28912 Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Rules and Regulations 

1See Executive Order 13813 at 82 FR 48385 (Oct. 

17, 2017). 

2U.S. Congressional Budget Office, ‘‘Federal 

Subsidies for Health Insurance Coverage for People 

Under Age 65: 2018 to 2028.’’ https://www.cbo.gov/ 

system/files/115th-congress-2017-2018/reports/ 

53826-healthinsurancecoverage.pdf. The 

Department did not rely on the information 

contained in the CBO report to reach its 

conclusions regarding the effects of the final rule, 

but notes that the CBO’s findings are consistent 

with the Department’s own findings. 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

29 CFR Part 2510 

RIN 1210–AB85 

Definition of ‘‘Employer’’ Under Section 

3(5) of ERISA—Association Health 

Plans 

AGENCY: Employee Benefits Security 

Administration, Department of Labor. 

ACTION: Final rule. 

SUMMARY: This document contains a 

final regulation under Title I of the 

Employee Retirement Income Security 

Act (ERISA) that establishes additional 

criteria under ERISA section 3(5) for 

determining when employers may join 

together in a group or association of 

employers that will be treated as the 

‘‘employer’’ sponsor of a single 

multiple-employer ‘‘employee welfare 

benefit plan’’ and ‘‘group health plan,’’ 

as those terms are defined in Title I of 

ERISA. By establishing a more flexible 

‘‘commonality of interest’’ test for the 

employer members than the Department 

of Labor (DOL or Department) had 

adopted in sub-regulatory interpretive 

rulings under ERISA section 3(5), and 

otherwise removing undue restrictions 

on the establishment and maintenance 

of Association Health Plans (AHPs) 

under ERISA, the regulation facilitates 

the adoption and administration of 

AHPs and expands access to affordable 

health coverage, especially for 

employees of small employers and 

certain self-employed individuals. At 

the same time, the regulation continues 

to distinguish employment-based plans, 

the focal point of Title I of ERISA, from 

commercial insurance programs and 

other service provider arrangements. 

The final rule also sets out the criteria 

that would permit, solely for purposes 

of Title I of ERISA, certain working 

owners of an incorporated or 

unincorporated trade or business, 

including partners in a partnership, 

without any common law employees, to 

qualify as employers for purposes of 

participating in a bona fide group or 

association of employers sponsoring an 

AHP and also to be treated as employees 

with respect to a trade, business or 

partnership for purposes of being 

covered by the AHP. The regulation 

would affect AHPs, bona fide groups or 

associations of employers sponsoring 

such plans, participants and 

beneficiaries with health coverage under 

an AHP, health insurance issuers, and 

purchasers of health insurance not 

purchased through AHPs. 

DATES:

Effective date. This final regulation is 

effective on August 20, 2018. 

Applicability dates. See Section D of 

the SUPPLEMENTARY INFORMATION section 

for applicability dates for the final rule 

for fully-insured AHPs and self-insured 

AHPs. As discussed more fully below, 

the Department has established an 

applicability date of September 1, 2018, 

for fully-insured AHPs, an applicability 

date of January 1, 2019, for existing selfinsured AHPs complying with the 

Department’s pre-rule test, and an 

applicability date of April 1, 2019, for 

new self-insured AHPs formed pursuant 

to this final rule. The Department has 

concluded that a staggered approach to 

implementation of this final rule is 

consistent with the objective of allowing 

stakeholders, including States and State 

insurance regulators, an appropriate 

amount of time to tailor their groups, 

associations, plans, and regulations to 

the final rule and to address a range of 

oversight and compliance assistance 

issues, especially with respect to selfinsured AHPs. 

FOR FURTHER INFORMATION CONTACT: 

Amber Rivers or Suzanne Adelman, 

Office of Health Plan Standards and 

Compliance Assistance, Employee 

Benefits Security Administration, (202) 

693–8335 or Janet K. Song, Office of 

Regulations and Interpretations, 

Employee Benefits Security 

Administration, (202) 693–8500. These 

are not toll-free numbers. 

SUPPLEMENTARY INFORMATION: 

A. Background 

On October 12, 2017, President 

Trump issued Executive Order 13813, 

‘‘Promoting Healthcare Choice and 

Competition Across the United States,’’ 

stating that ‘‘[i]t shall be the policy of 

the executive branch, to the extent 

consistent with law, to facilitate the 

purchase of insurance across State lines 

and the development and operation of a 

healthcare system that provides highquality care at affordable prices for the 

American people.’’ 1 To advance this 

policy, the Executive Order directed the 

Secretary to consider issuing regulations 

or revising guidance, consistent with 

law, that would expand access to more 

affordable health coverage by permitting 

more employers to form AHPs. The 

Executive Order specifically directed 

the Secretary to consider expanding the 

conditions that satisfy the commonality 

of interest requirements under existing 

DOL advisory opinions interpreting the 

definition of an ‘‘employer’’ under 

ERISA section 3(5) and also to consider 

ways to promote AHP formation on the 

basis of common geography or industry. 

AHPs are an innovative option for 

expanding access to employersponsored coverage (especially for small 

businesses). Through AHPs, employers 

band together to purchase health 

coverage. By participating in AHPs, 

employees of small employers and 

working owners are able to obtain 

coverage that is not subject to the 

regulatory complexity and burden that 

currently characterizes the market for 

individual and small group health 

coverage and, therefore, can enjoy 

flexibility with respect to benefit 

package design comparable to that 

enjoyed by large employers. AHPs may 

also help reduce the cost of health 

coverage to participating employer 

members by giving groups of employers 

increased bargaining power vis-a`-vis 

hospitals, doctors, and pharmacy benefit 

providers, and creating new economies 

of scale, administrative efficiencies, and 

a more efficient allocation of plan 

responsibilities (as the day-to-day 

administration of the benefit program is 

transferred from participating 

employers, who may have little 

expertise in these matters, to the AHP 

sponsor). 

The Department expects that a 

substantial number of uninsured people 

will enroll in AHPs because the 

Department expects the coverage will be 

more affordable than what would 

otherwise be available to them, and 

other people who currently have 

coverage will replace it with AHP 

coverage because the AHP coverage will 

be more affordable or better meet their 

needs. The Department also notes the 

U.S. Congressional Budget Office (CBO) 

predicted that 400,000 people who 

would have been uninsured will enroll 

in AHPs and 3.6 million people will 

enroll in AHPs who would have had 

other coverage, resulting in 4 million 

additional people enrolling in AHPs.2

Under current federal law and 

regulations, health insurance coverage 

offered or provided through an 

employer trade association, chamber of 

commerce, or similar organization, to 

individuals and small employers is 

generally regulated under the same 

federal standards that apply to 

insurance coverage sold by health 


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Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Rules and Regulations 28913 

3A ‘‘health insurance issuer’’ or ‘‘issuer’’ means 

an insurance company, insurance service, or 

insurance organization (including an HMO) that is 

required to be licensed to engage in the business of 

insurance in a State and that is subject to State law 

that regulates insurance (within the meaning of 

section 514(b)(2) of ERISA). Such term does not 

include a group health plan. 29 CFR 2590.701–2. 

The terms ‘‘health insurance issuer’’ and ‘‘issuer’’ 

are used interchangeably in this preamble. 

4Congress did not intend to treat commercial 

insurance products marketed by private 

entrepreneurs as ERISA-covered welfare benefit 

plans. Shortly after ERISA’s passage, Congress 

expressly noted these concerns in The Report of the 

Committee on Education and Labor, HR. Rep. No. 

1785, 94th Cong., 2d Sess. 48 (1977): 

Certain entrepreneurs have undertaken to market 

insurance products to employers and employees at 

large, claiming these products to be ERISA covered 

plans. For instance, persons whose primary interest 

is in profiting from the provision of administrative 

services are establishing insurance companies and 

related enterprises. The entrepreneur will then 

argue that [its] enterprise is an ERISA benefit plan 

which is protected, under ERISA’s preemption 

provision, from state regulation . . . [W]e are of the 

opinion that these programs are not ‘employee 

benefit plans’ . . . [T]hese plans are established and 

maintained by entrepreneurs for the purpose of 

marketing insurance products or services to others. 

. . . They are no more ERISA plans than is any 

other insurance policy sold to an employee benefit 

plan. 

5See AO 2008–07 at www.dol.gov/agencies/ebsa/ 

employers-and-advisers/guidance/advisoryopinions/2008-07a; AO 2003-17A at www.dol.gov/ 

agencies/ebsa/employers-and-advisers/guidance/ 

advisory-opinions/2003-17a; AO 2001-04A at 

www.dol.gov/agencies/ebsa/employers-andadvisers/guidance/advisory-opinions/2001-04a; AO 

96-25A at www.dol.gov/agencies/ebsa/employersand-advisers/guidance/advisory-opinions/1996- 

25a. 

