whether employer members that participate in the plan have the authority and opportunity to approve or veto decisions or activities which relate to the formation, design, amendment, and termination of the plan, for example, material amendments to the plan, including changes in coverage, benefits, and premiums.

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AHPs Subject to ERISA

• Final Rule AHPs are ERISA employee benefit plans and must comply with the following ERISA requirements:• Reporting and disclosure requirements – i.e., SPD, SMM, SBC, Form 5500 (with audit

for funded plans), SAR, Form M-1 (annual filing for MEWAs and requires 30-day advance registration before operating)

• Fiduciary responsibility, prohibited transactions rules, and trust requirements (note even fully-insured AHPs may need a trust if administrator collects premiums)

• Administrative and enforcement provisions – claims procedures, remedies available to participants and preemption provisions

• Preamble declined to address application of most other federal laws to AHPs that may not be based on ERISA definition of employer for determining size and leaves open room for future guidance on whether group size or look through approach for COBRA, ACA mandate, Medicare Secondary Payer; premium tax credit rules, etc.

• Preamble did emphasize that MHPAEA applies to AHPs based on the aggregate size of the group under the definition of employer in ERISA Section 3(5)

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AHP FILING REQUIREMENTSFORM 5500

• Final Rule AHPs file one Form 5500 (participating employers have no separate filing requirement)

• Final Rule AHPs offering non-health benefits – appears each participating employer would need to file a Form 5500 – unless AHP qualifies for special rule allowing fully insured MEWAs to file Form 5500 as a direct filing entity (DFE)

• All AHPs must include proof of compliance with the Form M-1 filing obligation as part of the Form 5500 filing

• No small plan (less than 100 participants) exception from Form 5500 filing requirement allowed for AHPs

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AHP FILING REQUIREMENTSFORM M-1

• AHP must file a Form M-1 with the DOL on an annual basis by March 1 (subject to a possible 60-day extension)

• AHPs must file its initial Form M-1 in the following events

• 30 days prior to operating in any state

• Within 30 days of knowingly operating in any state that is not identified on a previous Form M-1

• Within 30 days of operating for employees of an additional employer after a merger with another AHP

• Within 30 days of the date the number of employees receiving coverage increases by 50% from the prior year

• Within 30 days of experiencing a material change as defined in the Form M-1 instructions

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ERISA PREEMPTION

• DOL declined to expand ERISA Preemption – limiting opportunity for expansion of AHPs – noted it could reconsider if state’s severely restrict AHPs from operating

• The scope of state regulation of MEWAs depends upon whether the arrangement is “fully insured” or “self-funded”

• Fully insured MEWA – an arrangement where all of the benefits are determined by DOL to be guaranteed under an insurance contract issued by an insurer authorized to do business in a state – purchase of stop-loss or reinsurance does not make a MEWA fully insured

• Self-funded MEWA – any arrangement that is not fully insured

• Fully Insured AHP – subject to any state insurance law regarding maintenance of specified levels of reserves, contributions or funding requirements (i.e., licensing, registration, financial reporting, examination, audit requirements).

• States have broad power to regulate self-funded MEWAs, including AHPs not determined by DOL to be fully-insured, regardless of EBP status as long as the law relates to insurance regulation and is not inconsistent with ERISA. Preamble notes states may impose EHB and other coverage mandates.

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DOL Association Plan ProposalState Regulation

State Concerns with AHP Expansion:

• Self-funded MEWAs have a long history of fraud and inability to pay benefits –prohibited or heavily regulated in many states, in most regulated as an unlicensed insurance company

• Cherry picking good risk – forming associations of industries with healthier employees/working owners

• AHP sponsors adopting policies in states with less consumer protections

• Impact on individual and small group markets

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DOL Final RuleState Reaction

States poised to frustrate AHP Expansion:

• Lawsuit challenging rule’s implementation – (D.C. and 11 states have joined to date):

• Possible increased restrictions and rules prohibiting self-funded and fully-insured AHPs

• EHB requirements on AHPs

• Prohibiting sole proprietors/small employers from participating in AHPs

• Requiring sponsoring association to have been in existence for a number of years before sponsoring health plan

• Possible creation of reinsurance/bail-out funds by additional fees on self-funded AHPs

• Possible assessments on all AHPs to shore up degradation of small-group/individual MKTs

• Imposing extra-territorial or state-level look-through rules (e.g. Mass prohibits small employers from forming large group MEWAs, NY imposing look through and EHBs on AHPs)

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Challenges for Self-Funded AHPs

• Increased costs for compliance –• Financial audits

• Trust requirement – Tax-exempt VEBA may not be an option

• Heightened fiduciary requirements under ERISA for trustees

• No limitations by DOL on states’ ability to regulate – already prohibited in many states

• May need to be a licensed insurance carrier/maintain significant reserves to operate

• May need to limit to single states where MEWA “friendly”- but caution that even historically friendly states have joined lawsuit and proposing rules to restrict AHPs

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Opportunity for Creating Fully-Insured AHPs

• Single state or region that is MEWA friendly

• Existing trade associations

• Franchisors

• Chambers of Commerce

• Application process for DOL?? – currently no formal procedure and must

obtain an advisory opinion for determination of fully-insured status for ERISA preemption protection (DOL could issue future guidance addressing this issue)

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NEXT STEPS

• Engage local counsel for evaluation of state regulation and likely changes

• Monitor future guidance from DOL and outcome of litigation

• Determine whether qualification as a Bona Fide AHP or Final Rule AHP is better for your situation

• Consider impact of state extraterritorial, look-through and EHB requirements

• Be prepared to fully vet any self-insured AHP as a participating employer to ensure proper protections are in place for benefit payments

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Final QuestionsEmail: ubamember@fisherphillips.com

Presented by:Lorie Maring

Phone: (404) 240-4225Email: lmaring@fisherphillips.com

HRCI –SHRM –

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Thank You

Presented by:Lorie Maring

Phone: (404) 240-4225Email: lmaring@fisherphillips.com