The Department of Labor (“DOL”) issued final regulations in June 2018, which loosened the DOL’s long-standing sub-regulatory guidance and allowed more organizations to form Association Health Plans (“AHPs”).  The impetus for issuing the regulations was to provide another option for small employers to have access to affordable, high quality health care.

AHPs would allow small employers to join together to obtain health coverage for employees.  If properly structured for ERISA purposes, the health plan would be treated as a single, large group health plan that would be exempt from certain ACA coverage mandates and could file Form 5500 as a single plan.  A health plan offered by the AHP would be subject to applicable state regulation.

The U.S. District Court for the District of Columbia threw a monkey wrench into the evolution of AHPs in March of 2019, when the Court ruled that certain aspects of the DOL’s final regulations violated ERISA. Specifically, the Court concluded that the DOL’s three-part test for defining a “bona fide” association, and the inclusion of working owners (i.e., sole proprietors) as eligible employers were an unreasonable interpretation of ERISA and were vacated by the Court. New York v. U.S. Dep’t of Labor, No. CV 18-1747 (D. DC, Mar 28, 2019).  The DOL disagreed with the Court’s holding and filed an appeal on April 26, 2019.

Pending the decision on appeal, the DOL issued two sets of Q&As addressing the status of AHPs, and a statement of non-enforcement, which provide:

  • Existing AHPs must continue to provide benefits to participants under the terms of the plan or policy.
  • The DOL will not bring an enforcement action against an AHP formed in good faith reliance on the final regulations, through the end of the plan year or contract year, as long as the AHP pays health benefit claims as promised.
  • AHPs formed under sub-regulatory guidance existing before the final regulations (referred to as “Pathway 1 AHPs”) are not affected by the district court’s decision and may continue to operate. In general, Pathway 1 AHPs may provide benefits to employees of employers who have a sufficiently close economic connection (such as those that are in the same trade or industry) or have a representational nexus to the group or association, but may not establish commonality based solely on geographic proximity.
  • “Pathway 2 AHPs” (those formed under the final regulations) may not market to, or enroll, new employer members. If they do, they will be outside of the DOL’s non-enforcement policy.
  • Existing Pathway 2 AHPs may enroll new employees of existing employer members and remain within the non-enforcement policy.

Although unstated, it seems clear that an organization may not start a new Pathway 2 AHP after March 28, 2019.

Bills have been introduced by the Republicans in both the House and Senate that would expressly amend ERISA to permit Pathway 2 AHPs.  However, given that the Democrats control the House, it is unclear whether either bill will pass both chambers of Congress.

Bottom line, the survival of Pathway 2 AHPs after the end of the current contract year or plan year is in serious jeopardy absent a contrary decision by a court or legislative action.  However, Pathway 1 AHPs continue to be viable and can provide good access to affordable health insurance for small employers.

About the Author

Cynthia A. Moore is a Member in Dickinson Wright’s Troy office where she assists clients in all areas of employee benefits law. She can be reached at 248-433-7295 or cmoore@dickinsonwright.com and you can visit her bio here.