The Rise and Fall of Association Health Plans: 2024 Rescission of the 2018 Ruling
Introduction
The concept of Association Health Plans (AHPs) has been a subject of debate and controversy in recent years. AHPs aim to provide small businesses and self-employed individuals with affordable health insurance options by allowing them to band together and form associations. This article explores the significant events surrounding the 2018 ruling that expanded AHPs and their subsequent rescission in 2024 and analyzes the impact of these developments on current and future AHPs.
The 2018 Ruling
In 2018, the U.S. Department of Labor (DOL) announced a ruling that broadened the scope of AHPs. Under this ruling, small businesses or self-employed individuals could join together to form associations for the purpose of offering health insurance, provided they upheld the commonality of interest requirement and had “at least one substantial business purpose unrelated to offering and providing health coverage or other employee benefits to its employer members and their employees.” This commonality of interest was satisfied if either the employer members were in the same trade or business, or their principal places of business were within the same state or metropolitan area1 2. Proponents of the ruling argued that it would increase options and reduce costs for small businesses, making healthcare coverage more accessible.
Perspectives and Statistics on the 2018 Ruling
Supporters of the 2018 ruling highlighted the potential benefits of AHPs. By pooling resources, associations could negotiate lower insurance rates and provide businesses with access to more comprehensive coverage. Proponents also believed that AHPs would promote competition in the insurance market, ultimately leading to better coverage options and lower costs for small businesses1 2.
The DOL projected that the expansion of AHPs could provide healthcare coverage to an estimated 4 million Americans who were previously uninsured or underinsured1. This was particularly beneficial for self-employed individuals and small business owners with limited access to affordable insurance options.
However, critics raised concerns about the potential negative consequences of expanding AHPs. They argued that it could fragment the insurance market, skewing risk pools and destabilizing traditional individual and small group health plans. Critics feared that healthier individuals and businesses with lower healthcare costs might opt for AHPs, leaving sicker individuals and high-risk businesses in the traditional market, potentially increasing premiums for comprehensive coverage2 3.
Opponents also worried that AHPs might offer limited coverage and exclude essential health benefits mandated by the Affordable Care Act (ACA), leaving individuals and businesses vulnerable to gaps in coverage and inadequate protection against catastrophic medical expenses3 4.
The Rescission of the 2018 Ruling
On April 29, 2024, the Biden administration officially rescinded the 2018 ruling, reverting to the stricter pre-2018 criteria for forming AHPs effective July 1, 2024. The rescission was driven by concerns over potential adverse effects on the individual and small group insurance markets, particularly for those who require comprehensive coverage1 2.
The rescission aims to resolve uncertainties and ensure that the formation and operation of AHPs align with ERISA’s focus on genuine employment-based relationships. The DOL reaffirmed that a bona fide group or association must have purposes beyond offering health insurance and that members must have a true organizational relationship2 3.
Impact on Current and Future AHPs
The rescission of the 2018 ruling affects both existing and future AHPs in several ways:
- Stricter Criteria for AHPs: With the rescission, AHPs must adhere to the pre-2018 criteria, which are more stringent. This means that associations must have a substantial business purpose beyond providing health insurance, and the commonality of interest requirements are stricter.
- Reevaluation and Compliance: Existing AHPs that were formed under the 2018 ruling may need to reevaluate their operations to ensure compliance with the revised regulations. Some AHPs may have to restructure or even cease operations if they cannot meet the new standards.
- Sole Proprietors Excluded: The rescission removes the provision that allowed sole proprietors without employees to participate in AHPs. This limits the flexibility that was introduced in 2018 and reduces the scope of who can form or join an AHP.
- Market Stability: The rescission aims to stabilize the individual and small group insurance markets by preventing healthier individuals and groups from leaving these markets for AHPs. This could help maintain balanced risk pools and prevent premium increases in traditional insurance markets1 2 3.
The Role of ERISA
The Employee Retirement Income Security Act (ERISA) plays a significant role in governing AHPs. ERISA provides a legal framework for the establishment, administration, and governance of employee benefit plans, including AHPs. It sets standards for plan fiduciaries, disclosure requirements, and protections for participants3.
AHPs operating under ERISA must adhere to the legal obligations and responsibilities outlined in the act. ERISA compliance ensures participant protections and accountability for plan fiduciaries, and non-compliance could result in the termination of an AHP. Review our previous blog explaining ERISA compliance required for AHPs and Employer Group Health Plans.
Conclusion
The rise and fall of AHPs exemplify how policy changes can shape the healthcare landscape. The 2018 ruling aimed to provide greater access to affordable health insurance options for small businesses and self-employed individuals, while its rescission in 2024 addresses concerns about potential market disruptions and the quality of coverage. The debate surrounding AHPs highlights the ongoing tension between expanding access to health coverage and maintaining market stability. Enrollment First, Inc. is a knowledgeable resource for associations regarding health plan options and the ERISA requirements involved.