On April 29, 2024, the U.S. Department of Labor (the “DOL”) issued a final rule (the “Final Rule”) rescinding the 2018 Association Health Plan rule (“2018 AHP Rule”), thereby marking a return to the more rigid pre-2018 regulatory framework governing association health plans. The 2018 AHP Rule, officially titled “Definition of Employer Under Section 3(5) of ERISA – Association Health Plans,” allowed these plans to bypass certain requirements under the Affordable Care Act (“ACA”). The Final Rule will take effect on July 1, 2024.

The DOL’s decision to rescind the 2018 AHP Rule follows legal challenges, concerns about market stability, and the DOL’s desire to align the rule with the Biden Administration’s goal of enhancing access to quality health coverage. According to the DOL, the 2018 AHP Rule was a significant departure from the DOL’s longstanding pre-rule guidance on the definition of “employer” under ERISA and substantially weakened the DOL’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 set forth alternative criteria under ERISA for determining when employers and associations may join together to sponsor a single group health plan under ERISA.[i] For example, the 2018 AHP Rule required that the group or association 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.”[ii] Previous guidance required that such group or association “must exist for purposes other than providing health benefits.”[iii] The intent behind the 2018 AHP Rule was to encourage the creation of AHPs as alternatives for affordable health coverage for small employers and self-employed individuals.

A 2019 decision by the U.S. District Court for the District of Columbia largely invalidated the 2018 AHP Rule, finding that portions of the rule were unreasonable interpretations of ERISA designed to circumvent the requirements of ERISA and the ACA.[iv] Further, according to the DOL’s Final Rule Fact Sheet, the 2018 AHP Rule “struck the wrong balance between ensuring a sufficient employment connection and enabling the creation of AHPs.” The DOL considered, but ultimately decided against, proposing a rescission of just those provisions vacated by the federal district court, concluding that the provisions held invalid by the district court were so central to the rule that removing them would undermine the core objectives of the 2018 AHP Rule.

This recission reinstates the DOL’s pre-rule guidance and longstanding criteria for AHPs, which emphasized the need for an employment nexus in which AHPs were typically required to have a commonality of interest among members based on their employment. The pre-2018 AHP Rule guidance applies a facts-and-circumstances approach for determining whether a group or association is a bona fide employer capable of sponsoring an ERISA plan for its members by utilizing the following 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).[v]

When applying the three criteria above to a group or association, the DOL also considers the following factors:

• 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 commonality or other genuine organizational relationship unrelated to the provision of benefits.[vi]

According to the Fact Sheet, the DOL is unaware of any groups or associations relying on the 2018 AHP Rule, and as such, does not expect the decision to result in any regulatory costs or burdens.

FOOTNOTES

[i] 29 CFR 2510 (June 21, 2018)

[ii] 29 CFR 2510 (June 21, 2018)

[iii] 29 CFR 2510 (April 30, 2024)

[iv] New York v. U.S. Department of Labor, 363 F. Supp. 3d 109 (D.D.C. 2019).

[v] 29 CFR 2510 (April 30, 2024)

[vi] 29 CFR 2510 (April 30, 2024)

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