Employee Benefits Security Administration: Definition of 'Employer' – Association Health Plans
The proposed rule was issued by
COMMENT DEADLINE:
Here are excerpts:
* * *
SUMMARY:
This document proposes to rescind the
DATES:
Comments are due on or before
ADDRESSES:
You may submit written comments, identified by RIN 1210-AC16, by one of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov. Follow the instructions for submitting comments. To facilitate receipt and processing of comments, the Department encourages interested parties to submit their comments electronically.
Mail:
Instructions: All submissions must include the agency name and Regulatory Identifier Number (RIN) for this rulemaking. Any comment that is submitted will be shared with the
Warning: Do not include any personally identifiable or confidential business information that you do not want publicly disclosed. Comments are public records posted on the internet as received and can be retrieved by most internet search engines.
Docket: Go to the Federal eRulemaking Portal at https://www.regulations.gov for access to the rulemaking docket, including any background documents and the plain-language summary of the proposed rule of not more than 100 words in length required by the Providing Accountability Through Transparency Act of 2023.
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
I. Background
A. Definition of Employer Under Section 3(5) of ERISA
ERISA regulates "employee benefit plans" (classified as "employee welfare benefit plans" and "employee pension benefit plans"), and generally preempts State laws that relate to or have a connection with such plans, subject to certain exceptions. An "employee welfare benefit plan" is defined in section 3(1) of ERISA to include, among other arrangements, "any plan, fund, or program . . . established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund or program was established or is maintained for the purpose of providing for its participants, or their beneficiaries, through the purchase of insurance or otherwise . . . medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, [or] death. . . ." Thus, to be an employee welfare benefit plan, the plan, fund, or program must, among other criteria, be established or maintained by an employer, an employee organization, or both an employer and an employee organization.
Section 3(5) of ERISA generally defines the term "employer" as "any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan." Thus, ERISA defines the term "employer" to include the "direct" (or common-law) employer of the covered employees or "any person acting . . . indirectly in the interest of" the common-law employer, in relation to an employee benefit plan. Section 3(5) of ERISA also expressly identifies "a group or association of employers acting for an employer in such capacity" as falling within the definition of "employer." A group or association may establish an employee welfare benefit plan only when it is acting as an "employer" within the meaning of ERISA section 3(5).
B. Historical Guidance Prior to the 2018 AHP Rule--"Bona Fide" Group or
Based on definitions in title I of ERISA, and because title I's overall structure contemplates employment-based benefit arrangements, the Department has long recognized that, even absent the involvement of an employee organization, a group or association of employers may sponsor a single "multiple employer" plan if certain criteria are satisfied. If a group or association satisfies these criteria, the Department's guidance that predates the 2018 AHP Rule (hereinafter referred to as pre-rule guidance) generally refers to these entities as "bona fide" employer groups or associations. Under that pre-rule guidance, health coverage sponsored by a bona fide employer group or association can be structured as a single, multiple employer plan covered by ERISA. The criteria specified in the pre-rule guidance are intended to distinguish bona fide groups or associations of employers that provide coverage to their employees and the families of their employees from arrangements that more closely resemble State-regulated private health insurance coverage.The Department's pre-rule guidance is consistent with the criteria articulated and applied by every appellate court, in addition to several federal district courts, that considered whether an organization was acting in the interests of employer-members.[2] Moreover, to the Department's knowledge, no court has found, or even suggested, that the pre-rule guidance criteria too narrowly construe the meaning of acting "indirectly in the interest of an employer" under section 3(5) of ERISA.
Historically, the Department has taken a facts-and-circumstances approach to determining whether a group or association of employers is a bona fide employer group or association that may sponsor an ERISA group health plan on behalf of its employer members. The Department's pre-rule guidance, largely taking the form of a collection of advisory opinions issued over more than three decades, has expressed the Department's view regarding whether, based on individual circumstances, a particular group or association was able to sponsor a multiple employer welfare plan.[3] While the language in the Department's pre-rule advisory opinions was tailored to the issues presented in the specific arrangements involved, the Department's interpretive guidance has consistently focused on three criteria: (1) whether the group or association has business or organizational purposes and functions unrelated to the provision of benefits (the "business purpose" standard); (2) whether the employers share some commonality of interest and genuine organizational relationship unrelated to the provision of benefits (the "commonality" standard); and (3) whether the employers that participate in a benefit program, either directly or indirectly, exercise control over the program, both in form and substance (the "control" standard).
