Earlier this year, we posted an article on “The COBRA Implications of AHP Expansion” in which we discussed how COBRA may be impacted by the DOL’s proposed guidance on expanding Association Health Plans. On June 21, 2018, the Employee Benefits Security Administration division of the DOL published the Final Rule (29 CFR 2510) giving us the definition of “Employer” under Section 3(5) or ERISA related to Association Health Plans.

In the paragraphs to follow, I will update you on the implications of the Final Rule. We’ll close the loop on some of the questions we entertained back in March. Keep in mind that the regulation is over 50 pages and contains a great deal more information than we are summarizing in this article.

Background

In October 2017, President Trump signed Executive Order 13813 calling for the expansion of Association Health Plans (AHPs). The goal of this expansion is to provide more affordable health insurance coverage to small employers by allowing them to group together with other similar small businesses. Generally, the idea is to make it easier for small employers to form AHPs to obtain more favorable health coverage options for themselves and their families. 

Remember that traditionally employers with fewer than 20 full-time employees are exempt from federal COBRA, while groups with less than 20 full time employees are usually subject to State Continuation regulations many of which are similar to COBRA. Prior to the release of the Final Rule, the question with AHPs was … when counting the number of employees, do we look at each individual employer that is part of the AHP or the total number of employees covered by the AHP? The answer depended on whether ERISA found the AHP to be one group health plan or multiple group health plans.

Key Definitions: Employer, Bona Fide Group and Commonality of Interest

Interestingly, the Final Rule seems to go pretty far to clarify that the Associations that form need to have a purpose in coming together beyond getting insurance.

In particular, subsection (a) of the final rule describes the general purpose of the regulation as clarifying which persons may act as an ‘‘employer’’ within the meaning of ERISA section 3(5) in sponsoring a multiple employer group health plan. Subsection (b) sets forth criteria for a “bona fide group” or association of employers capable of establishing a group health plan that is an employee welfare benefit plan. Subsection (c) sets forth criteria for the requisite “commonality of interest” that employer members of a group or association must have to constitute a bona fide group or association of employers.

What Will an AHP Look Like?

As part of expanding the use AHPs, the new regulation contains some required formalities. The association becomes the sole ERISA plan sponsor responsible for plan administration, annual reporting, participant disclosures and COBRA administration. To satisfy these obligations, the association must have a formal organizational structure with bylaws or similar operating rules. It must be controlled by its employer members either directly or by the election of directors, officers or representatives. 

The rule requires that AHP coverage only be offered to employees, former employees and their beneficiaries. In addition, the association membership and AHP coverage must comply with HIPAA’s nondiscrimination rules and cannot restrict membership based on health factors.

What Are Some COBRA Challenges with a New AHP?

COBRA will be even more complicated than before and employers joining an AHP will need to familiarize themselves with the COBRA requirements. Many of these small employers were probably exempt from COBRA before joining the AHP. Coordination between the association and its employer members will be essential. Here are some examples:

• COBRA contains specific deadlines by which the employers will have to notify the association of qualifying events so that the association can timely distribute mandatory COBRA notices.
• The association will need to determine how COBRA payments are handled – are they paid to each employer or to the association directly?
• The association must maintain current participant contact information in order to properly distribute required COBRA and other plan notices.
• The association and employers must coordinate to ensure eligibility for the AHP is limited to current and former employees and their beneficiaries. This requirement will likely demand regularly scheduled dependent eligibility audits.

To achieve adequate plan administration, the association will need to establish a system for AHP employer members to communicate events, maintain employee information, determine eligibility and transmit payments. 

If you are an employer or a broker considering participation in an AHP, be sure to review the Final Rule very carefully and consider the potential COBRA implications.

This article was reprinted from the August-September 2018 issue of America’s Benefit Specialist Magazine featuring our very own Robert Meyers.