6See AO 94–07A at www.dol.gov/agencies/ebsa/ 

employers-and-advisers/guidance/advisoryopinions/1994-07a and AO 2001–07A at 

www.dol.gov/agencies/ebsa/employers-andadvisers/guidance/advisory-opinions/2001-07a. 

insurance issuers 3 directly to these 

individuals and small employers, unless 

the coverage sponsored by the group or 

association constitutes a single ERISAcovered plan. Whether, and the extent 

to which, various regulatory 

requirements apply to association health 

coverage depends on whether the 

coverage is individual or group coverage 

and, in turn, whether the group 

coverage is small or large group 

coverage. Generally, unless the 

arrangement sponsored by the group or 

association constitutes a single ERISAcovered plan, the current regulatory 

framework disregards the group or 

association in determining whether the 

coverage obtained by any particular 

participating individual or employer is 

individual, small group, or large group 

market coverage (the ‘‘look through’’ 

doctrine). Instead, the test for 

determining the type of coverage 

focuses on whether the coverage is 

offered to individuals or employers. 

And, if the coverage is offered to 

employers, whether the group coverage 

is large group or small group coverage 

depends on the number of employees of 

the particular employer obtaining the 

coverage. Thus, unless the association 

plan is treated as a single ERISAcovered employee welfare benefit plan, 

the size of each individual employer 

participating in the group or association 

determines whether that employer’s 

coverage is subject to the small group or 

large group market rules (or the 

individual market rules, if the 

participant is an individual and not an 

employer that can establish and 

maintain a group health plan). 

Accordingly, different group or 

association members will have coverage 

that is subject to the individual market, 

small group market, and/or large group 

market rules concurrently, as 

determined by each member’s 

circumstances, making the arrangement 

very difficult to administer and 

discouraging employers from banding 

together to sponsor association health 

coverage. 

The term ‘‘employee welfare benefit 

plan’’ is defined in section 3(1) of 

ERISA to include, among other 

arrangements, ‘‘any plan, fund, or 

program . . . established or maintained 

by an employer or by an employee 

organization, or by both, to the extent 

that such plan, fund or program was 

established or is maintained for the 

purpose of providing for its participants, 

or their beneficiaries, through the 

purchase of insurance or otherwise . . . 

medical, surgical, or hospital care or 

benefits, or benefits in the event of 

sickness, accident, disability, death or 

unemployment . . . .’’ Thus, to be an 

employee welfare benefit plan, the plan, 

fund or program must, among other 

criteria, be established or maintained by 

an employer, an employee organization, 

or both an employer and an employee 

organization. With respect to groups or 

associations of employers, only a group 

or association acting as an ‘‘employer’’ 

under ERISA section 3(5) is capable of 

establishing an employee welfare 

benefit plan. 

The term ‘‘employer’’ is defined in 

section 3(5) of ERISA as ‘‘. . . any 

person acting directly as an employer, 

or indirectly in the interest of an 

employer, in relation to an employee 

benefit plan; and includes a group or 

association of employers acting for an 

employer in such capacity.’’ Thus, 

ERISA defines the term ‘‘employer’’ to 

include the ‘‘direct’’ (or common law) 

employer of the covered employees or 

‘‘any other person acting indirectly in 

the interest of’’ the common law 

employer. Based on definitions in Title 

I of ERISA, and because Title I’s overall 

structure contemplates employmentbased benefit arrangements, DOL 

historically has recognized that, in the 

absence of the involvement of an 

employee organization, a group or 

association of employers may sponsor a 

single ‘‘multiple employer’’ plan, if 

certain factors are present.4 The key 

factors have been commonality of 

interests of employer members and 

control of the benefit arrangement by 

the employer members. These factors 

are present when an organized group or 

association of employers with common 

interests unrelated to the provision of 

benefits, acting in the interest of its 

employer members, establishes a benefit 

program for the employees of member 

employers and exercises control over 

the amendment process, plan 

termination, and other similar functions 

on behalf of these members with respect 

to the plan and any trust established 

under the program. DOL guidance 

generally refers to these entities as 

‘‘bona fide’’ employer groups or 

associations. See, e.g., Advisory 

Opinions 2008–07A, 2003–17A and 

2001–04A; see also Advisory Opinion 

96–25A (if an employer adopts for its 

employees a program of benefits 

sponsored by an employer group or 

association that does not itself 

constitute an ‘‘employer,’’ such an 

adopting employer may have 

established a separate, single-employer 

benefit plan covered by Title I of 

ERISA).5

In defining the type of employer 

group or association that can act as an 

ERISA section 3(5) employer in 

sponsoring a single ‘‘multiple 

employer’’ plan, DOL has long 

considered whether the group or 

association has a sufficiently close 

economic or representational nexus to 

the employers and employees that 

participate in the plan. This 

‘‘commonality of interest’’ standard is 

intended to distinguish bona fide groups 

or associations of employers that 

provide coverage to their employees and 

the families of their employees from 

arrangements that more closely 

resemble State-regulated private 

insurance offered to the market at large. 

See, e.g., Advisory Opinion 94–07A; 

Advisory Opinion 2001–04A.6

Courts have also held that there must 

be some cohesive relationship between 

the provider of benefits and the 

recipient of benefits under the plan so 

that the entity that maintains the plan 

and the individuals who benefit from 

the plan are tied by a common economic 

or representational interest. Wisconsin 

Educ. Assn. Ins. Trust v. Iowa State Bd. 


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28914 Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Rules and Regulations 

7Brief of the Secretary of Labor as amicus curiae, 

MD Physicians & Associates, Inc. v. State Bd. of 

Ins., 957 F.2d 178 (5th Cir. 1992) (No. CA–2–90– 

0054), 1991 WL 11248117. 

of Public Instruction, 804 F.2d 1059, 

1063–1064 (8th Cir. 1986); see also MD 

Physicians & Associates, Inc. v. State 

Bd. of Ins., 957 F.2d 178, 183–186 (5th 

Cir. 1992); National Business Assn. 

Trust v. Morgan, 770 F. Supp. 1169 

(W.D. Ky. 1991).7

DOL advisory opinions and court 

decisions have applied a facts-andcircumstances approach to determining 

whether a group or association of 

employers is a bona fide employer 

group or association capable of 

sponsoring an ERISA plan on behalf of 

its employer members. This analysis has 

focused on three broad sets of issues, in 

particular: (1) Whether the group or 

association is a bona fide organization 

with business/organizational purposes 

and functions unrelated to the provision 

of benefits; (2) whether the employers 

share some commonality and genuine 

organizational relationship unrelated to 

the provision of benefits; 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 Department’s historical approach 

to these issues was designed to ensure 

that the Department’s regulation of 

employee benefit plans is focused on 

employment-based arrangements, as 

contemplated by ERISA, rather than 

merely commercial insurance-type 

arrangements that lack the requisite 

connection to the employment 

relationship. But neither the 

Department’s previous advisory 

opinions, nor relevant court cases, 

foreclose DOL from adopting a more 

flexible test in a regulation, or from 

departing from particular factors 

previously used in determining whether 

a group or association can be treated as 

acting as an ‘‘employer’’ or ‘‘indirectly 

in the interest of an employer’’ for 

purposes of the statutory definition. 

Rather, the terms ‘‘employer’’ and 

‘‘indirectly in the interest of an 

employer’’ are ambiguous as applied to 

a group or association in the context of 

ERISA section 3(5), and the statute does 

not specifically refer to or impose the 

‘‘commonality’’ test on the 

determination of whether a group or 

association acts as the ‘‘employer’’ 

sponsor of an ERISA-covered plan 

within the scope of ERISA section 3(5). 

In addition to the text and structure 

of Title I of ERISA, a regulation under 

ERISA section 3(5) should be guided by 

ERISA’s purposes and appropriate 

policy considerations, including the 

need to expand access to healthcare and 

to respond to changes in law, market 

dynamics, and employment trends. 

Thus, Executive Order 13813 directed 

the Department to address the problem 

that too many legitimate employer 

associations cannot sponsor ERISAcovered plans because they do not 

satisfy the requirements for being 

treated as an ‘‘employer’’ or as ‘‘acting 

in the interest of’’ an employer under 

the Department’s previous subregulatory guidance (‘‘pre-rule 

guidance’’). Instead, too many 

association arrangements for health 

coverage are treated as a mere collection 

of distinct plans, each separately 

sponsored by individual employers. 

Under the Department’s pre-rule 

guidance, the association in most cases 

is treated as the mechanism by which 

each individual employer obtains 

benefits and administrative services for 

its own separate plan. To the extent the 

separate employers are small employers, 

their insurance is subject to regulation 

as small group coverage for purposes of 

the Patient Protection and Affordable 

Care Act (ACA). Similarly, in the case 

of sole proprietors and other business 

owners that do not also employ other 

individuals, the insurance coverage they 

obtain for themselves through an 

association is treated as individual 

coverage. As a result, associations that 

want to form AHPs and existing AHPs 

currently face a complex and costly 

compliance environment insofar as the 

various employer members of the 

association and the association’s health 

insurance coverage arrangement may 

simultaneously be subject to large 

group, small group, and individual 

market regulation, which undermines 

one of the core purposes and advantages 

of an association forming and its 

employer members joining an AHP (i.e., 

to help small employers obtain better 

terms on health coverage by allowing 

them to group together to spread risk 

and administrative costs in a large group 

environment). 