A variety of factors were set forth in the Department's pre-rule guidance as relevant when applying these three general criteria to a particular group or association. These factors include how members are solicited; who is entitled to participate and who actually participates in the group or association; the process by which the group or association was formed; the purposes for which it was formed; what, if any, were the preexisting relationships of its members; the powers, rights, and privileges of employer members that exist by reason of their status as employers; who actually controls and directs the activities and operations of the benefit program; and the extent of any employment-based common nexus or other genuine organizational relationship unrelated to the provision of benefits.[4]
C. Association Coverage Under the Public Health Service Act
The Public Health Service Act (PHS Act) derives its definitions of group health plan and employer from the ERISA definitions of employee welfare benefit plan and employer.[5] Thus, reference to ERISA is needed when determining whether a group health plan exists for PHS Act purposes and determining, if one does exist whether it exists at the individual employer level or at the association level. In other words, the ERISA definitions determine whether health insurance coverage sold to or through associations is individual or group coverage for purposes of title XXVII of the PHS Act, and if group coverage, whether the sponsor of the group coverage is the association, or whether each employer-member of the association sponsors its own group coverage.
In general, unless health insurance coverage issued through a group or association constitutes a single group health plan, the group or association is disregarded in determining whether the coverage offered to an individual or employer member of the association is individual, small group, or large group market coverage. The
On the other hand, if the health insurance coverage is offered in connection with a group health plan as defined at section 2791 of the PHS Act, it is considered group health insurance coverage. The group market is divided into the small group market and the large group market. In situations involving employment-based association coverage where the group health plan exists at the individual employer level, the size of each individual employer participating in the association determines whether that employer's coverage is subject to the small group market or large group market rules. In instances where the group or association of employers is, in fact, sponsoring the group health plan and the association itself is deemed the "employer," the association coverage is considered a single group health plan. In that case, because the PHS Act definitions of large employer and small employer are based on the average number of employees employed on business days during the preceding calendar year, the number of employees employed by all the employers participating in the association determines whether the coverage is subject to the small group market or large group market rules.
In a "mixed" association where different members have coverage that is subject to the individual market, small group market, and/or large group market rules under the PHS Act, as determined by each member's circumstances, each association member must receive coverage that complies with the requirements arising out of its status as an individual, small employer, or large employer. For example, it is not permissible under the PHS Act for mixed association coverage to comply only with the large group market rules, with respect to its individual and small employer members.
As explained below, by expanding access to AHPs, the 2018 AHP Rule sought to allow small employers and working owners to band together to purchase coverage in the large group market, thereby avoiding the application of certain legal provisions governing individual and small group markets, such as modified community rating, single risk pool, and essential health benefit requirements.
D. The 2018 AHP Rule
On
To establish the additional and broader standard, paragraph (b) of the 2018 AHP Rule set forth eight overall criteria that a group or association must meet to be a bona fide group or association eligible to establish an ERISA plan, including criteria related to (1) purposes of the group or association, (2) status of each group member as an employer of at least one employee participant in the AHP, (3) formal organizational structure requirements for the group, (4) control of the group and the AHP by employer members, (5) a commonality requirement for employer members, (6) limitations on providing health coverage to persons other than employees and beneficiaries, (7) nondiscrimination requirements, and (8) a limitation on health insurance issuers' ability to own or control the association or plan other than being an employer member of the group or association. Paragraphs (c) and (d) added specific details on the commonality and nondiscrimination requirements, and paragraph (e) addressed the dual classification of working owners without common-law employees who could be treated as both employers and employees for purposes of participation in the employer group and the AHP.[12]
These criteria were modeled on elements of the pre-rule guidance, but the 2018 AHP Rule differed in several significant ways, discussed below,[13] that were designed to loosen some requirements of the pre-rule guidance.
While paragraph (b)(1) of the 2018 AHP Rule provided that "the primary purpose of the group or association" could be "to offer and provide health coverage to its employer members and their employees," the pre-rule guidance requires that the group or association acting as an employer must exist for purposes other than providing health benefits. The 2018 AHP Rule required that "the group or association also 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." A group of employers could satisfy the business purpose standard through a safe harbor requiring only that it would be a "viable" entity in the absence of sponsoring an employee benefit plan. The pre-rule guidance, however, does not equate the business purpose standard with whether the group or association could be viable even if it did not sponsor a plan. By equating purpose with viability, the 2018 AHP Rule weakened the business purpose standard and allowed the creation of groups or associations under ERISA section 3(5) primarily for the purpose of the provision of health benefits.
