Employee Benefits Security Administration: Definition of 'Employer'-Association Health Plans
The rule was issued by
Here are excerpts:
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SUMMARY:
This document rescinds the
DATES:
Effective date: This rule is effective on
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SUPPLEMENTARY INFORMATION:
I. Executive Summary
This document rescinds the Department's 2018 rule entitled "Definition of Employer Under Section 3(5) of ERISA--Association Health Plans." The 2018 AHP Rule established an alternative set of criteria from those set forth in the Department's pre-rule guidance for determining when a group or association of employers is acting "indirectly in the interest of an employer" under section 3(5) of ERISA for purposes of establishing an AHP as a multiple employer group health plan. The 2018 AHP Rule was a significant departure from the Department's longstanding pre-rule guidance on the definition of "employer" under ERISA. This departure substantially weakened the Department's traditional criteria in a manner that would have enabled the creation of commercial AHPs functioning effectively as health insurance issuers. The 2018 AHP Rule's alternative criteria were, in large part, held invalid by the
II. 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 section 3(5) of ERISA. The Department's regulation at 29 CFR 2510.3-5, published in its 2018 AHP Rule,[1] which is the subject of this rescission, sought to define circumstances under which a group or association of employers constitutes an "employer" within the meaning of section 3(5) of ERISA with respect to sponsorship of a group health plan and the provision of health benefits.
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, then it is generally referred to as a "bona fide" employer group or association according to the Department's pre-rule guidance first issued more than forty years ago.[2] 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 Federal appellate court, in addition to several Federal district courts, that have considered whether an organization was acting in the interests of employer members.[3] Moreover, to the Department's knowledge, no court has found, or even suggested, that the pre-rule guidance criteria too narrowly construed 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 determine 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 longstanding pre-rule guidance, largely taking the form of a collection of advisory opinions issued over more than four 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.[4] 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 a 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 longstanding 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; the preexisting relationships, if any, 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.[5]
C. Association Coverage Under the Public Health Service Act
The Public Health Service Act (PHS Act) establishes health coverage requirements in Title XXVII that generally apply to group health plans and health insurance issuers offering group or individual health insurance coverage. The provisions of Title XXVII of the PHS Act have been amended by the Affordable Care Act (ACA)[6] and other Federal laws. These PHS Act provisions are administered by the
Under Title XXVII of the PHS Act, "individual market coverage" is any health insurance coverage that is not offered in connection with a group health plan.[7] Conversely, the term "group health insurance coverage" refers to health insurance coverage offered in connection with a group health plan.[8] The PHS Act derives its definitions of "group health plan" and "employer" from the ERISA definitions of "employee welfare benefit plan" and "employer."[9] Thus, reference to ERISA is needed when determining whether a group health plan exists for PHS Act purposes and determining whether an ERISA-covered health arrangement is properly treated as a single plan operating on behalf of multiple employers or, instead, a collection of separate and discrete employer-sponsored plans.
In guidance issued in 2002 and 2011, CMS explained how the requirements of Title XXVII of the PHS Act apply to health insurance coverage sold to or through associations.[10] Specifically, as stated in the guidance, the test for determining whether association coverage[11] is individual or group market coverage for purposes of Title XXVII of the PHS Act is the same test as that applied to health insurance coverage offered directly to individuals or employers. In other words, CMS will generally ignore--"look through"--the association to determine whether each association member must receive coverage that complies with the requirements arising out of its status as an individual, small employer, or large employer.
Consequently, coverage that is issued to or through an association, but not in connection with a group health plan, is not considered group health insurance coverage for purposes of the PHS Act. Under the PHS Act, such coverage is considered coverage in the individual market, regardless of whether it is considered group coverage under State law.[12]
In situations involving employment-based association coverage where coverage is offered in connection with a group health plan, the coverage is considered group health insurance coverage under the PHS Act. In cases where an association is not considered an employer under ERISA, each employer member of the association is considered to sponsor its own group health plan under the PHS Act. In those cases where an association is determined to be an employer that is "acting indirectly in the interest of its employer members" and sponsors a plan under ERISA, the association coverage is considered a single group health plan under the PHS Act.