After Executive Order 13813 was 

issued, on January 5, 2018, the 

Department published a proposed 

regulation (‘‘Proposed Rule’’) on the 

definition of ‘‘employer’’ in ERISA 

section 3(5) that would broaden the 

types of employer groups or associations 

that may sponsor a single group health 

plan under ERISA for the benefit of the 

employees of the group or association’s 

member employers. The Proposed Rule 

would broaden the criteria for a group 

or association to satisfy the 

‘‘commonality of interest’’ requirement, 

and provide additional flexibility for 

employer groups or associations to offer 

health coverage in a manner that would 

be considered a single group health 

plan. Specifically, under the Proposed 

Rule, employer groups or associations 

would meet the commonality of interest 

criteria if their members were in the 

same trade, industry, line of business, or 

profession, or maintained their 

principal places of business in a region 

that does not exceed the boundaries of 

the same State, or in the same 

metropolitan area (even if the 

metropolitan area includes more than 

one State). 

The Proposed Rule also included a 

provision that would establish clear 

criteria under which working owners, 

such as sole proprietors and other selfemployed individuals, could participate 

in AHPs. Furthermore, while the 

Department’s regulation at 29 CFR 

2510.3–3(b) (which excludes ‘‘plans 

without employees’’ from the definition 

of employee benefit plans covered by 

Title I of ERISA) does not prevent sole 

proprietors or other working owners 

from being participants in broader plan 

arrangements, such as AHPs, the 

Proposed Rule also included an 

amendment to that regulation that 

would expressly permit participation of 

working owners without any common 

law employees in AHPs. Under the 

Proposed Rule, the participants in an 

AHP thus could consist of common law 

employees, common law employees and 

working owners, or solely of working 

owners. In all cases, the working owner 

would be treated as an employee and 

the business as the individual’s 

employer for purposes of being an 

employer member of the bona fide 

group or association and an employee 

participant in the AHP. 

The Department received over 900 

comments in response to the Proposed 

Rule from a wide range of stakeholders, 

including group health plan 

participants, consumer groups, 

employer groups, individual employers 

(including sole-proprietors), employer 

associations and other business groups, 

individual health insurance issuers, 

trade groups representing health 

insurance issuers, State regulators, and 

existing AHPs. The public comments 

submitted in response to the Proposed 

Rule were posted on the Department’s 

website at https://www.dol.gov/ 

agencies/ebsa/laws-and-regulations/ 

rules-and-regulations/public-comments/ 

1210-AB85. A significant number of 

commenters, including small business 

owners and self-employed individuals, 

expressed serious concerns regarding 

the rising cost of healthcare. Many of 

these small business owners currently 

do not offer health coverage to their 

employees, citing ever-increasing costs 


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Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Rules and Regulations 28915 

8Application of Individual and Group Market 

Requirements under Title XXVII of the Public 

Health Service Act when Insurance Coverage Is 

Sold to, or through, Associations. September 1, 

2011. Available at https://www.cms.gov/CCIIO/ 

Resources/Files/Downloads/dwnlds/association_

coverage_9_1_2011.pdf. Hereinafter referred to as 

‘‘2011 CMS guidance.’’ 

9The Departments of Labor, HHS, and the 

Treasury operate under a Memorandum of 

Understanding that implements section 104 of the 

Health Insurance Portability and Accountability Act 

of 1996 (HIPAA) and subsequent amendments, 

including certain sections of the Affordable Care 

Act, and provides for coordination and 

consultation. See 64 FR 70164 (December 15, 1999). 

10Both the Proposed Rule and this final rule 

under ERISA section 3(5) are limited to health 

benefits and AHPs. Accordingly, for simplicity, the 

preamble to this final rule often refers only to 

health benefits, including when discussing the 

application of prior Departmental guidance. Thus, 

neither this preamble nor the final rule address the 

application of the ERISA section 3(5) statutory 

phrases, ‘‘acting . . . indirectly in the interest’’ or 

‘‘group or association of employers,’’ in any context 

other than as applied to an employer group or 

association sponsoring an AHP. Several 

commenters asked that the final rule include 

provisions to expand the circumstances under 

which employers and self-employed individuals 

can sponsor and participate in ERISA-covered 

multiple employer plans (MEPs) that provide 

retirement benefits within the meaning of ERISA 

section 3(2) or other welfare benefits listed in 

ERISA section 3(1). The Department notes that as 

more Americans engage in part-time, contract, selfemployment, or other alternative work 

arrangements, it is increasingly important that 

retirement plans and employee benefit regulation in 

general allow for more flexible, portable benefit 

Continued 

as the primary reason they cannot offer 

affordable health coverage to their 

employees and their families. Similarly, 

small business owners that provide 

health coverage stressed that the 

premiums are exceedingly costly, and 

the increases in premiums are frequent 

and unsustainable. Many self-employed 

individuals, for example real estate 

agents, stated that they are forced to 

purchase insurance in a volatile 

individual insurance market, which 

tends to offer fewer choices at much 

higher costs. The small business owners 

who submitted these comments said 

that they were very supportive of the 

Proposed Rule as a way to expand the 

options they have to obtain more 

affordable healthcare coverage for 

themselves and their employees. 

After careful consideration of the 

issues raised by the written public 

comments, the Department decided to 

adopt the Proposed Rule as a final rule, 

with certain modifications made in 

response to public comments. Small 

businesses are crucial to the U.S. 

economy. Small business owners are 

often anxious about their ability to 

obtain healthcare coverage for their 

employees through employee benefit 

plans. Similarly, sole proprietors and 

other self-employed individuals who do 

not have employees also find it difficult 

to obtain affordable coverage for 

themselves and their families through 

employee benefit plans, or through 

individual coverage. The Department 

believes that this final rule will promote 

broader availability of group health 

coverage for these small business 

owners and self-employed people, and 

help alleviate their problems of limited 

or non-existent affordable healthcare 

options for these small businesses and 

self-employed people. The Department 

believes it is important to provide an 

alternative to the restrictions present in 

the Department’s pre-rule guidance that 

have hampered the ability of small 

businesses to join together to purchase 

and provide affordable, quality health 

coverage for themselves, their 

employees and their families. The 

Department continues to believe that 

providing additional opportunities for 

employer groups or associations to offer 

health coverage to their members’ 

employees under a single plan may, 

under the final rule, provide many more 

small businesses and self-employed 

individuals affordable alternatives not 

currently available in the individual or 

small group markets. The provisions in 

the final rule are designed to achieve the 

same goals that the Department’s 

guidance regarding AHPs has always 

pursued—i.e., making AHPs available 

while helping to prevent fraud and 

distinguishing AHPs from commercial 

health insurance issuers—in light of 

compelling policy objectives, including 

especially the need to provide more, 

and more affordable, healthcare 

coverage for employees of small 

businesses and self-employed 

individuals. 

The Department also continues to 

believe that the final rule will prompt 

some working owners who were 

previously uninsured and some small 

businesses that did not previously offer 

health coverage to their employees, to 

enroll in AHPs, and similarly prompt 

some small businesses with insured 

health plans to switch from their 

existing individual or small group 

policies to AHPs. As under the 

Proposed Rule, AHPs that buy insurance 

would not be subject to the insurance 

look-through doctrine as set forth in 

2011 guidance from the Centers for 

Medicare & Medicaid Services (CMS); 8

instead, because an AHP would 

constitute a single group health plan, 

whether the AHP would be buying 

insurance in the large or small group 

market would be determined by 

reference to the total number of 

employees of all the member employers 

participating in the AHP. 

B. Overview of the Final Rule and 

Discussion of Public Comments 

The final rule adopts a new regulation 

at 29 CFR 2510.3–5. Subsection (a) of 

the final rule describes the general 

purpose of the regulation as clarifying 

which persons may act as an 

‘‘employer’’ within the meaning of 

ERISA section 3(5) in sponsoring a 

multiple employer group health plan. 

Subsection (b) sets forth criteria for a 

bona fide group or association of 

employers capable of establishing a 

group health plan that is an employee 

welfare benefit plan. Subsection (c) sets 

forth criteria for the requisite 

commonality of interest that employer 

members of a group or association must 

have to constitute a bona fide group or 

association of employers. Subsection (d) 

establishes nondiscrimination 

requirements for any health coverage 

offered by the bona fide group or 

association, including examples that 

illustrate the application of those 

requirements. Subsection (e) describes 

the types of working owners without 

common law employees who can 

qualify as employer members and also 

be treated as employees for purposes of 

being covered by the bona fide employer 

group or association’s health plan. 

Subsection (f) describes the effective 

date and applicability dates for the final 

rule. Subsection (g) is a severability 

provision making it clear that individual 

provisions in the final rule are 

independent of, and severable from, 

other provisions of the final rule. 

