On March 28, 2019, the US District Court for the District of Columbia vacated the following provisions of the final Association Health Plans rule and remanded the rule back to the U.S. Department of Labor (“DOL”) to consider the effect of the rule’s severability clause on the remaining provisions:
- Bona fide group or association of employers, 29 CFR § 2510.3-5(b)
- Commonality of interest, 29 CFR § 2510.3-5(c)
- Definition of “Employer” under Section 3(5) of ERISA by 29 C.F.R. §§ 2510.3-5(b)–(c)
- Dual treatment of working owners as employers and employees, 29 CFR § 2510.3-5(e)
Federal Requirement Overview
The Employee Retirement Income Security Act of 1974 (“ERISA”) preempts the application of many of Idaho’s state insurance laws to specific types of single-employer self-funded health plans. Per federal regulation, Association Health Plans (“AHPs”), regardless of whether they are fully-insured or self-funded, are by definition also Multiple Employer Welfare Arrangements (“MEWAs”). As such, AHPs are not preempted from state insurance laws applicable to MEWAs, as so they must also be aware of and comply with those federal and state laws and regulations.
Any AHP that wishes to claim any ERISA exemption from state regulation should conduct a careful examination of ERISA requirements. The summary below contains some of the most important provisions that the Department of Insurance will review when determining how ERISA preemption may or may not apply to a given AHP. The Department of Insurance urges applicants to conduct an independent review of their plan and to consult DOL advisory opinions and court cases for the latest information, and we recommend the applicant reaches out to the Department with any potential conclusions of that review along with any additional information as explained below.
Summary of ERISA Requirements for AHPs
Membership solicitation – An organization that solicits members for the sole purpose of offering benefits is less likely to be a bona fide employer group for ERISA purposes than an organization that solicits members for many different purposes.
Participation – Association members need to be in the same business or industry and within the same geographic area. Self-employed individuals or “working owners” cannot be considered association members, but an organization that contains self-employed individuals may create a subgroup for benefit purposes that excludes self-employed individuals.
Process and purpose of formation – Organizations that were initially formed for purposes other than the provision of benefits and that have members with preexisting relationships with each other are more likely to constitute bona fide employer groups than organizations that contain members with few ties to each other and do not have a history of cooperation on other issues.
Formal organizational structure – The association must have by-laws and a governing body that is separate from the employer members.
Powers, rights, privileges, and control by employer members – Participating employers must exercise control of the association and the health plan. Employer members are considered to exercise control when they, for example:
- Nominate and elect directors, officers, trustees or other members of a governing body;
- Have authority to remove such directors, officers, trustees, etc.; or
- Have the authority and opportunity to approve or veto decision affecting plan design, such as changes in coverage, benefits and premiums.
Non-discrimination – AHPs must comply with certain federal nondiscrimination provisions. The plan cannot exclude an employer from participating or otherwise discriminate against an employer member based on a health condition of one or more employees. Employer members can be treated differently based on:
- Region where an employer is located,
- Participation in a wellness program, and
- Any other non-health factor.
Federal Filing Requirements – The association must comply with federal requirements concerning MEWAs, including the requirement to file Form M-1 with the U.S. DOL at least 30 days prior to the effective date of the AHP, and annually thereafter.
Useful References for ERISA Requirements
U.S. Department of Labor, Employee Benefits Security Administration, Multiple Employer Welfare Arrangements under the Employee Retirement Income Security Act (ERISA): A Guide to Federal and State Regulation (2013), available at https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/mewa-under-erisa-a-guide-to-federal-and-state-regulation.pdf (general outline of ERISA application to MEWAs)
Advisory Opinion 2017-02AC, available at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2017-02ac (application of ERISA to an AHP with multiple subgroups)
Advisory Opinion 2008-07A, available at https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2008-07a (review of economic nexus between employer members)
Idaho Requirements (Fully-Insured)
AHPs or the carriers submitting on the behalf of AHPs must comply with all federal and Idaho requirements for the submission of group health insurance plans (see Idaho Code § 41-1812 and Idaho Code § 41-1813 for the filing requirements).
The U.S. DOL affirms that state authority to regulate MEWAs, including AHPs, continues without modification or limitation. Therefore, Idaho laws and rules concerning healthcare apply to MEWAs and AHPs. Importantly, Idaho’s small employer laws and rules (found in Title 41, Chapter 47, Idaho Code and IDAPA 18.04.12) include provisions that extend the small employer health benefit plan requirements to insured AHPs when any employer member of an association meets the definition of a small employer, regardless of the total size of the association itself.