Paragraph (c) of the 2018 AHP Rule provided for a broader commonality standard than the pre-rule guidance. Under the 2018 AHP Rule, a group or association of employers satisfied the commonality of interest requirement if either (1) its employer members were in the same trade or business; or (2) the principal places of business for their employer members were located within a region that did not exceed the boundaries of the same State or metropolitan area, such as the
The 2018 AHP Rule also included express nondiscrimination standards that had to be met--aside from other health coverage requirements--in order for an employer group or association to act as an employer within the meaning of ERISA section 3(5) in sponsoring a single group health plan.[15] The 2018 AHP Rule incorporated and adapted existing health nondiscrimination provisions already applicable to group health plans, including AHPs, under the Health Insurance Portability and Accountability Act of 1996 (HIPAA).[16] In applying the HIPAA health nondiscrimination rules for defining similarly situated individuals, under the 2018 AHP Rule, the group or association could not treat member employers as distinct groups of similarly situated individuals if it wished to qualify as a bona fide group or association for purposes of sponsoring an AHP.[17] The pre-rule guidance does not include any explicit nondiscrimination requirements. The Department noted in the preamble to the 2018 AHP Rule, however, that the HIPAA nondiscrimination rules apply to group health plans, including AHPs, and noted, therefore, that AHPs, like any other group health plan, cannot discriminate in eligibility, benefits, or premiums against an individual within a group of similarly situated individuals based on a health factor.[18]
Lastly, paragraph (e) of the 2018 AHP Rule allowed working owners without any common-law employees to participate in AHPs, stating that a working owner would be treated both as an "employer" and "employee" for purposes of participating in, and being covered by, an AHP, notwithstanding the absence of any employment relationship with common-law employees.[19] Under the pre-rule guidance, working owners without common-law employees are not permitted to be treated as employers for the purpose of participating in a bona fide employer group or association and generally are not treated as employees able to be participants in an ERISA-covered employee welfare benefit plan.[20]
E. Decision Setting Aside Core Provisions of the 2018 AHP Rule
In
Specifically, the district court concluded that the 2018 AHP Rule's criteria for establishing AHPs unreasonably construed ERISA's requirement that the association act "indirectly in the interest of an employer" because the 2018 AHP Rule's "substantial business purpose" and "geographical commonality" requirements were not drawn narrowly enough to limit AHPs to those that act in the interest of employers, thus unreasonably expanding the definition of "employer."[22] In addition, the district court ruled that the 2018 AHP Rule's expansion of the term "employer" under ERISA to include working owners without common-law employees (when members of an association) was unreasonable because it was contrary to ERISA's text and central purpose of regulating employment-based relationships.[23] Regarding ERISA's text and purpose, the district court held that
The Department appealed the district court's decision.[27] Thereafter, at the Department's request, the
The Department considered the severability clause issue raised by the district court and concluded that, without the core provisions that the district court set aside, the 2018 AHP Rule would have no operationalizable substance and provide no meaningful guidance. To minimize consequences of the district court's decision on AHP participants, the Department announced a temporary enforcement policy on
II. Proposal To Rescind
The Department proposes to remove the 29 CFR 2510.3-5 regulation established by the 2018 AHP Rule and the related amendment to the 29 CFR 2510.3-3 regulation made by the 2018 AHP Rule. This proposed rule, if finalized, would rescind the 2018 AHP Rule in its entirety.
A. Authority To Define "Employer" in ERISA Section 3(5)
As described above, the Department's pre-rule guidance, as articulated in advisory opinions, has traditionally applied a facts-and-circumstances approach to determine whether a group or association of employers is a bona fide employer group or association capable of sponsoring an ERISA plan on behalf of its employer members. As noted above, this pre-rule guidance focuses on three general criteria: (1) whether the group or association has business or organizational purposes and functions unrelated to the provision of benefits; (2) whether the employers share some commonality of interest and genuine organizational relationship unrelated to the provision of benefits; and (3) whether the employers that participate in a benefit program, either directly or indirectly, exercise control over the program, both in form and substance. While there are many organizations of employers, the Department's pre-rule guidance makes clear that only certain entities consisting of more than one employer meet the definition of a bona fide group or association of employers under ERISA.