The final rule establishes alternative 

criteria from those in the Department’s 

existing sub-regulatory guidance for a 

bona fide group or association of 

employers capable of establishing a 

multiple employer group health plan 

that is an employee welfare benefit plan 

and a group health plan as those terms 

are defined in ERISA. The final rule has 

been developed in consultation with the 

Department of Health and Human 

Services (HHS), the Centers for 

Medicare and Medicaid Services (CMS), 

the Department of the Treasury 

(Treasury), and the Internal Revenue 

Service (IRS), with which the 

Department is working to implement the 

ACA, Executive Order 13813, and 

Executive Order 13765.9 However, the 

final rule will apply solely for purposes 

of Title I of ERISA and for determining 

whether health insurance coverage of 

the AHP is regulated by Public Health 

Service Act (PHS Act) provisions that 

apply to the individual, small group, or 

large group market, and not, for 

example, for purposes of taxation under 

the Internal Revenue Code (Code).10


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programs. Although those issues are beyond the 

scope of this rulemaking, the Department will 

consider comments submitted in connection with 

this rule as part of its evaluation of MEP issues in 

the retirement plan and other welfare benefit plan 

contexts. 11 See, e.g., Advisory Opinion Nos. 94–07A, 

2003–13A, and 2007–06A. 12Also, some commenters indicated that some 

existing multiple employer welfare arrangements 

(MEWAs) are not interested in obtaining singleemployer AHP status under ERISA. These 

commenters requested clarification of whether a 

group or association that provides health coverage 

to more than one employer member must sponsor 

an AHP to provide those benefits. While the final 

rule describes when a group or association of 

employers is permitted to act as an ‘‘employer’’ 

under section 3(5) of ERISA, the final rule does not 

compel the group or association to sponsor an AHP 

on behalf of the group or association’s participating 

employer members. The Department believes that a 

group or association operating a MEWA can 

structure its operations to avoid being deemed an 

employer sponsoring a single ERISA-covered health 

plan for the employees of the participating 

members. Such a group or association is permitted 

to operate a MEWA under which each employer 

that gets its health coverage through the group or 

association is considered to have established a 

separate, single-employer health benefit plan 

covering its own employees. As under pre-rule 

guidance, the Department would look to the intent 

of all parties, as reflected in the plan documents, 

to determine whether there is a single multipleemployer plan or there are multiple singleemployer plans. MEWAs are discussed further 

below. 

13The Department’s previously issued guidance 

established criteria for determining that an 

employer group or association is an employer 

within the meaning of ERISA section 3(5) for 

purposes of establishing an AHP (or other employee 

welfare benefit plan). Among the factors considered 

are the following: 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, and 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; and who actually controls and directs 

the activities and operations of the benefit program. 

The employer members must also have a sufficient 

employment-based common nexus or other genuine 

organizational relationship unrelated to the 

provision of benefits. That determination is made 

on the basis of all the facts and circumstances 

involved. The employers that participate in a 

benefit program must also exercise control over the 

group or association’s group health plan, both in 

form and in substance, in order to act as a bona fide 

employer group or association with respect to the 

plan. 

14One commenter also suggested that the term 

‘‘bona fide’’ should be deleted from the rule because 

ERISA section 3(5) does not use that term but 

merely refers to ‘‘group or association of 

employers.’’ The Department has chosen not to 

adopt this change in nomenclature. The term ‘‘bona 

fide’’ properly indicates that the group or 

association of employers must meet certain criteria 

to be eligible to act as an employer sponsor of a 

single AHP, within the meaning of ERISA section 

3(5). The Department could have used ‘‘qualified’’ 

or ‘‘qualifying’’ but chose to use ‘‘bona fide’’ 

because that is the term used in the Department’s 

previously-issued sub-regulatory guidance under 

ERISA section 3(5). 

1. Continued Availability of ‘‘Bona Fide 

Group or Association of Employers’’ 

Definition Under the Department’s PreRule Guidance 

The principal objective of the final 

rule is to expand employer and 

employee access to more affordable, 

high-quality coverage. Some 

commenters expressed concern, 

however, that application of the final 

rule’s requirements to existing AHPs 

could reduce coverage. They argued that 

existing AHPs that relied on the 

Department’s pre-rule guidance on 

‘‘bona fide group or association of 

employers’’ did not design their 

operations with the new requirements 

in mind. As a consequence, existing 

AHPs may not be able to comply with 

the new conditions without reducing 

existing options for affordable 

healthcare. The Department agrees that 

would be an undesirable result. 

Accordingly, the Department notes that 

AHPs may continue to rely upon the 

Department’s previous guidance.11 This 

final rule provides an additional 

mechanism for groups or associations to 

meet the definition of an ‘‘employer’’ 

and sponsor a single ERISA-covered 

group health plan; it is not the sole 

mechanism.12

A central aim of the new regulation is 

to provide an additional opportunity 

beyond those available under pre-rule 

guidance for employer groups or 

associations to offer health coverage to 

their members’ employees under a 

single plan. While the Department 

believes that it is appropriate to expand 

the availability of AHPs to the new 

arrangements permitted under the final 

rule, it does not suggest that 

arrangements that comply with its prerule guidance fail to meet the statutory 

definition of employer. An employer 

group or association that complies with 

either the requirements under the new 

rule or the pre-rule guidance is 

considered to be acting in the interest of 

participating employers. In either case, 

the group or association acts as an 

‘‘employer’’ within the meaning of 

ERISA section 3(5), and has a sufficient 

nexus to employers and employees in 

the AHP to distinguish it from a mere 

commercial health insurance issuer that 

lacks the requisite connection to the 

employment-based relationships that 

ERISA regulates.13

Accordingly, the final rule includes 

additional regulatory text to make it 

clear that this final rule does not 

supplant the Department’s previously 

issued guidance under ERISA section 

3(5), but rather provides an additional 

basis for meeting the definition of an 

‘‘employer’’ under ERISA section 3(5). 

The Department emphasizes that both 

existing and new employer groups or 

associations that conform to the 

Department’s pre-rule guidance can 

sponsor an AHP. 

2. Bona Fide Groups or Associations of 

Employers Under the Final Rule 

Paragraph (b) of the Proposed Rule 

defines certain criteria for a ‘‘bona fide 

group or association of employers’’ that 

may establish a group health plan that 

is an employee welfare benefit plan as 

those terms are defined in ERISA.14

Some commenters suggested broadening 

the definition of ‘‘bona fide groups or 

associations’’ to include a variety of taxexempt organizations under Code 

section 501(c), such as scientific, 

literary, and educational organizations 

whose members are not necessarily 

employers. These commenters urged the 

Department to expand the regulation to 

allow groups or associations of 

individuals to sponsor an AHP, without 

regard to whether such individual’s 

employer is a participating member or 

whether the individual is a ‘‘working 

owner.’’ They explained that many well 

established professional associations 

include individuals in a common trade 

or business, but who are not selfemployed and whose employers may 

not be participating members. 

Accordingly, they argued that the 

Department’s Proposed Rule unduly 

limits these associations’ ability to offer 

AHPs to their members, including 

members who are independent 

contractors or sole proprietors who 

could otherwise benefit from the new 

rule’s extended coverage of ‘‘working 

owners.’’ Whatever the policy merits of 

these arguments, however, the 

Department’s authority to define 

‘‘employer’’ and ‘‘group or association 

of employers’’ under ERISA section 3(5) 

does not broadly extend to arrangements 

established to provide benefits outside 

the employment context and without 

regard to the members’ status as 

employers. The final rule, like ERISA 

section 3(5), is limited to employers, 

including working owners, as discussed 

below. The Department cannot expand 

its definition beyond the statute’s scope. 

Some commenters additionally 

argued that the Department should 

remove the Proposed Rule’s 

‘‘commonality of interest’’ and 

‘‘control’’ requirements altogether 

because, in the commenters’ view, these 

requirements are not supported by the 

statutory text of ERISA. These 

commenters argued that ERISA section 

3(5) does not expressly require either 

commonality or control but rather, 

requires only that the group or 

association of employers act indirectly 

in the interest of the group or 

association’s employer members. They 


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further argued that the Department 

should apply in this situation its 

regulation at 29 CFR 2530.210(c)(3), 

which provides that, for employee 

pension plans subject to ERISA’s 

participation and vesting requirements, 

‘‘multiple employer plan’’ means a 

multiple employer plan as defined in 

Code section 413(b) and (c). The 

commenters maintained that neither 

Code section 413(c) nor Treasury 

Regulation section 1.413–2 requires a 

‘‘unique nexus’’ between the employers 

that maintain a multiple employer plan. 

The commenters claimed that, for 

purposes of the Code and, therefore, 

ERISA, a multiple employer plan is 

simply a plan maintained by more than 

one employer with no ‘‘nexus’’ required. 

As discussed more fully below, with 

regard to ERISA section 3(5), the 

Department does not agree. 

Commonality and control requirements 

are retained in the final rule as elements 

that distinguish employment-based 

benefit arrangements from commercial 

insurance marketing programs. 

Other commenters argued that the 

Department’s proposal to redefine the 

criteria for a bona fide group or 

association such that the group or 

association of employers and the 

individuals that benefit from the plan 

are no longer required to be tied by a 

common economic or representation 

interest, unrelated to the provision of 

benefits, is inconsistent with allegedly 

unambiguous statutory language in 

ERISA and several decades of case law 

applying ERISA, is in excess of statutory 

authority, and is arbitrary and 

capricious under the Administrative 

Procedure Act (‘‘APA’’). As discussed 

more fully below, although the 

Department does not believe that the 

proposal was inconsistent with 

unambiguous statutory language or 

lacked reasoned analysis, the 

Department has decided that the final 

rule should require that a bona fide 

group or association of employers have 

at least one substantial business purpose 

unrelated to the provision of benefits to 

be eligible to sponsor an ERISA-covered 

group health plan, although the final 

rule makes clear that a group or 

organization’s principal purpose may be 

the provision of benefits. 

