The recent regulations on association health plans (AHPs) would make it easier for employers to provide cost-effective health coverage in a variety of situations, according to comments from a major plan sponsor organization. Other stakeholders, however, worry that AHP expansion might open the door to widespread fraud.

The proposed rule, published January 5 by the U.S. Department of Labor (DOL), would broaden the definition of “employer” under the Employee Retirement Income Security Act (ERISA) to include an association of employers linked by industry or geography that is formed to sponsor a group health plan for its employer members. The DOL accepted public comments on the proposal until March 6.

The American Benefits Council (ABC) expressed general support for the proposal. If finalized, the rule “would not only help small employers (including qualifying sole proprietors) access large group plan coverage, but it could also be helpful for employers more generally in certain common scenarios,” such as franchises, joint ventures, and government contracts, according to ABC’s written comments.

In the joint venture context, for example, unless a single entity owns more than 80%, none of the owner entities currently may allow the joint venture’s employees to participate in the company’s own plan without raising potentially tricky “multiple employer welfare arrangement” (MEWA) compliance issues, the ABC stated. “The Proposed Rule, by facilitating the establishment of AHPs, could open up new, more cost-effective coverage options for these sorts of joint ventures.”

The ABC also supported the DOL’s intention to open the new AHP option to large as well as small employers. However, the group asked the agency to tweak a provision of the “working owner” eligibility requirements to avoid unduly limiting these individuals’ participation.

The proposed rule would allow qualifying business owners without employees to join an AHP as employers and participate as employees, but not if they are eligible for “any subsidized group health plan” from another employer or a spouse’s employer. To ensure that working owners are not excluded from AHPs merely because of access to ancillary or supplemental coverage (such as dental or vision plans), the ABC asked the DOL to replace the reference to any subsidized coverage with a reference to minimum essential coverage as defined by the Affordable Care Act.

The ABC did express concern about the AHP rule’s potential impact on the individual health insurance market. Given the importance of individual coverage to part-time employees, early retirees, and others who leave employment, “the Council urges the Department to take steps to ensure that any final rule with respect to AHPs not result in further adverse risk selection or segmentation to the individual insurance market.”

Concerns About MEWA Fraud

Other stakeholders raised concerns that the rule might allow the further spread of the types of fraudulent MEWAs that have long bedeviled employers, participants, and regulators.

While the DOL acknowledged this problem in the rule’s preamble, the agency did not address “the costs that the regulation would impose by increasing both the incidence of fraud and the resources required at the federal and state level to police prevent and attempt to remedy such frauds,” according to a coalition of advocacy groups headed by Georgetown University’s Center on Health Insurance Reforms (CHIR).

Data from the DOL’s own files, which the groups have requested, is likely to show that the proposed rule is “seriously flawed,” they argued. “The material requested will document a dispiriting and relentless record of fraudulent MEWAs and purported [AHPs] with characteristics indistinguishable from the entities that the Department legitimizes and seeks to encourage” in the proposed rule.

The DOL’s reliance on formal association documents and the right of association members to elect the board is misplaced, according to the coalition, which includes Families USA and the AFL-CIO.

“Such nominal and formalistic employer control is a common feature of Associations sponsoring fraudulent MEWAs, easily evaded by having associates of the fraudfeasor act as founding members of the Association who elect the initial Board,” the groups contend. “In short, DOL files will show that under the guise of controlling fraud, the Department does little more than codify the worst practices of the typical fraudulent MEWAs that have bedeviled Department enforcement for decades.”

CHIR called for the DOL to withdraw the proposed rule to give the agency time to produce the additional data, fully analyze it, and present the results to the public.