Association Health Plans & Multi Employer Welfare Arrangements
(Updated June 20, 2018)
Prior to 2014, insurers could offer insurance coverage to groups of small employers that belonged to an Association Health Plan (AHP). Under the rules at the time, the insurer could offer discounts to small employers that were part of an AHP. Effective January 1, 2014, the Affordable Care Act (ACA) required that all small group coverage (with the exception of grandfathered plans or plans in states where the rules were delayed) be guaranteed issued and included in the single small group rating pool. The ACA prohibited any variations to rates other than for age, geographic location, number of dependents and tobacco usage. These new rules prohibited carriers from offering discounts and therefore eliminated AHPs.
Multi-Employer Welfare Arrangement (MEWA) trusts have been used for many years as a vehicle to purchase large group coverage on behalf of the MEWA trust’s member employers. Large group coverage, unlike small group coverage, does not have to cover the Essential Health Benefits and can be rated based on the underlying health status and claims experience of the insured group. The MEWA trusts could also create self-funded health plans for its employer members.
MEWAs are regulated under the Employee Retirement Income Security Act of 1974 (ERISA) which regulates the relationship between the employer and the employee. Because a sole proprietor does not employ an employee, sole proprietors were not eligible to form or be part of a MEWA trust. Additionally, MEWA trusts had to have been formed for another bona fide business reason other than the purchase of insurance (such as lobbying, education, etc.). The MEWA trusts were also allowed to underwrite; they could determine which companies were allowed to join the trust based on the health status of the employer or they could charge different rates depending on the health status and expected claims of the employer’s group.
On Tuesday June 19, the Department of Labor issued final regulations expanding the use of MEWA trusts as a vehicle to purchase health insurance and put certain restrictions on the rating practices of the new version of the MEWA trusts. This final regulation followed a proposed regulation published on January 5, 2018 and was in response to President Trump’s Executive Order issued on October 12, 2017. While packaged as Association Health Plans, it is important to note this new arrangement is not the same as the pre-ACA Association Health Plans. Specifically, these new rules:
No bona fide business reason needed to form a new MEWA. Allow new MEWA trusts to form with the primary purpose of providing health insurance to its employer members provided those employers are from 1) an already established association, 2) a similar type trade or 3) located in a common geographic location as designated by the new MEWA trust. While these new rules make it a lot easier to form a MEWA trust, the MEWA trust must still have a governing body and bylaws.
Sole proprietors gain access to group market through new MEWAs. Allow sole proprietors to be considered an employer for purposes of joining or forming an insurance MEWA. This rule expands the definition of employer to include sole proprietors if they have self-employment income at least equal to the cost of the AHP coverage or at least 80 hours worked in self-employment during the month. This will give sole proprietors access to the cheaper group markets whereas previously they could only purchase insurance in the individual and family market.
No rate or eligibility discrimination allowed in new MEWAs. Prevent these new MEWAs from discriminating for purposes of membership or premium based on health factors. MEWAs under the previous rules could charge different premiums to their various employer members or restrict eligibility based on health status of a potential member group. This rule prohibits such practices for the new MEWAs. This will make it more difficult for insurers to accurately rate a new MEWA trust group because the insurer has to take into account the potential new member groups that could enroll over a plan year.
Old MEWA rules still allowed. Allow MEWA trusts to be formed and operate under the old rules in affect prior to this final rule. If a MEWA trust is set up for a group of employers with a bona fide business reason other than insurance, the MEWA trust will be allowed to underwrite individual employer groups to determine which rating band and employer may fall under or determine whether a group may join based on the health status of the group.