Association Health Plans (AHP): Benefits and Federal Regulation

1. Association Health Plans 101Tony Greer, Attorney with Dickinson Wright

2. What is an AHP? • Background • Association Health Plan (AHP) is a general term used to describe a concept of allowing multiple employer entities (and, in some cases, individuals) that belong to a common industry, trade, or professional association to purchase health insurance as one entity. • Under an AHP, a trade group or association establishes an independent trust, and the health insurance carrier issues a single group insurance policy to the trust, or claims can be paid on a self-insured basis. • The AHP is considered to be a single plan covering multiple employers. • Governed by The Employee Retirement Income Security Act of 1974 (ERISA), CMS and the State Divisions of Insurance. • The AHP files a single Form 5500 for the plan. • The AHP is generally subject to the Multiple Employer Welfare Arrangement (MEWA) rules and files a Form M-1 with the Department of Labor.

3. The AHP Challenge • History of AHPs • Traditionally, the regulation of AHPs has been a joint and concurrent effort between the federal and state governments. • Specifically, states have the authority to engage in the financial regulation of AHPs. It is the state’s responsibility to ensure that AHPs remain solvent and adhere to state-specific marketing standards, operating procedures, and underwriting practices. • By contrast, the U.S. Department of Labor (DOL) oversees the enforcement of federal law governing employee welfare benefit plans that are subject to ERISA. • Today, it is possible for an AHP to be established within a single state; however, current ERISA rules make it very difficult for an AHP to achieve “single employer” classification. • Single employer plans vs. MEWAs • Large group treatment (LGT) vs. “look through” treatment • AHPs will only receive LGT if sponsored by a “bona fide group or association of employers” (this is a difficult standard to meet but not impossible)

4. Why the push for AHPs now? • Small Group vs. Large Group • Compared to the large group market, there are more extensive benefit and coverage requirements in the individual and small group market (per the ACA). • These more extensive requirements include requirements to: • Offer coverage for essential health benefit (EHB) categories • Maintain community rating standards • Impose network adequacy requirements • Perform state review of issuer rate and form filings. • Many of these requirements, including the EHBs, do not apply to or are not as strict for large group plans. • AHPs may obtain the same benefit flexibility and coverage choices as the large group market if they: • Self-insure • Are classified as a single-employer large group plan

5. Why the push for AHPs now?

6. Drivers Behind AHPs Rising healthcare costs continue to be a challenge for employers • Large employers expected a 5% increase for the 6th consecutive year • Small and medium-sized employers seeing 8%+ increases AHPs can be established as an alternative for small employers to band together • Group purchasing power comes into play • For self-insured programs, stop-loss is often purchased • Captives can fund a layer of risk for additional savings and flexibility

7. Benefits of an AHP • Allow small to mid-sized employers to be treated as a large group for insurance purposes • Can lower costs while adding coverage

8. Federal Regulation of AHPs • AHPs are MEWAs subject to regulation by the USDOL. • ERISA Section 3(40) – Defines a MEWA as an employee welfare benefit plan, or any other arrangement which is established or maintained for the purpose of offering or providing any benefit described in paragraph (1) [welfare plan benefits] to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries.

9. Federal Regulation cont. • An AHP can be either a single ERISA employee welfare benefit plan (“Plan MEWA”) or an AHP can consist of multiple single employer ERISA employee welfare benefit plans (“Non-Plan MEWA”) under USDOL guidance. • Most AHPs will be Non-Plan MEWAs. • Non-Plan MEWAs are not considered a large group plan under the ACA. • Non-Plan MEWAs must look through to the size of the participating employer to determine if the participating employer is a large employer or a small employer

10. Federal Regulation cont. • AHPs that qualify as Plan MEWA may be treated as one large group under the ACA provided the AHP covers more than 50 individuals. See September 1, 2011 letter from CMS regarding association coverage: https://www.cms.gov/CCIIO/Resources/Files/Downloads/dwnlds/association_coverage_9_1_2011.pdf • For an AHP to be a Plan MEWA, the AHP must be a bona fide group or association of employers (more on this later) • A Plan MEWA is considered the employer under Federal law and regulations and must file annually a Form 5500 for the AHP as well as Form M-1 • Since the Plan MEWA is considered the employer, working owners of participating employers may participate in the AHP as well as employees of those participating employers.

