Small Businesses Get Big Employer Benefits

AHP creates alternative coverage option for some employers.

When it comes to running a small business, there are an endless number of decisions that need to be made, both big and small, and selecting a benefits package can be one of the most daunting. Small businesses tend to experience more challenges in offering group health options that both fit their budget and are also attractive to current and future employees. Government healthcare restrictions, however, have been so strenuous on small businesses that having a benefits package that competes with those of larger companies has been all but unfeasible. ​Starting in September though, that could all change.

How Association Health Plans (AHPs) Work

In June of this year the Depart of Labor passed a ruling that goes into effect September 1st which will allow small businesses, and even self-employed workers to group together by location or industry to obtain healthcare coverage as if they were a singular large enterprise. Defined as association health plans, this new ruling will give millions of small businesses the opportunity to offer competitive, cost-effective health insurance plans to their workers that they previously wouldn’t have been able to offer. According the DOL “Association Health Plans will be able to strengthen negotiating power with providers from larger risk pools and greater economies of scale,” essentially giving small companies big business group purchasing savings while reducing administrative overhead. This is significant because these AHPs could help individual and small business overcome some the ACA reforms, such as the essential health benefits requirements. The final regulations provide a device for a “bona fide” association of employers that have an earnest organizational relationship and an ability to control the association to meet the definition of “employer.” So what exactly qualifies as an “employer” under this new ruling that would allow your business or employer to participate in these association health plans? Essentially the ruling breaks it down into four key components: 

Commonality of Interest - Under this new ruling the criteria for what is considered an employer under the Employee Retirement Income Security Act (ERISA) is broadened by allowing employers to band together if they fit either one of two conditions – (1) they are in the same profession, industry, or trade of business, or (2) are in the same geological area, either by state or metropolitan. Oddly though the Final Ruling adds a condition that the group of employers needs “one substantial purpose unrelated to the provision of benefits” to band together, even if the group or organization’s principal purpose is the offering of insurance benefits, yet it does not provide a definition of what exactly a “substantial business purpose” would be. 

Employer Control - The Ruling emphasized the concept of employer control as an obligatory condition to meet the ERISA statutory requirements for an AHP. This is viewed as critical to prevent the creation of commercial enterprises that were AHP’s and ultimately to prevent groups from operating as health insurers, but with far less oversight and regulation. The guidelines of how the DOL defines employer control are as follows:  (1) Employer members regularly nominate and elect directors, officers, trustees, or other similar persons that constitute the governing body or authority of the employer group or association and plan; (2) Employer members have authority to remove any such director, officer, trustees, or other similar person with or without cause; and (3) Employer members that participate in the plan have the authority and opportunity to approve or veto decisions or activities which relate to the formation, design, amendment, and termination of the plan, for example, material amendments to the plan, including changes in coverage, benefits, and premiums.[1]

Sole Proprietors – Generally only employees or former employees and their families can participate in AHPs. However, the Final Ruling allows individuals without common-law employees, such as sole proprietors and other self-employers, to elect to act as employer members of an association and also be treated as employees of their businesses for the purposes health coverages as an employee. According to the ruling these sole proprietors mostly must work at least 20 hours per week or 80 hours per month to qualify. 

Nondiscrimination Requirements – The Final Ruling forbids a group from permitting membership in the association based on any health factor, similar to the HIPAA nondiscrimination provisions. It should be noted that distinctions can still be made for other reasons then health. For example, a construction AHP may offer different coverage options for roofers then they do for plumbers, so long as health is not a factor. 

​What kind of impact this new ruling will have is yet to be seen as there are a number of ripple effects it could have on the insurance markets, the quality of health insurance being offered, and State and Federal regulations. Continue to check our blog and subscribe to our newsletter so that you can stay current on any significant developments related to AHPs.

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