Before the 2018 AHP Rule, the Department's approach to these determinations had consistently focused on employment-based arrangements, as contemplated by ERISA, rather than commercial insurance-type arrangements that lack the requisite connection to the employment relationship.[34] The Department's longstanding pre-rule guidance has also been informed by its extensive experience with unscrupulous promoters, marketers, and operators of multiple employer welfare arrangements (MEWAs).[35] AHPs generally qualify as MEWAs under ERISA. Although MEWAs can provide valuable coverage, historically MEWAs, particularly self-funded MEWAs, have disproportionately suffered from financial mismanagement or abuse, leaving participants and providers with unpaid benefits and bills and putting small businesses at financial risk.[36] Because of this history of abuse by MEWA promoters claiming ERISA coverage and protection from State regulation,
Employees and their dependents have too often become financially responsible for paying medical claims they were promised would be covered by the plan after paying premiums to fraudulent or mismanaged MEWAs, which could include AHPs. Because these entities often become insolvent, individuals and families bear the risk, and the impact can be devastating and can include being deprived of medical services if they cannot afford to pay out-of-pocket for medical claims that are not paid by the AHP.[38] Even before such MEWAs become insolvent, employees and their dependents may still become financially responsible for medical claims where the AHP failed to adequately disclose the limitations and exclusions under the plan.[39] The Department is concerned about the potential uptake and expansion of fraudulent and mismanaged MEWAs, especially at a time when over 90 million low-income children and adults are in the process of renewing their Medicaid and
ERISA's overarching purpose is to protect participants and beneficiaries. The provisions of Title I of ERISA were initially enacted primarily to address public concern that funds of private pension plans were being mismanaged and abused. ERISA's protections have expanded over time for private group health plans as well. Both Federal regulators and State insurance regulators have devoted substantial resources to detecting and correcting mismanagement and abuse, and in some cases, prosecuting wrongdoers. Even the 2018 AHP Rule makes clear that DOL did not intend to depart too dramatically from its traditional interpretation of the word "employer."[41] While the Department sought to expand the scope of covered entities, it recognized the danger that too broad an expansion could result in "associations" masquerading as bona fide employer groups or associations merely to promote the commercial sale of insurance. For that reason, DOL adopted and clarified the pre-rule guidance condition that the employers who participate in the AHP must control the group or association and the plan, and added an express nondiscrimination requirement as a counterweight to abuse. Thus, even in the context of the 2018 AHP Rule, DOL was concerned about the danger of expanding the meaning of the "group or association of employers" clause in ERISA section 3(5) to cover commercial insurance-type arrangements.
In fact, because available oversight resources are extremely limited and fraudulent operations resist detection until claims go unpaid, significant damage can be done before the Government even receives a complaint about an arrangement, making it difficult for regulators to mitigate damages and stop bad actors. The vulnerability of participants, beneficiaries, and the small employers whose employees receive benefits through an AHP is further heightened when the standard for becoming a bona fide group or association is weakened. A weakened standard also can hinder efforts by States to regulate MEWAs, including AHPs, within their borders.[42]
The preamble of the 2018 AHP Rule implies as much in explaining the importance of incorporating the nondiscrimination provision in paragraph (d)(4) of the 2018 AHP Rule. As noted above, paragraph (d)(4) of the 2018 AHP Rule sought to prohibit AHPs from treating member employers as distinct groups to distinguish AHPs from commercial insurance issuers. In discussing the importance of a requisite connection or commonality to lessen concerns about fraud, the preamble of the 2018 AHP Rule explained that because the final rule relaxed the Department's pre-rule guidance on the groups or associations that may sponsor a single ERISA-covered group health plan, paragraph (d)(4) was especially important in the context of the new, broader arrangements to distinguish a group or association sponsored AHP from commercial-insurance-type arrangements, which lack the requisite connection to the employment relationship and whose purpose was, instead, principally to identify and manage risk on a commercial basis.[43]
The Department is no longer of the view that the business purpose standard, commonality standard, and working owner provision in the 2018 AHP Rule, even bolstered by the nondiscrimination standards in paragraph (d)(4), are sufficient to distinguish between meaningful employment-based relationships as compared to commercial insurance-type arrangements whose purpose is principally to identify and manage risk. The Department continues to be mindful of the unique risks to participants, beneficiaries, small employers, and health care providers in the context of AHPs and any other form of MEWAs. These concerns underscore the need to limit ERISA-covered AHPs to true employee benefit plans that are the product of a genuine employment relationship and not artificial structures marketed as employee benefit plans, often with an objective of attempting to sidestep otherwise applicable insurance regulations or misdirect State insurance regulators. Such artificial vehicles are not "employee benefit plans" as defined in ERISA section 3(3), nor, as explained above, would it be consistent with the purpose of the statute to treat them as such. In sum, upon further evaluation and consistent with the sound administration of ERISA, the Department has concluded that it should rescind the 2018 AHP Rule from the Code of Federal Regulations (CFR). The Department now believes that the provisions of the 2018 Rule that the district court set aside as inconsistent with the APA and in excess of the Department's authority are, at a minimum, not consistent with the best reading of the statutory requirements governing group health plans.
B. Discussion of Decision To Propose To Rescind
Under
The Department has further reviewed the relevant statutory language, judicial decisions, and pre-rule guidance, and further considered ERISA's statutory purposes and related policy goals. Based on this review, the Department has concluded it is appropriate to propose to rescind the regulatory provisions adopted in the 2018 AHP Rule in order to ensure that guidance being provided to the regulated community is in alignment with ERISA's text, purposes, and policies, resolve and mitigate any uncertainty regarding the status of the standards that were set under the 2018 AHP Rule, and facilitate a reexamination of the criteria for a group or association of employers to be able to sponsor an AHP.