11. Federal Regulation cont. • AHPs, including both Plan and Non-Plan MEWAs, may operate as either fully insured or self-funded under ERISA § 514(b)(6)(A). • Fully insured means all of the benefits offered by the AHP are guaranteed under an insurance policy issued to the AHP from an insurance company licensed in a State. See ERISA § 514(b)(6)(D). • Self-funded means less than all of the benefits offered by the AHP are guaranteed under an insurance policy issued to the AHP from an insurance company licensed in a State • Stop-loss insurance does not make an AHP fully insured

12. Federal Regulation cont. Fully Insured AHPs • Under ERISA § 514(b)(6)(A)(i) the only state laws that are applicable to fully insured AHPs are insurance laws relative to requiring the maintenance of specified levels of reserves and specified levels of contributions, which the AHP must meet in to pay benefits in full when due, and provisions to enforce such standards. • States may apply and enforce any State insurance law requiring the maintenance of specific reserves or contributions • Federal law preempts any other state laws from applying to fully insured AHPs. • However, it is the view of the USDOL that 514(b)(6)(A)(i) clearly enables States to subject MEWAs to licensing, registration, certification, financial reporting, examination, audit and any other requirement of State insurance law necessary to ensure compliance with the State insurance reserves, contributions and funding requirements

13. Federal Regulation cont. Self-funded AHPs • Self-funded AHPs are subject to any law of any State which regulates insurance to the extent the state law is not inconsistent with Title I of ERISA. See ERISA § 514(b)(6)(A)(ii). • In general, a State law would be inconsistent with the provisions of Title I to the extent that compliance with such law would abolish or abridge an affirmative protection or safeguard otherwise available to plan participants and beneficiaries under Title I or would conflict with any provision of Title I, making compliance with ERISA impossible.

14. Federal Regulation cont. Self-funded AHPs • State insurance law generally will not be deemed “inconsistent” with the provisions of Title I if it requires AHPs to meet more stringent standards of conduct, or to provide more protection to plan participants and beneficiaries than required by ERISA.

15. State Regulation of AHPs • State regulation of AHPs varies from state to state. Must be very of aware of state laws before forming an AHP or allowing you AHP to operate in a new state. Examples • Tennessee • fully insured AHPs are not subject to state regulation • Self funded AHPs are subject to licensing, solvency and rate and form review laws. Associations must be in existence for 5 years and must have 2 employers with 500 employees or 10 or more employers before they will be eligible for a self-funded MEWA license; however, the self-funded MEWA license has a much lower solvency requirement than traditional insurance companies must have

16. State Regulation cont. • Alabama • fully insured AHPs are not regulated in Alabama. • self-funded AHPs are not regulated in Alabama. • Mississippi • fully insured AHPs are not regulated in Mississippi. • Mississippi considers self-funded AHPs as entities that do the business of insurance and must be licensed as insurance carriers in Mississippi.

17. Bona Fide Group or Association In order for an AHP to be considered a bona fide group or association of employers, there must be commonality amongst the employer members and the employers members must control the AHP. See Wisconsin Educ. Ass'n Ins. Trust v. Iowa State Bd. of Public Instruction, 804 F.2d 105 (8th Cir.), Gruber v. Hubbard Bert Karle Weber, Inc., 159 F.3d 780 (3rd Cir.) There are two ways for an association to meet the commonality and control requirements to be considered a bona fide group or association, Pathway 1 and Pathway 2. Pathway 1 developed over many years under regulatory guidance issued by the USDOL in the form of Advisory Opinions and under Federal Case Law. Pathway 2 was a new method created in the USDOL Association Health Plan Rule that became effective in June of 2018 and was subsequently struck down in March of 2019.

18. Pathway 1 Commonality • In order for an AHP to be a bona fide group or association under the Pathway 1 commonality requirement, employer members must be tied by common economic or representative interest beyond enrolling in the health plan. • Under the USDOL guidance, they will look at the following factors to determine under the facts and circumstances whether an AHP meets the commonality requirement: • How members are solicited • Who is entitled to participate, and who actually participates • The process by which the association was formed • Association’s purpose • Relationship of members outside of association • Powers, rights and privileges a member enjoys See USDOL Advisory Opinions 2003-13A and 2017-02ac.

