DOL Proposes Rescission of Association Health Plan Rule

On December 20, 2023, the DOL proposed rescinding a 2018 rule that created alternative criteria that could be used to determine whether a group or association of employers could establish an association health plan (AHP). The rule allows employers without a commonality of interest to form AHPs if they are in the same state or metropolitan area. Further, AHPs can form for the primary purpose of providing benefits (something that was prohibited before 2018) if they can show a “substantial business purpose,” which includes minimal proof — anything from setting business standards and practices to publishing a newsletter. Importantly, the 2018 rule also allows an AHP to cover non-employees (sole proprietors, independent contractors, partners, and other businesses without any employees).

However, in 2019, the US District Court for the District of Columbia, in New York v. DOL, invalidated the 2018 rule. The court concluded that the DOL did not reasonably interpret ERISA and that the primary provisions of the 2018 rule must be invalidated. Those primary provisions are the expanded definition of “commonality of interest” and the inclusion of working owners. Specifically, the court stated that the commonality of interest expansion in the 2018 rule failed to meaningfully limit the types of associations that could qualify as sponsors of an ERISA plan. In addition, because ERISA is meant to regulate benefit plans that arise from employment relationships, the inclusion of working owners impermissibly expanded ERISA’s regulation to plans outside of such employment relationships. The court concluded that the rule ignored ERISA’s definitions and structure, case law, and ERISA’s 40-year history of excluding employers without employees. Accordingly, the court remanded the matter back to the DOL.

The DOL states that the 2018 rule was never fully implemented, and the department is not aware of any existing AHP formed based on the rule. Accordingly, the DOL proposes to “rescind in full the 2018 rule to resolve any uncertainty regarding the status of the standards established under the rule, allow for a reexamination of the criteria for a group or association of employers to be able to sponsor an AHP, and ensure that guidance being provided to the regulated community is in alignment with ERISA’s text, purposes and policies.”

Employers who are considering creating an AHP should be aware of this proposal. The deadline to submit comments is February 20, 2024.

Press Release

Rule Proposal: Definition of Employer – Association Health Plan