The intent of the 2018 AHP Rule was to expand access to affordable health coverage for employees of small employers and certain self-employed individuals by lessening restrictions on the formation of AHPs, and thereby allow for the purchase of health insurance through the less regulated large group market. As discussed further in this rulemaking, the Department is now of the view, however, that the business purpose standard, the viability safe harbor in the business purpose standard, the geography-based commonality standard, and the working owner provisions of the 2018 AHP Rule do not align with the best reading of ERISA's text and statutory purposes.
In addition, and independently, information presented to the Department during the public comment process of the 2018 AHP rulemaking indicates that implementation of the 2018 AHP Rule would have increased adverse selection against the individual and small group markets by drawing healthier, younger people into AHPs, thus increasing premiums for those remaining in those markets.[45] AHPs can also tailor plan benefits so that individuals with preexisting conditions, or those who are otherwise anticipated to have higher health care costs are discouraged from joining AHPs, causing further adverse selection, market segmentation, and higher premiums in the individual and small group markets.[46] The Department acknowledged in the 2018 AHP Rule that the rule's "increased regulatory flexibility" would necessarily result in some segmentation of risk that favors AHPs over individual and small group markets and some premium increase for individuals and other small businesses remaining in the individual and small group markets. The Department concluded, however, that practical considerations and Federal nondiscrimination rules would limit such segmentation, and that States may further limit risk segmentation through regulation of AHPs as MEWAs and assumed some premium protection for subsidy-eligible taxpayers with household incomes at or below 400 percent of the federal poverty level purchasing coverage on Exchanges. The Department is now of the view that the Department should give greater attention to the long-term impacts on market risk that the 2018 AHP Rule introduced, especially in the small group and individual markets.
Additionally, health insurance coverage offered through AHPs in the large group markets is not subject to the requirement to offer essential health benefits, which means that individuals who join these AHPs may become underinsured if their AHP offers only "skinny" coverage. Health plans that do not include benefits that non-grandfathered small group and individual market health insurance coverage are required to cover, such as maternity or prescription drug benefits, or even inpatient hospital coverage, are sometimes referred to as "skinny plans." Because they offer less than comprehensive coverage, they are cheaper to purchase; however, participants and beneficiaries may not understand the significant limitations on such coverage. As discussed in this preamble at section I.C., the 2018 AHP Rule allowed small employers and working owners to band together to qualify as a single group health plan to purchase coverage in the large group market, thus avoiding the requirements on small group market and individual health insurance coverage and making it easier for AHPs to offer such skinny plans, resulting in participants and beneficiaries being vulnerable to high out-of-pocket costs and potentially not having access to benefits for care when they most need it.[47]
The Department is also concerned that the 2018 AHP Rule could interfere with the goal of increasing affordable, quality coverage because the rule increases the possibility that individuals who join AHPs will be subject to mismanaged plans. As noted above, ERISA generally classifies AHPs as MEWAs. Historically, MEWAs, especially self-funded MEWAs, have disproportionately suffered from financial mismanagement or abuse, leaving participants and providers with unpaid benefits and bills.[48]
The 2018 AHP Rule reflected a substantial change and significant departure from the Department's pre-rule guidance. While the alternative pathway provided in the 2018 AHP Rule has been unavailable as a basis for forming an AHP since the district court's decision, the Department's proposal to rescind the 2018 AHP Rule, if finalized, would make clear that this significant departure from pre-rule guidance no longer represents the Department's interpretation of when a group or association can constitute an "employer" for purposes of sponsoring a group health plan under ERISA. The proposed rescission leaves in place the longstanding pre-rule guidance that has been consistently supported and relied upon in numerous judicial decisions because it fosters a sufficient employer-employee nexus and proper oversight of AHPs, while remaining consistent with ERISA's text and purpose. The proposed rescission would also facilitate a reexamination of the rule's "business purpose" standard and viability safe harbor, the geography-based commonality alternative, and the working-owner provisions, including the potential those provisions have for encouraging abusive health care arrangements, especially self-insured programs, that sell low quality or otherwise unreliable health insurance products through MEWAs to unsuspecting employers, particularly small businesses. Further, the Department does not believe that there is a basis for reliance on the 2018 AHP Rule given the fact that the temporary enforcement policy period announced by the Department immediately following the district court's decision has long expired.[49] The Department has thus concluded for several reasons that it is appropriate to propose to rescind the 2018 AHP Rule.
