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DOL Regulations on Association Health Plans: How Will They Affect the Health Insurance Marketplace?Last year, the President issued an Executive Order directing the Secretary of the Department of Labor (DOL) to issue regulations to expand access to association health plans (AHPs). Earlier this year, the DOL issued final regulations and FAQs on AHPs. The regulations broaden the definition of an “employer” under the Employee Retirement Income Security Act (ERISA). The revised definition is intended to assist employers in joining together as a group or association of employers by geography or industry to sponsor a group health plan. This change is significant because a plan treated as being adopted by a large single employer can potentially avoid some Affordable Care Act (ACA) reforms applicable to the individual and small group insurance markets, such as the requirement to provide essential health benefits. More recently, the DOL has issued a Compliance Assistance Publication that provides more informal guidance on the changes.

The key aspects of the guidance are:

  • Commonality of Interest — Employers may band together as a group to offer health coverage if they are either (1) in the same trade, industry, line of business, or profession; or (2) have a principal place of business within a region that does not exceed the boundaries of the same state or the same metropolitan area (even if the metropolitan area includes more than one state). The group or association of employers must have at least one “substantial business purpose” unrelated to offering and providing health coverage or other employee benefits to its employer members and their employees, even if the primary purpose of the group or association is to offer the coverage to its members. The final regulations include a safe harbor under which a substantial business purpose is considered to exist in cases where the group or association would be a viable entity even in the absence of sponsoring an employee benefit plan.
  • Employer Control — The regulations set forth a requirement for employer control. The control test provides that the functions and activities of the group or association must be controlled by its employer members, and the group or association’s employer members that participate in the group health plan must control the plan. Control must be present both in form and in substance; control is determined based on a facts-and-circumstances test. Members are not required to manage the day-to-day affairs of the group, association, or plan. The final regulations include a requirement that a group or association cannot be a health insurance issuer as defined in ERISA or be owned or controlled by such a health insurance issuer, although the prohibition does not apply to entities that participate in the group or association in their capacity as employer members of the group or association.
  • Eligible Participants — The group of eligible participants includes employees of a current employer member of the group or association, former employees of a current employer member of the group or association who became entitled to coverage under the group’s or association’s group health plan when the former employee was an employee of the employer, and beneficiaries of such individuals (e.g., spouses and dependent children). For working-owner coverage (discussed below), a special provision in the regulations provides that, except as may be required for purposes of COBRA continuation coverage, an individual eligible for coverage under the group health plan as a working owner (and the individual’s beneficiaries) cannot continue to be eligible for coverage under the group health plan for any plan year after it is determined that the individual does not meet the conditions for being treated as a working owner under the final regulations.
  • Working Owners — A working owner without common law employees may qualify as an employer and employee for purposes of an AHP. Plan fiduciaries have a duty to reasonably determine that the conditions of the working-owner requirement are satisfied and to monitor continued eligibility for coverage under the AHP. The hours-worked provision for a working owner is an average of 20 hours per week or 80 hours per month.
  • Nondiscrimination — Using existing nondiscrimination requirements under the Health Insurance Portability and Accountability Act (HIPAA), a group or association cannot restrict membership in the association based on any health factor. The HIPAA rules define a health factor as health status, medical condition, claims experience, receipt of healthcare, medical history, genetic information, evidence of insurability, or disability. AHPs cannot treat member employers as distinct groups of similarly situated individuals. However, AHPs are not precluded from making distinctions between employer members in all circumstances. Distinctions based on a factor other than a health factor (such as industry, occupation, or geography) are permitted, and several examples are provided in the regulations.

The regulations became effective on September 1, 2018, for plans that are fully insured and that meet the requirements for being an AHP sponsored by a bona fide group or association of employers. The effective date is January 1, 2019, for any plan that is not fully insured, was in existence on June 21, 2018, meets the requirements that applied before June 21, 2018, and chooses to become an AHP sponsored by a bona fide group or association of employers. On April 1, 2019, the regulations become effective for any other plan established to be, and operated as, an AHP sponsored by a bona fide group or association of employers.

We will continue to monitor developments on the new regulations and what impact they may have on health insurers.

If you have any questions about the regulations, contact David Joffe at djoffe@bradley.com.

Ninth Circuit Affirms Denial of Motion to Compel Arbitration of ERISA ActionIn Munro v. Univ. of S. Cal., the Ninth Circuit recently affirmed the district court’s denial of a motion to compel arbitration of an ERISA action brought by current and former employees of the University of Southern California (USC). The employees alleged that USC, as administrator of certain employee retirement plans, had breached its fiduciary duties as plan administrator. They sought equitable and monetary relief against USC with regard to the past and future administration of the plans. USC moved to compel arbitration, arguing that each of the employees had signed arbitration agreements in their employment contracts, which required all disputes, including any alleged violations of federal law, between the employees and USC to be arbitrated. The district court denied the motion to compel, finding that the dispute did not fall within the scope of the arbitration clause.

In affirming the decision of the district court, the Ninth Circuit recognized that arbitration clauses have been interpreted broadly under the Federal Arbitration Act where an arbitration clause exists. Nevertheless, the Ninth Circuit focused on the fact that the action was brought on behalf of the retirement plans (and their participants) and not on behalf of the employees as individuals.  The court compared this particular ERISA action to a qui tam claim, and looked to a prior case (U.S. ex rel. Welch v. My Left Foot Children’s Therapy) in which the Ninth Circuit similarly found that a qui tam claim did not fall within the scope of an arbitration clause. Accordingly, the court held that the arbitration clauses, which required employees to arbitrate their own claims against USC, could not be “stretched” to apply to ERISA claims brought by the employees on behalf of the retirement plans.

Notably, in a concluding footnote, the court stated that USC’s argument that one particular Ninth Circuit case (Amaro v. Cont. Can Co.), concerning the arbitrability of ERISA actions, should be overruled based on intervening Supreme Court case law, had “considerable force.” The court noted, however, that it was unnecessary to opine on the continued viability of Amaro because the “claims asserted in this case fall outside the arbitration clauses in the employee agreements[.]”

Given the court’s holding in this action, employers should revisit their employment contracts and consider broadening the arbitration clauses and class action waivers in them to apply specifically to instances where an employee is asserting claims on behalf of an ERISA plan and its participants, and to apply specifically to breach of fiduciary claims asserted by an employee in any capacity against the employer as a plan administrator.