Several commenters also argued that 

the PHS Act, the ACA, and ERISA 

manifest a clear intent to treat the group 

markets and individual market as 

distinct, and that the Proposed Rule 

conflicts with the text of the ACA by 

allowing small employers and 

individuals, who are not subject to the 

employer shared responsibility 

provisions under section 4980H of the 

Code and who were supposed to be 

purchasing insurance coverage that is 

subject to the essential health benefits 

(‘‘EHB’’) requirements, to band together 

to obtain health insurance that does not 

comply with all the ACA insurance 

rules applicable to small group market 

insurance. The Department disagrees 

that the Proposed Rule is unlawful 

under the ACA. As explained in the 

2011 CMS guidance, although the ACA 

revised and added to Title XXVII of the 

PHS Act, it did not modify the 

underlying PHS Act framework for 

determining whether health insurance 

coverage issued through associations 

was individual or group health 

insurance coverage. The PHS Act 

derives its definitions of group health 

plan and employer from the ERISA 

definitions and where the association of 

employers is, in fact, sponsoring the 

group health plan and the association 

itself is deemed the ‘‘employer,’’ the 

association itself is considered a group 

health plan for purposes of the ACA 

provisions in Title XXVII of the PHS 

Act. Single plan MEWAs pre-date the 

ACA and continue to play an important 

role in the existing regulatory 

environment under the PHS Act, the 

ACA, and ERISA. Thus, employer 

groups already can group together to 

collectively sponsor ERISA plans, and 

those plans have to comply with 

applicable group market rules. In line 

with that recognized practice, here the 

# DOL has simply used its rulemaking 

authority to define a statutory term in a 

way that allows employers to join 

together more broadly to promote the 

adoption and administration of AHPs 

and expand access to affordable health 

coverage, especially among small 

employers and self-employed 

individuals. 

a. Purpose of the Association 

Paragraph (b)(1) of the Proposed Rule 

stated that a group or association may 

act as an employer within the meaning 

of ERISA section 3(5) for purposes of 

sponsoring a group health plan if the 

group or association exists for the 

purpose, in whole or in part, of 

sponsoring a group health plan that it 

offers to its employer members. This 

represented a departure from previously 

issued sub-regulatory guidance, which 

required a group or association acting as 

an employer to exist for purposes other 

than providing health benefits. 

Many commenters, including some 

who were otherwise supportive of the 

Proposed Rule, objected to this 

provision. Several commenters believed 

that, because most small businesses 

already have the opportunity to belong 

to a chamber of commerce or other 

professional association, allowing a 

group or association to be formed solely 

for the purpose of sponsoring a group 

health plan is unnecessary to achieve 

the Department’s goals. Commenters 

believed that a proliferation of groups or 

associations established for the 

exclusive purpose of sponsoring an AHP 

could oversaturate the market, 

diminishing the value of existing trade 

and professional groups or associations 

which, for decades, have focused on 

building and maintaining relationships 

with their members and serving their 

members’ needs on a multitude of issues 

well beyond health benefits. Similarly, 

it could also diminish the market power 

of existing AHPs and those that may be 

formed by groups and associations that 

exist for other purposes, which could 

limit their opportunities to achieve the 

economies of scale that make AHPs an 

attractive vehicle for providing 

affordable coverage in the first place. 

Commenters also expressed the view 

that established industry and trade 

groups and associations have strong 

incentives to maintain their good 

reputation and favorable historical 

record of responsibly acting in the 

interests of their employer members. 

These reputational incentives mitigate 

the risk that they would set up poorly 

managed AHPs or provide inadequate 

coverage. In contrast, these commenters 

argued, allowing groups and 

associations formed for the sole purpose 

of offering an AHP to be considered 

bona fide groups or associations of 

employers could invite unscrupulous 

promoters to enter the market with 

mismanaged and thinly funded AHPs 

and could increase the prevalence of 

fraudulent and abusive practices. 

Additionally, according to such 

commenters, newly-formed groups and 

associations are likely to lack the 

knowledge and expertise necessary to 

prudently operate an AHP, subject to all 

of the complexities of modern health 

markets and regulatory structures. 

Commenters noted that individuals and 

small businesses are not typically 

sophisticated purchasers of group health 

coverage and may confront challenges 

in evaluating AHP options. As a result, 

these persons may be more likely to 

make imprudent decisions that would 

drive them to select plans with the 

lowest premiums without 

understanding the impact on access to 

care, the rights of their employees, and 

risks associated with fraud and 

insolvency. Several commenters stated 

that self-insured AHPs in particular 

were ripe for abuse and recommended 

that groups and associations that do not 

exist for purposes other than sponsoring 


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15 In addition, the Department’s revisions of the 

final rule are responsive to concerns that, in the 

absence of some purpose other than providing 

health benefits, there may be insufficient basis for 

treating the group or association as the sort of bona 

fide group or association of employers 

contemplated by ERISA section 3(5), as opposed to 

a commercial insurance operation or issuer that 

should be regulated in the same manner as other 

insurance companies or issuers. 

16This responds to commenters concerns that 

engaging in substantial ‘‘for profit’’ activity could 

have unintended consequences with respect to an 

organization’s status under section 501(c) of the 

Code. An association that is, or intends to be, taxexempt under section 501(a) of the Code should 

keep in mind that engaging in a business ordinarily 

carried on for profit might affect its qualification 

for, or maintenance of, any recognition as a taxexempt organization under federal law if the 

business activity is substantial. 

an AHP should be limited to offering 

fully-insured AHPs. 

Commenters offered numerous 

suggestions for alternative criteria for 

determining a bona fide group or 

association of employers for purposes of 

the new rule with the aim that those 

eligible be limited to legitimate, wellmanaged, and well-intended 

organizations with the ability to 

properly operate an AHP. Some 

commenters supported retaining the 

requirement in the Department’s prerule guidance that the group or 

association exist for other purposes 

unrelated to the provision of benefits in 

order for the group or association to 

qualify as bona fide. Some suggested 

requiring a group or association to exist 

for a specified minimum length of time 

before it could sponsor an AHP. Others 

suggested requiring that the group or 

association meet certain criteria for taxexempt organizations, have minimum 

revenues unrelated to AHP operations, 

or demonstrate by other means the 

capacity to oversee the administrative 

requirements associated with managing 

the complexities of an AHP in order to 

be considered a bona fide group or 

association. 

After consideration of the public 

comments, the Department agrees that 

some modification of this provision is 

appropriate. The intent of this final rule 

is to expand access to AHP coverage 

options, while protecting plan 

participants and beneficiaries from 

imprudent, abusive, or fraudulent 

arrangements. Removing undue 

restrictions for existing groups and 

associations as well as for newly-formed 

groups and associations of employers 

and working owners is critical to 

achieving the Department’s goal of 

expanding choice in health coverage 

options. But the Department 

understands the concerns regarding 

operational risks such as fraud and 

insolvency that commenters believed 

might be more likely with respect to 

AHPs offered by newly-formed groups 

and associations that exist solely for the 

purpose of sponsoring an AHP.15

Accordingly, the Department is 

modifying this provision in the final 

rule to establish a general legal standard 

that requires that a group or association 

of employers 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, even if the primary purpose 

of the group or association is to offer 

such coverage to its members. Although 

the final rule does not define the term 

‘‘substantial business purpose,’’ the rule 

contains an explicit safe harbor under 

which a substantial business purpose is 

considered to exist in cases where the 

group or association would be a viable 

entity even in the absence of sponsoring 

an employee benefit plan. The final rule 

also states that a business purposes is 

not required to be a for-profit purpose.16

Thus, for example, a bona fide group or 

association could offer other services to 

its members, such as convening 

conferences or offering classes or 

educational materials on business issues 

of interest to the association members. 

Depending on facts and circumstances, 

a bona fide group or association might 

be tax-exempt under Code section 

501(a) as an organization described in 

Code section 501(c), with a purpose 

unrelated to the sponsorship of the 

AHP, if it meets all the requirements for 

exempt status, including furthering an 

exempt purpose. A bona fide group or 

association could also act as a standardsetting organization that establishes 

business standards or practices. A bona 

fide group or association could also 

engage in public relations activities 

such as advertising, education, and 

publishing on business issues of interest 

to association members unrelated to 

sponsorship of an AHP. A bona fide 

group or association’s purpose could 

simply be to advance the well-being of 

the industry in which its members 

operate, although in that case the group 

or association would need to advance 

that well-being through substantial 

other activity in addition to providing 

health coverage. In each instance, the 

other business purpose(s) or activity 

should be substantial enough that the 

association could be a viable entity even 

in the absence of acting as a sponsor of 

an AHP. If, for example, the group or 

association had operated with an active 

membership before sponsoring an AHP, 

that would be compelling evidence of 

such a substantial business purpose. 

Nor would it be inconsistent with this 

provision if such a pre-existing group or 

association created a wholly owned 

subsidiary to administer an AHP, even 

if the subsidiary exists solely to 

administer the group health plan. In this 

circumstance, the group or association’s 

substantial business purpose unrelated 

to the provision of healthcare benefits is 

not eliminated by its decision to create 

a subsidiary under its control to 

administer the AHP. 