1. Business Purpose Standard
The courts of appeals have uniformly interpreted ERISA's definition of employer to require common interests other than the provision of welfare benefits, independent of any deference to the Department's historical guidance.[50] The decision of the
Paragraph (b) of the 2018 AHP Rule also contained a business purpose standard. In relevant part, it provided that a 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 such coverage to its members.[53] The 2018 AHP Rule did not define "substantial" for this purpose, but created a broad safe harbor that allowed a group or association to meet the business purpose standard "if the group or association would be a viable entity in the absence of sponsoring an employee benefit plan."[54] On further consideration, the Department is concerned that the business purpose standard and accompanying viability safe harbor are too loose to ensure that the group or association sponsoring the AHP is actually acting in the employers' interest or to effectively differentiate an employee health benefit program offered by such an association from a commercial insurance venture. Although the rule provided that a business purpose had to be "substantial," the preamble's discussion of what counts as "substantial" was confusing and in some tension with the word's ordinary meaning. At one point, the preamble suggested that merely "offering classes or educational materials on business issues of interest to members" was per se sufficient to qualify as substantial.[55] Moreover, the existence of the viability safe harbor suggested that some associations that were not viable (but for sponsoring an AHP) could still have a substantial business purpose under the rule.
In the preamble to the 2018 AHP rule, DOL posited that this relaxation of the standard would nonetheless work to differentiate employer groups or associations from commercial insurance ventures because the rule's control requirement and its new nondiscrimination requirement would ensure that only bona fide associations become AHPs. However, as described above, DOL has reexamined the rule's treatment of those features and does not view those elements of the 2018 AHP Rule as sufficient to mitigate problems with the business purpose standard and ensure the rule distinguishes bona fide employer groups or associations acting as an employer with respect to an employee benefit plan from a commercial insurance venture. For example, under the 2018 AHP Rule, especially the working owner provisions, promoters would be able to set up arrangements with separate contribution rates for "employer" members based on a variety of non-health factors, such as industry, occupation, or geography, in ways that would make the arrangement look strikingly similar to a commercial insurance venture.[56] The 2018 AHP Rule attempted to address the Department's policy concerns related to fraud and insolvency by requiring that a group or association of employers have at least one substantial business purpose unrelated to offering or providing employee welfare benefits. In the Department's current view, based on its long and significant experience in this area as well as current concerns about abuse, by permitting the provision of benefits as the entity's primary purpose and the low bar of the substantial business purpose standard and viability safe harbor, the 2018 AHP Rule does not establish conditions that appropriately distinguish an employer group sponsoring an employee benefit plan from a commercial insurance venture. Rather, for the reasons discussed in this preamble, it may instead expose participants, beneficiaries, and unsuspecting small employers to unscrupulous operators.[57]
Moreover, the Department no longer believes that the 2018 AHP Rule appropriately addressed the concerns expressed by commenters, and now shared by the Department, related to market fragmentation and reduction in the average size of AHPs, which could impact employer groups' ability to take advantage of their market power and economies of scale, which would ultimately impact the affordability for participants receiving benefits through the AHP.
2. Geographic Commonality
There is a substantial body of case law interpreting ERISA's definition of employer to require common interests other than the provision of welfare benefits, independent of any deference to the Department's historical guidance. For example, in WEAIT the Eighth Circuit concluded that "[t]he definition of an employee welfare benefit plan is grounded on the premise that the entity that maintains the plan and the individuals that benefit from the plan are tied by a common economic or representation interest, unrelated to the provision of benefits. "[58] The court further explained that "[o]ur decision is premised on ERISA's language and
Paragraph (c) of the 2018 AHP Rule set forth alternative ways an association could be treated as having the requisite commonality of interest necessary to constitute a bona fide group or association of employers. The employers who participate in the group or association could have had "industry commonality," which means they were in the same trade, industry, line of business, or profession. Alternatively, the participating employers could have had "geographic commonality" if each employer had a principal place of business in the same geographic region that did not exceed the boundaries of a single State or metropolitan area (even if the metropolitan area included more than one State). In a departure from the pre-rule guidance, the 2018 AHP Rule permitted an employer group or association to establish the requisite commonality of interest based on a common geographic location alone, even if the membership within the geographic locale comprises otherwise unrelated employers in multiple unrelated trades, industries, lines of business, or professions.[61]
The preamble of the 2018 AHP Rule focused on the desired goal of the rule, to spur AHP formation, but did not adequately address the fundamental question of how geography alone provided for a commonality of interest. The preamble to 2018 AHP Rule did not dispute the importance of commonality. Indeed, the 2018 AHP Rule rejected suggestions that commonality could be established by shared ownership characteristics (all women-owned businesses; all minority-owned businesses; all veteran-owned businesses), shared business models ( e.g., all non-profit businesses), shared religious/moral convictions, or shared business size.[62] DOL did so because it concluded that a standard this lax would be "impossible to define or limit" and would "eviscerate" the commonality requirement.[63] The AHP rule concluded that, as a policy matter, these line-drawing concerns did not apply to groups with geographical commonality, but the discussion was incomplete at best because it focused mostly on the benefits of having more AHPs, without providing any convincing explanation of how geographic commonality was an employment-based commonality that was different from the shared ownership, shared business models, shared religious/moral convictions, and shared business size criteria that the Department rejected. Upon further consideration, DOL now agrees that a commonality requirement based on common geography alone (same State or multi-State area) is not adequate as a means for making sure that commonality exists. The same reasons why DOL rejected other expansions of the commonality requirement militate against adopting geographic commonality as well. Although it is true that the existence of state-wide chambers of commerce demonstrates that certain statewide groups might have shared interests such that they could create an association, this form of commonality is too loose and undermines the commonality requirement's ability to ensure that AHP status is restricted to bona fide associations.