Under the PHS Act, the number of employees of the employer sponsoring the group health plan determines whether the employer is a small employer[13] or large employer[14] and thus whether health insurance coverage provided in connection with a group health plan sponsored by the employer falls into the small group market or large group market. In the situation where each employer member of the association is considered to sponsor its own group health plan, the size of each employer participating in the association determines whether that employer's coverage is subject to the small group market or large group market rules. In those 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 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. Accordingly, the status of an association as a single "employer" within the meaning of section 3(5) of ERISA, and of the AHP as a single plan has important legal consequences. As a general matter, small group and individual market coverage is subject to Federal protections not applicable to large group market coverage, such as the ACA's premium rating requirements, single risk pool, and essential health benefit (EHB) requirements. Thus, to the extent the arrangement is not a single plan, but rather an aggregation of individual plans (or individuals), the participants covered by the arrangement are subject to these more robust protections applicable to plans in the small group market (or to individual coverage, when the insured parties are simply individuals purchasing insurance coverage outside the group market).[1516]
D. The 2018 AHP Rule
On
Thus, paragraph (b)(1) of the 2018 AHP Rule abandoned the requirement in pre-rule guidance that the group or association acting as an employer must exist for purposes other than providing health benefits. Instead, the 2018 AHP Rule only required that the group or association 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. In a significant departure from pre-rule guidance, the rule specifically stated that "the primary purpose of the group or association" could be "to offer and provide health coverage to its employer members and their employees."[20]
Similarly, paragraph (c) of the 2018 AHP Rule provided for a looser commonality standard than the pre-rule guidance, which had insisted on a genuine commonality of interests between employer members. 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 its employer members were located within a region that did not exceed the boundaries of the same State or metropolitan area, such as the
In a particularly striking departure from ERISA's employment-based structure, paragraph (e) of the 2018 AHP Rule specifically allowed working owners without any common-law employees to participate in AHPs, stating that the working owner would be treated as both an "employer" and "employee" for purposes of participating in, and being covered by, an AHP, notwithstanding the absence of any employment relationship with any common-law employees.[22] Under the pre-rule guidance, working owners without common-law employees generally were not permitted to be treated as employers for the purpose of participating in a bona fide employer group or association,[23] or as employees who could be participants in an ERISA-covered employee welfare benefit plan.
In part because the 2018 AHP Rule had relaxed the standards for treating arrangements as single group plans--making it easier for small employers and working owners to purchase coverage in the large group market which is not subject to all the legal protections applicable to coverage in the individual and small group markets--the 2018 AHP Rule expressly added nondiscrimination standards as an additional safeguard against abuse.[24] These standards aimed to reduce the danger that the new AHPs would abuse their status by cherry-picking groups of relatively healthy participants, such as by charging one participating business more for premiums than it charges other members because that business employs several individuals with chronic illness, and excluding others at the expense of the broader insurance market, which would cover a relatively sicker and more expensive population. In particular, 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).[25]
In applying the HIPAA health nondiscrimination rules for defining similarly situated individuals under the 2018 AHP Rule, the group or association could not treat employer members 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.[26] For example, a group or association could not separately experience-rate each employer member of the association based on the health factors of their employees and meet the criteria to be a bona fide group or association of employers under the 2018 AHP Rule. The pre-rule guidance does not incorporate nondiscrimination requirements in the definition of employer, although plans must comply with all applicable laws, including the HIPAA nondiscrimination rules. As the Department noted in the preamble to the 2018 AHP Rule, the HIPAA nondiscrimination rules apply to group health plans, including AHPs, and therefore 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.
E. Decision Finding Core Provisions of the 2018 AHP Rule Invalid
In
In 2019, the Department appealed the district court's decision.[33] Thereafter, the
The Department considered the severability clause issue raised by the district court and concluded that, without the core provisions that the district court found invalid, the 2018 AHP Rule could not be operationalized and would provide no meaningful guidance. To minimize consequences of the district court's decision on AHP participants, the Department announced a temporary safe harbor from enforcement on
[FR Doc. 2024-08985 Filed 4-29-24;
BILLING CODE 4510-29-P
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The document was published in the
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