These modifications emphasize that 

nothing in the final rule should be read 

as prohibiting a bona fide group or 

association—formed either before or 

after the issuance of this final rule— 

from sponsoring an AHP as its primary 

purpose, provided that it also has a 

substantial business purpose unrelated 

to sponsorship of the AHP. Thus, for 

instance, a group or association formed 

after this final rule is issued and that has 

a primary purpose of providing health 

coverage, but that also convenes 

conferences and provides educational 

materials and opportunities to its 

members, would satisfy this rule’s 

requirements, if the convening and 

educational activities are sufficiently 

substantial. The Department believes 

these modifications assist substantially 

in drawing the line between traditional 

health insurance issuers (which 

typically exist only to underwrite and 

sell insurance) on the one hand, and 

those that qualify as an ‘‘employer’’ 

under section 3(5) of ERISA, on the 

other (because of their other substantial 

business purpose). 

b. The Group or Association Must Have 

an Organizational Structure. 

Paragraph (b)(3) of the Proposed Rule 

required that a group or association 

have ‘‘a formal organizational structure 

with a governing body’’ as well as ‘‘bylaws or other similar indications of 

formality’’ appropriate for the legal form 

in which the group or association 

operates in order to qualify as bona fide. 

Commenters generally supported these 

provisions on the basis that having such 

formalities will not only serve to clarify 

the rights and obligations of members of 

the association or group, but to promote 

accountability by enabling regulators 

and others to readily identify those 

parties who are responsible for 

operations, including the establishment 

and maintenance of the group health 

plan. These commenters suggested that 

the existence of formalized and robust 

organizational structures could be an 

important form of protection against 

fraud and insolvency. For these reasons, 

the final rule adopts these provisions 

without modification. There were 

requests for minor wording changes to 

paragraph (b)(3) to ensure that certain 

ongoing entities clearly fit within the 


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17ERISA Advisory Opinion Procedure 76–1 (FR 

Doc. 76–25168). 18A ‘‘MEWA’’ is a ‘‘multiple employer welfare 

arrangement’’ as defined in ERISA section 3(40). A 

MEWA can be a single ERISA-covered plan, or an 

arrangement comprised of multiple ERISA-covered 

plans, each sponsored by unrelated employer 

members that participate in the arrangement. AHPs 

are one type of MEWA, and they are single ERISAcovered plans. 

final rule, and similarly, there were 

requests to clarify the meaning of 

certain words or phrases in paragraph 

(b)(3) as applied to specific fact patterns. 

The Department declines in this 

preamble to address the application of 

the final rule to specific fact patterns. 

The Department has procedures to 

answer inquiries of individuals or 

organizations affected, directly or 

indirectly, by ERISA as to their status 

under ERISA and as to the effect of 

certain acts and transactions.17

c. Participating Employer Control Over 

the Group or Association and the AHP 

Paragraph (b)(4) of the Proposed Rule 

required that member employers control 

the functions and activities of the group 

or association, including its 

establishment and maintenance of the 

group health plan, in order for it to 

qualify as a bona fide group or 

association. Such control under the 

Proposed Rule could be direct or it 

could be indirect through the regular 

election of directors, officers, or other 

similar representatives that control the 

group or association and the 

establishment and maintenance of the 

plan. The Department noted in the 

preamble to the Proposed Rule that this 

‘‘control test’’ was intended to largely 

duplicate the conditions in the 

Department’s pre-rule guidance under 

ERISA section 3(5). 

Some commenters who supported the 

Proposed Rule acknowledged that a 

control test is necessary to ensure that 

bona fide groups or associations act as 

an ‘‘employer’’ in relation to the group 

health plan and ‘‘in the interest’’ of 

participating employers, as required by 

ERISA section 3(5). Indeed, some of 

these commenters believe that this 

provision would assume heightened 

importance in light of other provisions 

in the Proposed Rule, notably the 

special rule on the dual treatment of 

working owners as employers and 

employees. 

Some commenters who generally 

opposed the Proposed Rule were 

skeptical that the proposed control test 

could adequately protect against 

fraudulent MEWAs 18 and other entities 

that may not act in the best interest of 

the employer members. These 

commenters suggested that many small 

employers that join a group or 

association for the purpose of 

participating in a group health plan (and 

especially those employers that have 

little or no connection to each other 

beyond doing business in the same State 

or metropolitan area) are unlikely to 

have sufficient motivation or capacity to 

evaluate the integrity and expertise of 

those governing the group or association 

or administering the plan. For these 

reasons, these commenters consider the 

proposed control test to be a largely 

illusory safeguard, at least in the limited 

context they described. Some of these 

commenters urged the Department to 

bolster the proposed control test with 

additional or alternative requirements. 

In particular, commenters proposed that 

the Department clarify that employer 

members must not only control the 

group or association in form, but also in 

substance, in order for it to qualify as 

bona fide, because otherwise the 

protections contemplated by the control 

test could be evaded systematically. The 

commenters advancing this suggestion 

made reference to a strong historical 

correlation between fraudulent MEWAs 

and situations where participating 

employers had only nominal control of 

the entity sponsoring the MEWA. 

A few commenters opposed the 

proposed control test entirely. These 

commenters generally expressed 

apprehension about the logistics of 

requiring participating employer 

members to control the functions and 

activities of a large group or association 

in order for it to qualify as bona fide. 

These commenters argued that at least 

for well-established groups or 

associations, which may have hundreds 

or even thousands of member employers 

and working owners and already act in 

the interest of their members, the 

requirement is impractical and 

unnecessary. One commenter argued 

that the control test set forth in the 

Proposed Rule should be recast as a safe 

harbor and that, if a group or association 

cannot meet the safe harbor’s specific 

control criteria, it should be permitted 

to demonstrate in other ways that it is 

looking out for and acting in the interest 

of its members and their employees. 

After careful consideration of these 

comments, the Department disagrees 

with the commenters who believe the 

proposed control test is unnecessary or 

that it will be ineffective, and the final 

rule adopts the proposed control test, 

with certain revisions as described 

below. The Department is of the view 

that the control test is necessary to 

satisfy the statutory requirement in 

ERISA section 3(5) that the group or 

association must act ‘‘in the interest of’’ 

the employer members in relation to the 

employee benefit plan. It will also help 

prevent formation of commercial 

enterprises that claim to be AHPs but, 

in reality, merely operate as traditional 

health insurance issuers, in all but 

name. 

The regulatory text in the final rule is 

slightly different than in the Proposed 

Rule. Although the Department’s intent 

in the Proposed Rule was to replicate 

the control test as it exists in the 

Department’s previously-issued subregulatory guidance under ERISA 

section 3(5), a number of commenters 

questioned whether the language in the 

Proposed Rule would effectively 

accomplish that objective. The 

regulatory text in the final rule is 

intended to better align the control test 

in paragraph (b)(4) with the 

Department’s pre-rule guidance under 

ERISA section 3(5), including the 

requirement that control exist in form 

and substance. As revised, the control 

test provides that the functions and 

activities of the group or association 

must be controlled by its employer 

members, and the group or association’s 

employer members that participate in 

the group health plan must control the 

plan. Control must be present both in 

form and in substance. Whether the 

requisite control exists is determined 

under a facts and circumstances test. 

Several commenters requested 

guidance and clarification, including 

specific examples if possible, on what it 

would mean for participating employers 

(particularly very small employers and 

working owners) to control the 

functions and activities of the group or 

association or the establishment and 

maintenance of the plan, especially in 

cases where the group or association 

and plan are extremely large and the 

primary purpose of the group or 

association is to sponsor the plan. These 

commenters expressed concern that the 

control test, as proposed, could be 

construed as requiring that participating 

employers be responsible for 

management and day-to-day operations 

of the group or association and AHP in 

order for the group or association to 

qualify as bona fide. Thus, the 

commenters specifically asked that the 

final rule clarify the type and degree of 

control that employer members must 

exercise over the group or association in 

order for it to qualify as bona fide, and 

suggested that the Department identify 

specific activities or other criteria that 

would be sufficient to demonstrate the 

necessary degree of control. For 

instance, these commenters requested 

clarification on whether the Department 

intended that the proposed control test 

would require participating employers 

to actively manage administrative and 

operational functions of the AHP, such 


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28920 Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Rules and Regulations 

19A number of commenters requested 

clarification or confirmation that the control test 

would be satisfied in an array of fact patterns 

involving different control structures, membership 

classifications, and participation privileges, 

including subgroup structures and associations of 

groups or associations. As stated elsewhere in this 

preamble, control must be present both in form and 

in substance, and whether control exists is 

determined under a facts and circumstances test. 

The Department declines in this preamble to 

address the application of the final rule to specific 

fact patterns. As noted above, the Department has 

procedures to answer inquiries of individuals or 

organizations affected, directly or indirectly, by 

ERISA as to their status under ERISA and as to the 

effect of certain acts and transactions. See ERISA 

Advisory Opinion Procedure 76–1 (FR Doc. 76– 

25168). 

20COBRA means Title X of the Consolidated 

Omnibus Budget Reconciliation Act of 1985, as 

amended. COBRA added ERISA sections 601–609, 

which require, among other things, group health 

plans to offer temporary continuation health 

coverage to covered employees, former employees, 

spouses, former spouses, and dependent children 

when group health coverage would otherwise be 

lost due to certain specific events. 

as network composition, benefit and 

funding levels, marketing, and 

distribution. 