While the Department acknowledges that employers within the same geographic locale can share other factors that rise to the level of sufficient economic and representational interest, the Department is now concerned that the 2018 AHP Rule did not articulate an appropriate basis for treating common geography alone as a shared interest with respect to the employment relationship. Just as would be the case for associations consisting of employers whose membership is based on common business size, the Department is concerned that recognizing under ERISA section 3(5) an association composed of unrelated employers all operating in any specific State with no other commonality also would not sufficiently respect the genuine commonality of interest requirement under ERISA, which is intended to ensure that AHPs are operating in the interest of employers and are not merely operating as traditional health insurance issuers in all but name.[64]
3. Working Owners
The 2018 AHP Rule allowed certain self-employed persons without any common-law employees to participate in AHPs as "working owners."[65] The 2018 AHP Rule established wage, hours of service, and other conditions for when a working owner would be treated as both an "employer" and "employee" for purposes of participating in, and being covered by, an AHP.[66] The 2018 AHP Rule treated persons as employers even though they had no employment relationship with anybody other than themselves. Thus, a group or association could become an employer by virtue of its working owner members being classified as both an employer and an employee, even though the working owners had no employees and also were not employed by another person or entity.
The Department believes that the 2018 AHP Rule struck the wrong balance between ensuring a sufficient employment nexus and enabling the creation of plan MEWAs and failed to appropriately account for the consequences of the working owner provision. ERISA applies when there is an employer-employee nexus. This employer-employee nexus is the heart of what makes an entity a bona fide group or association of employers capable of sponsoring an AHP. In other words, the standard is meant to reflect genuine employment relationships. The Department is now of the view that ERISA calls for a higher standard for what constitutes a bona fide group or association of employers than is evidenced in the 2018 AHP Rule. In the ERISA context, the bona fide group or association of employers consists of actual employers who, as of the time they join the group or association, hire, and pay wages or salaries to other people who are their common-law employees working for them. Under the 2018 AHP Rule, although working owners had to meet requirements related to the number of hours devoted to providing personal services to the trade or business or the amount of income earned from the trade or business in order to participate in an AHP, these requirements related to differentiating self-employed individuals from individuals engaged in hobbies that generate income or other de minimis commercial activities.[67] They did not, however, reflect the existence of an employer-employee relationship as in the exchange between an employee and an employer of personal services for wages and other compensation (such as health benefits offered through a group health plan) that would be expected in a common-law employment relationship.
By removing the requirement for a genuine employer-employee nexus, we now are concerned on further reflection that the 2018 AHP Rule departs too far from ERISA's essential purpose and fails to take appropriate account of the underlying basis for the bona fide group or association of employers standard. As stated previously, this purpose and basis require drawing appropriate distinctions between employers and associations acting "in the interest of an employer" on the one hand, and entrepreneurial ventures selling insurance on the other. A strong employer-employee nexus condition also helps reduce the vulnerability of MEWAs to fraudulent behavior and mismanagement. Routinely treating people as "employers" when they have no employees risks converting ERISA from an employment-based statute, as
The Department, upon further review of relevant
C. Alternatives To Complete Rescission of the 2018 AHP Rule
As part of its deliberations as to whether to propose rescission, the Department considered several alternatives for this rulemaking. The Department contemplated proposing rescission to remove only certain provisions of the 2018 AHP Rule. For example, the Department considered proposing to rescind the working owner provision, which represents the most significant departure from the pre-rule guidance. Similarly, the Department considered proposing to remove the geographic commonality provision, another provision representing a dramatic departure from the pre-rule guidance, since geography is not, on its own, an interest with respect to an employment relationship. However, the Department decided against proposing a rescission of just the specific provisions set aside by the district court. The Department is concerned that the provisions that would remain in the 2018 AHP Rule would not provide an adequate definition of "employer" in ERISA section 3(5) that properly reflect the limits of ERISA's definition of "employer" and
The Department also considered a proposal to rescind the 2018 AHP Rule and instead codify, in the CFR, the pre-rule guidance. The Department recognizes that there could be benefits to codifying the pre-rule guidance. The pre-rule guidance is largely in the form of advisory opinions, which do not have the same applicability as regulations and technically are not precedential.[75] Application of the Department's pre-rule guidance thus requires interested parties to compare their specific circumstances to various opinions the Department issued to determine whether the Department has addressed analogous facts and circumstances. Nonetheless, the Department concluded that it would be better to seek comment from interested parties on whether the Department should first propose a rule either codifying the pre-rule guidance or creating alternative criteria and then consider that input as part of a comprehensive reevaluation of the definition of "employer" in the AHP context.
