Prior to 2014, insurers could offer insurance coverage to groups of small employers that belonged to an Association Health Plan (AHP). Under the rules at the time, the insurer could offer discounts to small employers that were part of an AHP. Effective January 1, 2014, the Affordable Care Act (ACA) required that all small group coverage (with the exception of grandfathered plans or plans in states where the rules were delayed) be guaranteed issued and included in the single small group rating pool. The ACA prohibited any variations to rates other than for age, geographic location, number of dependents and tobacco usage. These new rules prohibited carriers from offering discounts and therefore eliminated AHPs.
Multi-Employer Welfare Arrangement (MEWA) trusts have been used for many years as a vehicle to purchase large group coverage on behalf of the MEWA trust’s member employers. Large group coverage, unlike small group coverage, does not have to cover the Essential Health Benefits and can be rated based on the underlying health status and claims experience of the insured group. The MEWA trusts could also create self-funded health plans for its employer members.
MEWAs are regulated under the Employee Retirement Income Security Act of 1974 (ERISA) which regulates the relationship between the employer and the employee. Because a sole proprietor does not employ an employee, sole proprietors were not eligible to form or be part of a MEWA trust. Additionally, MEWA trusts had to have been formed for another bona fide business reason other than the purchase of insurance (such as lobbying, education, etc.). The MEWA trusts were also allowed to underwrite; they could determine which companies were allowed to join the trust based on the health status of the employer or they could charge different rates depending on the health status and expected claims of the employer’s group.
On Tuesday June 19, the Department of Labor issued final regulations expanding the use of MEWA trusts as a vehicle to purchase health insurance and put certain restrictions on the rating practices of the new version of the MEWA trusts. This final regulation followed a proposed regulation published on January 5, 2018 and was in response to President Trump’s Executive Order issued on October 12, 2017. While packaged as Association Health Plans, it is important to note this new arrangement is not the same as the pre-ACA Association Health Plans. Specifically, these new rules:
The DOL estimates up to 400,000 previously uninsured individuals will get coverage as a result of the changes. However, a study by Avalere suggests the leaner (fewer covered items), lower cost coverage will draw mostly healthy individuals out of the small group and individual markets resulting in higher premiums for everyone else (approximately 2.7%-4.0% for individuals and families and 0.1%-1.9% for small groups) and will actually increase the number of uninsured individuals by 130,000 to 140,000.
On Friday, January 5, 2018, the Department of Labor (DOL) published a proposed regulation regarding Association Health Plans and Multi Employer Welfare Arrangements (MEWAs). This regulation was the first in response to President Trump’s Executive Order from October 12.
In the past, Association Health Plans were usually a group of employers from a common trade that brought all of their business to a single insurer in exchange for discounted pricing. Examples of this were the Builders Association of Northern Nevada and the Las Vegas Chamber of Commerce. However, the guaranteed issue rules from the Affordable Care Act required insurers to offer those discounts to all employers, effectively eliminating the discounts and the association plans.
If the associations chose, they could have formed Multi Employer Welfare Arrangements. These are basically trusts that are regulated under the Employee Retirement Income Security Act of 1974 (ERISA). As a large group, the association MEWAs are no longer subject to the same premium and coverage rules as insurance for small employers and the MEWA could receive discounts. However, MEWAs were more difficult to form.
These proposed regulations generally make it easier to form MEWAs. Specifically they:
1. Allow MEWA trusts to form for the express purpose of providing health insurance to its employer members provided those employers are from a similar type trade or geographic location as designated by the MEWA. Previously, there had to be another bona fide business reason to set up a trust. Then and only then could the MEWA offer health insurance to its member employers. This regulation will make it much easier to set up MEWA trusts to purchase insurance and allow groups of small employers to purchase large group coverage.
2. Allow sole proprietors to be considered an employer for purposes of joining an insurance MEWA. ERISA generally regulates the relationship between employer and employee. Because sole proprietors are not employers, sole proprietors cannot form or be a part of Multi Employer Welfare Arrangements (MEWAs). This rule expands the definition of employer to include sole proprietors. This will allow a group of sole proprietors to form insurance MEWAs to potentially gain access to the large group market (if they have over 50 members), and possibly the small group market, depending on the interpretation of insurance rules.
3. Prevent MEWAs from discriminating for purposes of membership or premium based on health factors. Currently, MEWAs can charge different premiums to their various employer members or restrict eligibility based on health status of a potential member. This proposed rule prohibits such practices. This portion of the rule will dampen the potential savings to a group of employers, but will allow like positioned employers access to the savings.
Timeline. It is important to note that this is a proposed rule. There is a 60 day comment period and then it will likely take the DOL another 30-60 days to compile the responses and publish the final rule. Therefore, it is likely that the final rule won’t be published until April, 2018 or later.
Ultimately, this is simply another form of cost shifting. Those groups that form MEWAs may be able to slow the rate of premium increases temporarily by shifting costs to their employees.