19. Pathway 1 Control • In order for an AHP to be a bona fide group or association under the Pathway 1 commonality requirement, employer members must control the AHP. • Under the USDOL guidance, the employers that participate in the AHP benefit program must, either directly or indirectly, exercise control over the program, both in form and in substance. • The representative employer-members of the association must actually be involved in designing and administering the plan of benefits made available to their employees. • Control exercised through a sub-group may be sufficient. See USDOL Advisory Opinions 2003-13A and 2017-02ac

20. Pathway 1 Subgroup • An AHP can only qualify as a bona fide group or association under Pathway 1 if all of the members of the association are employers. • However, an association with both employer and non-employer members may create a subgroup of the association consisting of only employers and the subgroup may qualify as a bona fide group or association as long as the subgroup meet the Pathway 1 commonality and control requirements. • Sole proprietors are not employers unless they have at least one common law employee See USDOL Advisory Opinions 2003-13A and 2017-02ac

21. Pathway 2 Commonality • Association Health Plans can be formed by employers in the same trade/industry/line of business/profession • AHPs can also be formed across multiple businesses within a single US state, city, county, or metro area • AHP must have at least one substantial business purpose unrelated to the provision of health coverage or other employee benefits (even if the primary purpose of the group or association is to offer such coverage to its members)

22. Pathway 2 Control • Control still must exist in form and substance • The functions and activities of the group or association must be controlled by its employer members, and the employer members that participate in the group health plan must control the plan. • The USDOL will consider: • 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.

23. Pathway 2 Additional Requirements • In additions to meeting the commonality and control requirements, AHPs under Pathway 2 must follow eligibility and non-discrimination requirements • Eligibility • AHP enrollment is limited to current employees (and their beneficiaries) or former employees of a current employer member • Former employees had to have been eligible for coverage in the AHP plan when they were an active employee • Working owners (who work at least 20 hours per week/80 hours a month) with no employees may be members of an association and be treated as an employee of their business in order to enroll in the AHP

24. Pathway 2 Additional Requirements • Non-Discrimination • Associations cannot restrict membership in the association based on a health factor. • Health Factor: health status, medical condition, claims experience, receipt of health care, medical history, genetic information, evidence of insurability, and disability • Each employer within an association cannot be different group of similarly situated employee. • AHPs cannot experience rate employer members based on health statuses of employees, but different premiums may be charged for non-health related business reasons. • Pathway 1 AHPs do not have specific non-discrimination requirements like Pathway 2 AHPs. However, Pathway 1 AHPs are subject to the Federal HIPAA non-discrimination requirements for group health plans.

25. Why Are AHPs Grabbing Headline Space Now?

26. Why Are AHPs Grabbing Headline Space Now? • Presidential Executive Order • On October 12, 2017, President Trump signed a “Presidential Executive Order Promoting Healthcare Choice and Competition Across the United States.” • The stated purpose of this Order is to, “facilitate the purchase of insurance across State Lines and the development and operation of a healthcare system that provides high-quality care at affordable prices for the American People.” • One of the stated goals in the Executive Order is to expand access to and allow more employers to form Association Health Plans (“AHPs”). • The Executive Order directed the Department of Labor to consider proposing new rules to expand the definition of “employer” under Section 3(5) of the Employee Retirement Income Security Act of 1974 (“ERISA”). • The Department of Labor issued its proposed rule on January 5, 2018. • The Department of Labor issued its final rule on June 21, 2018. • Federal Judged overturned the final rule in a decision issued on March 28, 2019.

27. State Reactions to AHPs & MEWAs Does not support MEWAs or AHPs Supports MEWAs/ Pathway 1 but did not support Pathwat 2 Supports MEWAs/ Pathway 1 and supported Pathway 2

28. The State of AHP’s Post Federal Court Ruling • The court’s ruling stemmed from a misalignment between the Final Rule, ERISA and the ACA. • Where this leaves us: • New regulations (Pathway 2) no longer valid in the states that sued the federal government • Old regulations (Pathway 1) still apply in all states • Insurance regulation still lives at the state level, with some states opting for a more generous program than the ACA, others checking off the required boxes, and others moving forward with AHP expansion as a means to combat rising healthcare costs • Under the court ruling, no Pathway 2 AHPs can be created; and currently the DOL is following the court ruling • On May 13, 2019 the USDOL issued a FAQ stating that Pathway 1 AHPs are unaffected by the court ruling

29. The State of AHP’s Post Federal Court Ruling • On May 3, the Employee Benefits Security Administration of the USDOL issued a statement confirming that employers participating in insured Pathway 2 AHPs formed before the court ruling can generally maintain that coverage through the end of the plan year or, if later, the contract term • On May 13, 2019 the USDOL issued a FAQ addressing the status of AHPs after the court ruling confirming that: • Pathway 1 AHPs are unaffected • Pathway 2 AHPs formed before the court ruling can no longer market and sign up new employer members; and • Pathway 2 AHPs formed before the court ruling can generally maintain that coverage for the contract term that was in place at the time ofteh court ruling even if the contract term is longer than the plan year.