III. Requests for Public Comments
The Department seeks comments from interested parties on all aspects of this proposal to rescind the 2018 AHP Rule in its entirety. In the Department's view, ERISA's statutory purposes would be better served by rescinding the 2018 AHP Rule and removing it from the published CFR while the Department considers alternatives and engages with interested parties. In addition to comments on rescission of the 2018 AHP Rule, the Department also seeks comments on whether the Department should propose a rule for group health plans that codifies and replaces the pre-rule guidance, issue additional guidance clarifying the application of the Department's pre-rule guidance as it relates to group health plans (including, for example, the HIPAA nondiscrimination rule application to AHPs), propose revised alternative criteria for multiple employer association-based group health plans, or pursue some combination of those or other alternative steps. The public comments will inform the Department's decision on whether to finalize this proposal to rescind the 2018 AHP Rule and will also assist the Department in determining if it should engage in future rulemaking on AHPs under ERISA section 3(5). The Department intends that its evaluation will focus on ensuring that the Department's regulatory policy and actions in this area honor the Department's long held view, reiterated in the preamble to the 2018 AHP Rule, that
This proposal and solicitation of public comments is focused on group health plans and does not include retirement plans and welfare plans other than group health plans ( e.g., disability plans). The Department acknowledges that its final rule on association retirement plans (ARPs), which was issued after the 2018 AHP Rule and after the district court decision in New York v.
IV. Regulatory Impact Analysis
A. Relevant Executive Orders for Regulatory Impact Analyses
Executive Orders (E.O.s) 12866[78] and 13563[79] direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects; distributive impacts; and equity). E.O. 13563 emphasizes the importance of quantifying costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. E.O. 13563 directs agencies to propose or adopt a regulation only upon a reasoned determination that its benefits justify its costs; the regulation is tailored to impose the least burden on society, consistent with achieving the regulatory objectives; and in choosing among alternative regulatory approaches, the agency has selected those approaches that maximize net benefits. E.O. 13563 recognizes that some benefits are difficult to quantify and provides that, where appropriate and permitted by law, agencies may consider and discuss qualitative values that are difficult or impossible to quantify, including equity, human dignity, fairness, and distributive impacts.
Under E.O. 12866 (as amended by E.O. 14094), the
OMB has designated this action a "significant regulatory action" within the meaning of section 3(f)(1
TARGETED NEWS SERVICE (founded 2004) features non-partisan 'edited journalism' news briefs and information for news organizations, public policy groups and individuals; as well as 'gathered' public policy information, including news releases, reports, speeches. For more information contact
George Institute for Global Health Reports Findings in Public Health (Gender-specific inequalities in coverage of Publicly Funded Health Insurance Schemes in Southern States of India: evidence from National Family Health Surveys): Health and Medicine – Public Health
Fed, FDIC: Community Reinvestment Act Regulations Asset-Size Thresholds
Advisor News
- Year-end planning errors retirees should avoid
- Social cultivation: How to talk with wealthy prospects
- How important is a written financial plan?
- Coalition wants to advise people impacted by policy changes in new administration
- Diagnosing miscommunication in retirement planning
More Advisor NewsAnnuity News
Health/Employee Benefits News
- Data on Managed Care Reported by Researchers at Duke University Hospital (Assessment of Embedded Versus Remote Pharmacist Versus Remote Student Pharmacist Outreach On Statin Prescribing): Managed Care
- What your generation needs to know
- Studies in the Area of Human Papillomavirus Vaccines Reported from University of Connecticut (Accountable Care Organizations and Hpv Vaccine Uptake: a Multilevel Analysis): Immunization and Public Health – Human Papillomavirus Vaccines
- New attempt made to drop circumcision from Medicaid coverage in NH
- National Health Insurance Service Ilsan Hospital Reports Findings in Pneumothorax (Impact of Deep Learning-Based Computer-Aided Detection and Electronic Notification System for Pneumothorax on Time to Treatment: Clinical Implementation): Respiratory Tract Diseases and Conditions – Pneumothorax
More Health/Employee Benefits NewsLife Insurance News