Commonality of Interest
Under current DOL guidance, an association or group of employers must share or be connected by a common “economic or representational interest” unrelated to the provision of health coverage.
In the past, the DOL has focused on specific facts about the employer members to determine whether they share some genuine organizational relationship unrelated to health coverage. Under the proposed rule, an association would meet the commonality of interest requirement if the member employers:
- Are in the same trade, industry, line of business or profession, regardless of their geographic location; or
- Have a principal place of business in a geographic region within the same state or metropolitan area, including cities, counties and metropolitan areas that include more than one state (e.g., Kansas City).
Under current law, self-employed individuals with no common law employees are not deemed to be employers for ERISA purposes and, therefore, cannot be members of an association.
The proposed rule would allow “dual treatment” of individuals who are “working owners” of a business, including partners and other self-employed individuals. They would be allowed to act as employers for the purpose of participating in the association, and as employees eligible to participate in the AHP.
To address concerns that healthy individuals will migrate to AHPs, leaving only less-healthy individuals in the ACA-compliant individual and small group health insurance markets, and to ensure that AHPs are genuine employment-based plans and not simply insurers claiming to be AHPs, the proposed rule requires health coverage offered by AHPs to comply with various nondiscrimination provisions.
AHPs would not be permitted to condition employer membership based on any health factor of an employer’s employees, former employees, family members or other beneficiaries, and must comply with the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and ACA nondiscrimination rules, which govern eligibility for benefits and prohibit discrimination related to premiums or contributions required of health plan participants or beneficiaries.
Concerns about Expanding AHPs
Potential for Fraud
In the past, some associations that claimed ERISA preemption from state insurance regulation defrauded their members and were unable to pay millions of dollars of employee claims when they became insolvent. In 1983, Congress amended ERISA to give states some regulatory authority over both self-insured and fully insured MEWAs (including AHPs) related to solvency, state licensure and financial reporting. In 1996, Congress again amended ERISA to give the DOL authority to require both fully insured and self-insured MEWAs to register with the DOL. Despite this grant of authority, fraud and abuse by AHPs continued. Between 2001 and 2003 four established self-insured associations located in California, Indiana and New Jersey covering 66,000 people became insolvent and left $48 million in unpaid medical claims.
The ACA imposed additional reporting requirements on MEWAs, and authorized the DOL to take immediate action to address fraudulent MEWAs. However, concerns persist about the potential for fraud and insolvency if AHPs become more available, causing stakeholders such as the National Association of Insurance Commissioners (NAIC) and the National Governors Association (NGA) to oppose federal efforts to make AHPs exempt from state law and oversight. The DOL acknowledged in its proposed rule that it would need additional resources if the rule is finalized.
Reduced Consumer Protections
While coverage for individuals and small employers that obtain coverage through fully insured AHPs is currently regulated under the same standards that apply to traditional individual and small group markets, including compliance with the ACA’s consumer protections for people with preexisting conditions, coverage for the essential health benefits, and compliance with rating rules, those standards do not apply when the coverage is sponsored by an association that constitutes a single ERISA-covered multi-employer. AHPs regulated as a group health plan under ERISA would not have to comply with many of the ACA’s requirements.
Impact on the Individual and Small Group Markets
Both the NAIC and the American Academy of Actuaries (AAA) have expressed concerns about the potential impact of the proposed AHP rule, if finalized, on the traditional individual and small group markets. While the DOL asserts that the establishment and operation of more AHPs will make more affordable health insurance options available to employees of small businesses, the NAIC and the AAA are concerned that AHPs could cause a shift of healthy individuals away from the traditional markets by offering plans with reduced benefits and lower premiums. AHPs would have greater flexibility when setting premiums, and could choose to rate based on factors such as age, group size and the type of business in which an employer works.
AHPs also could choose to limit or not provide coverage for certain types of benefits, such as prescription drugs or mental health services, to make them less attractive to individuals with greater health needs. While this approach to benefit design would not violate the nondiscrimination provisions of the proposed rule, it could discourage some individuals from enrolling in AHPs and keep them in the ACA compliant markets.
Under Kansas law, association health plans are largely exempt from the jurisdiction of the Kansas insurance commissioner. If the proposed rule is finalized, the Kansas Legislature may want to consider the potential impact an expansion of AHPs could have on Kansans and the state’s individual and small group health insurance markets. They also may want to consider expanding the commissioner’s authority to regulate AHPs, such as requiring them to be licensed as a type of insurer, establishing minimum financial solvency standards, and requiring the filing of premium rates and policy forms.