The final rule does not require group 

or association members to manage the 

day-to-day affairs of the group or 

association or the plan in order for the 

group or association to qualify as bona 

fide. As has long been the case, the 

Department will consider all relevant 

facts and circumstances in determining 

whether the functions and activities of 

the group or association are sufficiently 

controlled by its employer members, 

and whether the employer members 

who participate in the group or 

association’s group health plan 

sufficiently control the group health 

plan. In the Department’s view, the 

following factors, although not 

exclusive, are particularly relevant for 

this analysis: (1) Whether 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) whether employer members have 

authority to remove any such director, 

officer, trustees, or other similar person 

with or without cause; and (3) whether 

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. The Department 

ordinarily will consider sufficient 

control to be established if these three 

conditions are met.19

A number of commenters raised 

issues regarding the interrelationship 

between the control test and the status 

of a group or association’s board 

members under the definition of 

‘‘fiduciary’’ under section 3(21) of 

ERISA. Whether, and the extent to 

which, any particular board members 

are fiduciaries under ERISA turns on 

whether they engage in activity 

described in section 3(21) of ERISA with 

respect to the AHP. Thus, although in 

many circumstances board members in 

fact will be fiduciaries under ERISA, the 

relevant facts and circumstances of the 

particular situation will dictate the 

outcome. Some commenters suggested 

that the final rule should require board 

members to acknowledge in writing 

their status as fiduciaries under ERISA. 

Section 402 of ERISA already provides 

that every employee benefit plan shall 

be established and maintained pursuant 

to a written instrument, and that such 

instrument shall provide for one or 

more named fiduciaries who jointly or 

severally shall have authority to control 

and manage the operation and 

administration of the plan. Some 

commenters suggested that the final rule 

could contain a deeming provision 

under which the control test would be 

considered satisfied if a group or 

association’s board members (along with 

other officers) acknowledged in writing 

their fiduciary status. Whether group or 

association members in fact have 

sufficient control of the functions and 

activities of the group or association for 

it to be considered bona fide, however, 

is entirely independent of and unrelated 

to whether the group or association’s 

key officials or board members are 

fiduciaries of the AHP. For these 

reasons, the Department declines to 

adopt the suggestions of these 

commenters. 

Other commenters suggested revisions 

that the Department considers to be 

unnecessary, unduly burdensome, or 

beyond the scope of this rulemaking. 

For example, one suggestion was that 

the Department should require that a 

majority of the group or association’s 

board members be participating 

employer members in order for it to be 

considered bona fide. Another 

suggestion was that the Department 

should dictate that groups or 

associations grant each employer 

member voting rights with respect to 

affairs of the group or association, 

health plan, or both, or require that 

groups or associations confer officer or 

director rights or status to some subset 

of participating employer members in 

order for the group or association to be 

considered bona fide. While these 

factors could be relevant to whether the 

members had the requisite degree of 

control, the Department is reluctant, and 

accordingly declines, to dictate specific 

governance structures (e.g., by requiring 

a board structure and specifying the 

board’s powers, selection process, and 

membership criteria). The test is 

whether the employer members exercise 

control in form and substance, not 

whether they adopted a specific 

organizational structure. 

d. Definition of Eligible Participant 

The Proposed Rule provides that only 

employees and former employees of 

employer members and their families or 

other beneficiaries (for example, 

spouses and dependent children) would 

be able to participate in a group health 

plan sponsored by the group or 

association. Commenters asked the 

Department to clarify or modify the 

definition of the individuals who are 

eligible to participate in an AHP. Some 

commenters said the rule should 

expressly state that retirees and COBRAeligible persons 20 do not lose their 

status as eligible participants if their 

employer decides to no longer continue 

as a member of the bona fide group or 

association or ceases to be an employer 

member for other reasons (e.g., the 

employer goes out of business). Others 

said that the term ‘‘former employees’’ 

is too broad to the extent individuals 

would be able to join an AHP merely 

because at some time in the past they 

worked for an employer that currently is 

a member of the bona fide group or 

association. The commenters expressed 

concern that such an expansive 

approach would introduce adverse 

selection issues. Another commenter 

stated that the term ‘‘family member’’ is 

too broad and that the term 

‘‘beneficiary’’ alone would suffice. Some 

commenters suggested defining eligible 

participants under paragraph (b)(6) as 

including only employees, spouses, and 

dependent children. One commenter 

requested clarification regarding 

whether employees of the bona fide 

group or association (as opposed to 

employees of employer members) can 

participate in the AHP. 

The Department agrees that some 

clarification of the definition of eligible 

participant is appropriate. Thus, the 

final rule provides that an eligible 

participant includes employees of a 

current employer member of the group 

or association, former employees of a 

current employer member of the group 

or association who became entitled to 

coverage under the group’s or 

association’s group health plan when 

the former employee was an employee 

of the employer, and beneficiaries of 


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21The Department notes that it would similarly 

conclude under its pre-rule guidance that 

employees of the sponsoring association could 

participate in the association’s AHP. 

22Of course, group health plans must provide 

special enrollment periods under certain 

circumstances. For example, current employees and 

their dependents who have experienced a loss of 

coverage must have an opportunity to enroll in the 

plan under a special enrollment period if they are 

otherwise eligible to enroll and the coverage was 

previously offered at a time when the employee had 

other health coverage. Additionally, special 

enrollment periods must be provided for certain 

dependent beneficiaries who experience a 

qualifying life event such as marriage, birth, or 

adoption. See ERISA section 701(f) and 29 CFR 

2590.701–6. In addition, a group health plan, and 

a health insurance issuer offering group health 

insurance coverage, must not apply any waiting 

period that exceeds 90 days. See PHS Act section 

2708 and ERISA section 715. See also 29 CFR 

2590.715–2708. 

such individuals (e.g., spouses and 

dependent children). The Department’s 

objective with this final rule provision 

is to provide participating employers 

and their employees with the same basic 

rule for defining participants as would 

apply if the employer member of the 

association established its own separate 

group health plan. To achieve this 

objective in the case of working owner 

coverage, the final rule includes a 

special provision that states that, except 

as may be required for purposes of 

COBRA continuation coverage, an 

individual eligible for coverage under 

the group health plan as a working 

owner (and the individual’s 

beneficiaries) cannot continue to be 

eligible for coverage under the group 

health plan for any plan year after it is 

determined that the individual does not 

meet the conditions for being treated as 

a working owner under paragraph (e)(2). 

In the Department’s view, these 

provisions make it clear that, when 

applicable, an AHP must provide 

COBRA continuation coverage and 

certain other post-employment coverage 

to persons who became eligible for 

coverage by virtue of an employment 

relationship to an employer member 

that has a connection to the bona fide 

group or association and the AHP. The 

Department also believes that the 

provision clarifies that employment 

with an employer unrelated to the 

employer’s membership in the group or 

association sponsoring the AHP, in 

itself, is insufficient for an individual to 

be eligible for coverage under the AHP. 

For example, an employment 

relationship entered into with an 

employer only after the employer ceased 

being a member of the bona fide group 

or association would not be sufficient to 

allow the individual to be a covered 

participant in the AHP. 

The Department also agrees with the 

commenters who suggested that it use 

the existing ERISA-defined term 

‘‘beneficiary’’ rather than ‘‘spouses,’’ 

‘‘dependent children,’’ or ‘‘family 

member.’’ Since an AHP may provide 

coverage to any ERISA beneficiaries (for 

example, dependents for federal tax 

purposes) and is not limited to spouses 

or dependent children, or other family 

members, the Department agrees that 

using the term ‘‘beneficiary’’ is more 

accurate. 

The Department also agrees that it is 

not unusual for employer groups or 

associations to be established as 

separate legal entities that have their 

own employees, and for the group or 

association to choose to participate in 

the group or association’s arrangement 

for the provision of health benefits as a 

way of providing benefits to its own 

employees. In the case of a geographybased AHP under the final rule, the 

group or association could be a 

participating employer by having its 

principal place of business within the 

relevant state or metropolitan area. In 

the case of an industry-based AHP 

under the final rule, the Department 

added a provision to the final rule to 

explicitly state that the group or 

association will be treated as being in 

the same trade or industry as the other 

employer members of the group or 

association.21

Some commenters asked the 

Department to hold harmless health 

insurance issuers and third party 

administrators who exercise diligence 

and good faith in relying on the bona 

fide group or association’s 

representations of participant eligibility 

in cases where an ineligible individual 

is enrolled in an AHP. Another 

commenter asked that issuers and 

administrators be given access to the 

documentation necessary to verify 

employee eligibility. Issues of legal 

responsibility for operational errors in 

the establishment or implementation of 

an AHP would invariably depend on the 

particular facts and circumstances 

involved, including contractual 

provisions establishing the parties’ 

respective rights and obligations. In the 

Department’s view, this definitional 

rulemaking is not an appropriate vehicle 

for addressing such issues. Similarly, 

although the Department would expect 

a bona fide group or association to 

furnish its service providers (including 

issuers and third party administrators) 

access to documents and information 

necessary for those service providers to 

perform their obligations, the 

establishment of such informationsharing obligations is beyond the scope 

of this rulemaking under ERISA section 

3(5). 

Several commenters were concerned 

that if an AHP made coverage available 

to eligible participants on a continuous 

basis, as opposed to limiting enrollment 

to specified periods, the AHP could be 

subject to adverse selection as 

participants switched in and out of AHP 

coverage according to their current 

health needs. This could, in turn, make 

it difficult for AHPs to achieve stable 

risk pools and create challenges for 

issuers when setting rates for the 

policies they would offer to fullyinsured AHPs. These commenters 

suggested that a final rule should 

require, or at least permit, AHPs to set 

temporal restrictions on enrollment 

such as only making coverage available 

to eligible participants during set open 

enrollment periods. 