30. The State of AHP’s Post Federal Court Ruling • The USDOL filed its notice of appeal seeking to overturn the court ruling on April 26, 2019. • Numerous briefs have been filed by the parties, including numerous Amicus Briefs filed on behalf of the both parties. • Final briefs were filed on August 8, 2019. • No date set for oral arguement

31. Incorporating Captives • As smaller employer members band together to form associations or AHPs, they can collect data as a larger group from the carrier to gain insights and understand how their rates compare to market averages • Many carriers will not work with new groups seeking to be fully-insured. • Often carriers want an association to have been in existence for several years before they will insure the AHP. • After generating experience, many associations then may decide to move from their fully-insured model to a self-insured captive model to gain further trend analyses into their claims data and tap into more financial savings • Allows them to hold on to and consider additional risks • Enhances customization of coverage and plan control • Captives are a smart option for self-insured associations looking to provide medical stop-loss coverage

32. Forming an AHP • Several way to form an AHP. • An association that is a bona fide group or association can seek a group policy from a licensed insurer. • An association that is not a bona fide group or association can create a trust that only employer members may join. • The trust can be the bona fide group or association. • Need trust agreement. • Need participation agreement for participating employers. • Need a plan document. • Trust can either be fully insured and seek a group policy from a licensed insurer or the trust can self-funded provided it complies with state law.

33. Examples Self-Funded AHPs • Alabama Dental Association • Tennessee Dental Association • Home Builders Association of Tennessee Fully Insured AHPs • Tennessee Bar Association • Nebraska Bar Association

34. Other failed efforts to expand AHPs • Better Care Reconciliation Act • Agriculture & Nutrition Act of 2018

35. Better Care Reconciliation Act“The Senate’s ACA Repeal & Replace Bill”

36. Better Care Reconciliation Act“The Senate’s ACA Repeal & Replace Bill” • Released on June 22, 2017. • Included a provision to create new association health plan options for small employers and self-employed individuals (“small business health plans” [SBHPs]). • SBHPs would be considered part of the large group market, and would therefore not be subject to the ACA-mandates in the small group and individual markets. • The bill included broad preemption language stating that federal standards, “shall supersede any and all State laws insofar as they may now or hereafter preclude a health insurance issuer from offering health insurance coverage in connection with a [certified] small business health plan.” (In short, this language was broad, and the state’s ability to regulate SBHPs was ambiguous.) • The bill was revised significantly on July 25, 2017 (“Health Care Freedom Act”), and it was subsequently rejected in the Senate by a vote of 49-51.

37. Agriculture & Nutrition Act of 2018“The Farm Bill”

38. Agriculture & Nutrition Act of 2018“The Farm Bill” • Introduced on April 12, 2018. • A very large piece of legislation that has major implications for federal support of farmers, food prices, food aid for poor people, land conservation, and what kinds of food are grown in the United States, among other things. • Included within the Bill is a call for $65 million in loans and grants administered by the Department of Agriculture to help establish agriculture-related “association” type health plans. • Beginning in 2019, the Bill would allow up to 10 loans of no more than $15 million each to existing associations whose members are within the agricultural field (ranchers, farmers, or other agribusinesses). • On May 18, 2018, the House of Representatives voted down the proposed Farm Bill by a vote of 198-213.

39. Incorporation of AHP Language Into Market-Shifting Legislation • Why is this significant (even though these efforts failed)? • AHPs are widely viewed as one key to dismantling the ACA. • Various industry stakeholders and trade associations have voiced policy concerns with the deregulation and expansion of AHPs. Specifically: • The National Association of Insurance Commissioners (NAIC) has historically opposed the expansion of AHPs, stating that they have the potential to, “1.) Threaten the stability of the small group market; and 2.) Provide inadequate benefits and insufficient protection to consumers.(i) • The American Academy of Actuaries shares a similar sentiment stating “1.) AHPs could create adverse selection concerns if they operate under different rules; 2.) AHPs face increased insolvency risk without clearly defined regulatory authority; 3.) AHPs would need to be subject to state-level consumer protection laws; and 4.) AHPs would be unlikely to obtain lower provider payment rates than larger insurance companies.(ii) • NAIC Consumer Alert: Association Health Plans Are Bad For Consumers. http://www.naic.org/documents/consumer_alert_ahps.pdf • American Academy of Actuaries: Issue Brief. https://www.actuary.org/content/association-health-plans-0

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