For all fully-insured AHPs, carriers must submit the following to the Department, prior to the association marketing the plan:
- Copy of association articles of incorporation, partnership agreement, firm documents, bylaws, etc.;
- Narrative documenting the activities and benefits provided by the association to members which are not insurance related;
- Legal opinion describing how the association meets all U.S. DOL requirements to be a “bona-fide group or association of employers” and to sponsor a “single ERISA plan” AHP; or U.S. DOL advisory opinion that the association meets said standards;
- Insurance policy, certificate, riders, endorsements, disclosures and applications;
- Copies of all insurance-related sales, marketing and advertising materials;
- A description of how the product will meet non-discrimination requirements regarding the acceptance of employers;
- The counties and/or zip codes making up the AHP service area.
Offering coverage only to large employers: AHPs comprised of solely large employer members are subject to Idaho’s large employer insurance laws and must comply with Title 41, Chapter 22, Idaho Code for the plan requirements.
Offering coverage that includes any small employers: As explained above, Idaho’s small employer laws and rules extend Idaho’s small employer health benefit plan requirements to insured AHPs when any employer member of the association meets the definition of a small employer. Several of those provisions are included in the list below, which should be considered illustrative, not comprehensive.
Rates and Rating Requirements for Small Groups
- The carrier may establish a separate class of business for one or more association groups (41-4705, Idaho Code)
- Premium rates for any class of business may not differ from rates for any other class of business by more than 20% (41-4706(1)(a), Idaho Code)
- Premium rates for individual employees and dependents cannot vary due to claims experience (41-4706(1)(d), Idaho Code)
- Rating factors must be consistently applied to all employers within a class of business (41-4706(1)(f), Idaho Code)
- Rating factors are limited to age, tobacco use and geographic location unless otherwise approved by Director (41-4706(1)(h), Idaho Code)
- A rate manual must be developed and submitted to the Department for each class of business (IDAPA 18.04.12.036.01)
- Differences in rates must be based solely on reasonable and objective differences in plan design and benefits (41-4706(1)(j), Idaho Code and IDAPA 18.04.12.036.08)
- No separate fee may be charged unless it is uniformly applied to all health plans in the same class of business and is considered premium (IDAPA 18.04.12.036.10 and .11)
- Administrative fees which are included in rates must be uniformly allocated within a class of business (IDAPA 18.04.12.036.12)
The rating factors for small employers within the association are expected to be the same as the carrier’s ACA small employer coverage. This includes applying the same age curve, not using gender as a rating factor, using the same tobacco and geographic factors, and applying the Idaho-specific composite factors of 1 EE, 1.9 EE+Ch(n), 2 EE+Sp, 2.9 EE+Sp+Ch(n).
In order for the department to be able to verify that the AHP’s class of business is within 20% of all other classes of business, including the ACA small group class of business for the carrier, the carrier should include an exhibit showing the ratios between the classes of business, including the range and criteria for any risk loads that may apply to the association class.
So that employers are fully aware of their options, carriers are also expected to provide a guaranteed issue rate quote for the most similar ACA plan, whenever an association member’s underwriting load results in an association health plan rate that exceeds the carrier’s most similar ACA plan rate.
Other Requirements for Small Groups
- Disclosure requirements in advertising materials must address the extent to which rates are affected by expected or actual claims costs or health status of employees; other rating factors used; renewability; and pre-existing condition provisions (41-4706(4), Idaho Code)
- Minimum participation rates must be uniformly applied among employers of the same size (41-4708(3)(e), Idaho Code)
- Fair marketing standards apply, such as: carriers must not discourage employers from applying or enrolling in a health plan due to health status or claims experience, or enter into a contract with an agent (41-4716, Idaho Code)
Idaho Requirements (Self-Funded)
In addition to submitting the documents identified for fully-insured AHPs, self-funded AHPs must comply with all requirements of Title 41, Chapter 40, Idaho Code and IDAPA 18.04.05. Detailed instructions, along with the necessary forms, are available at the Department’s website.
Some requirements include:
- Registration with the Department, including the provision of the application form and all other required forms and documentation;
- Formation of a trust and the appointment of a trustee to manage and administer the AHP;
- Maintenance of actuarially sound rates, reserves, and minimum surplus;
- Submission of annual and quarterly financial statements; and
- Filing of the annual statement of taxes and fees, along with payment of the tax of 4¢ per month per beneficiary working or residing in Idaho.
The plan administrator, if other than the trustee, must comply with the requirements for third-party administrators set forth in Title 41, Chapter 9, Idaho Code including the requirement to be registered with the Department.