The Department of Labor on April 29 issued a final rule rescinding Trump-era regulations that expanded the number and types of employers that could band together to create association health plans to cover their employees.
The 2018 regulations, which have been in legal limbo since 2019, also allowed these association health plans avoid many consumer-protection elements of the Affordable Care Act, which critics said would open the door to participating employers offering insufficient coverage.
The DOL said it needed to rescind the law due to concerns about the potential for fraud and mismanagement in association plans. It said that the new rules limit these plans to “true employee benefit plans” that are the result of a “genuine employment relationship” and not an effort to skirt consumer protections built into the ACA.
Once the final rule takes effect in late May, employers that want to create an association plan will have to comply with much stricter rules that narrowly define these plans and limit the instances under which they can be formed.
Background
Prior to 2018, groups or associations that could meet the three criteria below would be considered a single group health plan, which in turn would determine whether they must comply with small-group market or large-group market rules under the ACA:
- Business purpose standard — Whether the group or association has a business or organizational purpose and function that is unrelated to providing health insurance benefits.
- Commonality standard — Whether the employers share a commonality of interest and genuine organizational relationship unrelated to the provision of benefits. For example, a trade group for auto shops could qualify since all of the members have a common interest.
- Control standard — Whether the employers participating in the benefit program exercise control over the program, both in form and in substance.
Trump rules never took off
The Trump-era rules turned the earlier regulations on their head, particularly the first two standards:
Business purpose: Under the 2018 rule, a group of employers could have formed bona fide associations that had as their primary purpose the provision of health coverage.
Commonality: The 2018 rule would have let associations meet the commonality standard solely through the geographic proximity of its members, such as being located within the same state or city, without having any other common interests.
The 2018 rule also eliminated requirements that these plans comply with essential patient-protection elements of the ACA.
In 2019, the U.S. District Court for the District of Columbia held that a large portion of the rule was based on an unreasonable interpretation of the Employee Retirement Income Security Act and inconsistent with “congressional intent.” It later stayed action on the case and ordered the DOL to reassess its rulemaking.
After that, White House administrations changed and the department last year proposed the rule that was finalized April 29.
