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June 21, 2018

DOL Finalizes Association Health Plan Regulation

Summary of New Regulation

On June 19, 2018, the United States Department of Labor published its final regulation on association health plans (“AHP Regulation”). The final regulation, like one initially proposed on January 5th of this year, expands the circumstances under which small employers and “working owners” may band together to be treated as a single employer under the Employee Retirement Income Security Act (“ERISA”) for the purpose of obtaining health insurance in the large group market for their employees. Prior to the AHP Regulation, small employer status was generally determined by considering only each separate employer’s employees rather than aggregating employees at a collective level. The final regulation will become effective in stages. The AHP Regulation will be effective (i) on September 1, 2018 for all existing and new fully-insured AHPs, (ii) on January 1, 2019 for an existing, legally compliant self-funded AHP and (iii) April 1, 2019 for any new self-funded AHP.


Under health care reform, certain regulatory restrictions apply to “small group market” health plans that can make them undesirable to individuals and small employers due to cost, coverage, underwriting and other restrictions. Small group market health plans are generally available to employers that employ no more than 50 employees. Large group market health plans are permitted to be offered with fewer constraints than small group market health plans. Consequently, small employers were considered by many to be in a disadvantageous position relative to larger employers (those with more than 50 employees) with respect to their ability to obtain affordable and effective coverage for their employees. The AHP Regulation addresses these disadvantages by allowing two or more small employers to enter into a collective arrangement that will be considered a single employer plan sponsor under ERISA. The AHP Regulation also permits sole proprietors without employees (“working owners”) to be included in the collective arrangement. A collective arrangement where the underlying employers employ more than 50 employees on an aggregate basis will be considered a “large employer” under the health care reform rules and thus be able to sponsor large group market health plans, thereby avoiding the shortcomings of the small group market plans.

Single-Employer Criteria

The AHP Regulation sets out various criteria that must be present for the collective arrangement to be a single-employer plan sponsor under ERISA and the health care reform rules.

  1. Purpose of Collective Arrangement

The primary purpose of the collective arrangement may be to provide health insurance to its employer members. However, the arrangement must have at least one business purpose unrelated to the provision of health insurance. Such a business purpose includes promoting common business and economic interests of its members related to a trade, business or employer community. The collective arrangement is not required to have a for-profit purpose.

  1. Commonality of Interests

Employers must be (i) in the same trade, industry, line of business or profession (disregarding geographic location), or (ii) located (principal place of business) in the same region that does not exceed the boundaries of a single state or metropolitan area (e.g., NY, CT and NJ).

  1. Organizational Formalities and Functions

The collective arrangement would need be a formal organization complete with a governance structure and written by-laws that allow the underlying employers to control and manage the entity or arrangement and provides for the establishment of a health plan, which the organization’s governing body would control and manage. State and federal law should be consulted to determine the collective arrangement’s legal status.

  1. “Working Owners”

Sole proprietors and other self-employed individuals who do not have any employees can be treated as an “employer” which is eligible to be included in the collective arrangement if the person can meet the following requirements:

  1. Has an ownership interest in an incorporated or unincorporated trade or business, (includes partners); or
  2. Has wages or self-employment earnings by reason of rendering personal services to the trade or business; and
  3. Works on average 20 hours per week or 80 hours per month providing personal services to the trade or business or has earned income at least equal to the cost of health coverage.


  1. Non-discrimination Requirements

Membership in the collective arrangement cannot be conditioned on health factors. HIPAA and the health care reform nondiscrimination rules apply to the collective entity or arrangement. This means that plan eligibility and premiums cannot vary among member employers due to health factors. However, distinctions can be made for bona fide employment factors, such as full-time v. part-time employment, geographic location and industry.

Arrangements Not Covered by the AHP Regulation

Under the AHP Regulation, if a collective entity or arrangement does not qualify as a single employer, pre-existing rules generally continue to apply. For example, state law may still govern and regulate AHPs, as well as health insurers and health plans offered to AHPs. MEWA (multiemployer welfare arrangements) rules are largely unchanged to the extent a MEWA is not an AHP. Operators that purvey health insurance and plans to third parties will generally not qualify under the AHP Regulation as a single employer plan sponsor.

Takeaway for Clients

The rules permitting small employers, self-employed individuals and sole proprietors to band together to form a collective entity to sponsor a group health plan for their employees and themselves have expanded under the AHP Regulation, potentially permitting small employer and individuals access to the large group market health plan area. The AHP Regulation is complex and contains many technical definitions, which have not been summarized here. Since this alert provides only a high-level summary, affected employers, operators, entities and individuals may wish to seek assistance in assessing the AHP Regulation’s impact on them.

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If you have any questions regarding this alert, feel free to contact us.