The Department declines to impose 

any specific requirements for AHPs with 

respect to the use of open enrollment 

periods. Although open enrollment 

periods are common for participant 

enrollment in group health plans, they 

are not required under any provision of 

Federal law and nothing in these final 

rules affects or restricts an AHP’s ability 

to limit open enrollment periods.22

e. Health Insurance Issuer Cannot 

Sponsor an AHP 

The final rule retains the requirement 

in the Proposed Rule that the group or 

association sponsoring the AHP cannot 

be a health insurance issuer or owned 

or controlled by a health insurance 

issuer in order for it to qualify as bona 

fide. Several commenters supported this 

requirement as important to 

differentiate bona fide employer groups 

from commercial entities selling 

insurance to employers. Others asked 

the Department to strengthen this 

prohibition further by including other 

entities with similar conflicts of interest, 

such as healthcare systems and network 

providers. Some commenters also 

sought clarification that this 

requirement would not prohibit 

insurance issuers from serving as third 

party administrators or providing 

certain services to bona fide groups or 

associations. Those commenters 

explained that health insurance issuers 

and insurance agents and brokers often 

provide significant assistance to groups 

or associations, such as plan design 

advice and development, marketing, 

and administrative services (including 

claims administration). 

Other commenters opposed this 

requirement and argued that insurance 

issuers should be allowed to form and 

operate AHPs because, they argued, 

issuers are uniquely capable of guarding 

against fraud and are already subject to 


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23See ERISA section 733(b)(2) and 29 CFR 

2590.701–2, which provide that a health insurance 

issuer is an insurance company, insurance service, 

or insurance organization (including a health 

maintenance organization) that is required to be 

licensed to engage in the business of insurance and 

that is subject to state law that regulates insurance 

but does not include a group health plan (emphasis 

added). 

24Paragraph (c) of the final rule contains a minor 

modification in wording. Paragraph (c) of the 

Proposed Rule contained introductory language 

stating that the commonalty test would be 

‘‘determined based on relevant facts and 

circumstances.’’ That language was intended for 

those groups and associations that would prefer to 

rely on the Department’s pre-rule guidance 

regarding when, and under what circumstances, a 

group or association of employers is able to act as 

an employer within the meaning of ERISA section 

measures designed to protect against 

insolvency. These commenters argued 

that insurance carriers can leverage their 

existing knowledge to reduce the risks 

of insolvency and fraud, run AHPs 

efficiently, and improve the 

affordability of coverage for AHPs. One 

commenter argued that the prohibition 

was inconsistent with the Proposed 

Rule’s provision that allowed AHP 

sponsors to be created solely for the 

purpose of providing health benefits. 

The same commenter stated that the 

Department did not provide any 

rationale for prohibiting health 

insurance issuers from sponsoring or 

controlling an AHP. 

Other commenters noted that it is not 

uncommon for an employee of an issuer 

to sit on the boards of employer groups 

or associations. Such commenters asked 

the Department to confirm that an 

insurance issuer, agent, or broker 

providing services to an AHP or having 

members on the governing body of the 

bona fide group or association or the 

AHP would not be considered to be 

‘‘controlling’’ the bona fide group or 

association. One commenter also 

suggested that the final rule should 

allow AHPs to engage in joint ventures 

with insurance companies. 

The Department believes that it is 

important to continue to preclude 

health insurance issuers in their 

capacity as health insurance issuers 

from constituting or controlling a bona 

fide group or association under the final 

rule. As the Department explained in 

the preamble to the Proposed Rule, this 

prohibition was designed to draw a line 

between the sorts of employersponsored arrangements that are 

regulated by ERISA and commercial 

insurance arrangements that lack the 

requisite connection to the employment 

relationship.23 Being an insurance 

company or concern necessarily would 

require the group or association to serve 

and advance the exclusive business 

interests of the company or concern, 

including its shareholders or other 

owners, which might stand as an 

obstacle to acting in the interests of the 

employer members of the group or 

association, as is required by section 

3(5) of ERISA in order for the group or 

association to qualify as bona fide. The 

prohibition also serves to prevent the 

various conflicts of interest that could 

arise in a situation where, for example, 

a health insurance issuer acts as both an 

AHP plan sponsor and also offers an 

insurance policy or administrative 

services in connection with the plan in 

exchange for compensation. Further, 

there may be limited circumstances 

where such a person could be on a 

governing board, e.g., appointed as a 

part of a temporary board during an 

initial period of establishing the group 

or association or AHP, or serving as a 

non-voting member. But in general the 

Department does not believe it would be 

consistent with the final rule to have 

insurance issuer representatives on an 

AHP governing body due to concern 

that such structures suggest that the 

participating employers have effectively 

ceded control to an insurance issuer. 

However, this prohibition does not 

prevent a health insurance issuer from 

participating as an employer member of 

a bona fide association of insurers that 

sponsors an AHP. Nor does it prevent a 

group or association of health insurance 

issuers acting as employers from 

sponsoring an AHP for the benefit of 

their employees. In such cases, the 

health insurance issuers would be 

controlling the AHP in their capacity as 

employers of covered employees, and 

not in their capacity as health insurance 

companies, insurance services, or 

insurance organizations. The final 

regulation includes additional language 

to reflect this. 

The Department agrees that, just as in 

the case of health insurance issuers, a 

group or association or plan that is 

controlled by a network provider, a 

healthcare organization, or some other 

business entity that is part of the U.S. 

healthcare delivery system would not be 

a bona fide group or association or AHP 

under this rule. The Department does 

not believe it is necessary or advisable 

to try to include an exhaustive list of all 

such entities in this provision of the 

rule. This is because such a control 

relationship would result in the 

employer group or association and plan 

failing the requirements in the final rule 

that the group or association must be 

controlled by its employer members and 

that the AHP be controlled by the 

employer members who participate in 

the plan. The Department acknowledges 

that the provision prohibiting control by 

a health insurance issuer could 

similarly be said to be redundant, 

however, in light of the fact that a key 

objective of various conditions in this 

final rule is to distinguish AHPs as 

employment-based benefit plans from 

commercial insurance arrangements, the 

Department believes that highlighting 

health insurance issuers in this 

provision helps reinforce that objective. 

The Department believes it would be 

consistent with the Department’s 

purpose in including the health 

insurance issuer provision in the rule, 

and would also respond at least in part 

to the commenters, if the provision in 

the final rule was revised to expressly 

include subsidiaries of affiliates of 

health insurance issuers. The final rule 

includes such a revision. This provision 

of the final rule has been further revised 

to make clear that it does not preclude 

health issuers, their subsidiaries, or 

affiliates from being involved in the 

control of a bona fide group or 

association or AHP in such entity’s 

capacity as a participating employer 

(e.g., an issuer participating in an AHP 

as an employer member of an industrybased or geography-based bona fide 

employer group or association). 

Moreover, nothing in this rule 

precludes a health insurance issuer or 

other business entity that is part of the 

U.S. healthcare delivery system from 

providing administrative services to an 

AHP. For example, a health insurance 

issuer could provide third party claims 

administration and payment services to 

an AHP. Similarly, a health insurance 

issuer could provide services to an AHP 

such as medical provider network 

design, pharmacy network design, 

formulary design, recordkeeping 

services, reporting and disclosure 

services, wellness program 

administration, 24-hour nurse helpline 

services, or audits services, as well as 

assistance in setting up the AHP. 

f. Commonality of Interest 

Paragraph (c) of the Proposed Rule 

addressed the ‘‘commonality of interest’’ 

required for a group or association of 

employers to sponsor an AHP. Under 

the Proposed Rule, commonality could 

be established by employers that (1) are 

in the same trade, industry, line of 

business, or profession; or (2) have a 

principal place of business within a 

region that does not exceed the 

boundaries of the same State or the 

same metropolitan area (even if the 

metropolitan area includes more than 

one State). The final rule adopts the 

commonality of interest test from the 

Proposed Rule without substantive 

change.24 Comments and clarifications 


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Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Rules and Regulations 28923 

3(5). Paragraph (a) of this final rule now contains 

language to more clearly make this point. 

25A VEBA is a ‘‘voluntary employees’ beneficiary 

association’’ described in Code section 501(c)(9). 

26Organization for Economic Cooperation and 

Development. 

27A few commenters requested clarification 

whether the ‘‘line of business’’ test is limited to ‘‘for 

profit’’ businesses or other organizations and 

excludes non-profit organizations. Paragraph 

(c)(1)(i) of the final rule is not limited in this 

manner. Thus, a non-profit employer does not fail 

to have commonality with for-profit employers in 

the same trade, industry, line of business, or 

profession in which it operates merely because of 

its non-profit status. Accordingly, paragraph 

(c)(1)(i) of the final rule would permit groups of forprofit employers, non-profit employers, or both. 

28The business code subcategories in the NAICS 

may be more restrictive than what would constitute 

an industry, trade, line of business or profession 

under the final rule. For instance, although each of 

the twenty subcategories of manufacturing listed by 

the NAICS, e.g., ‘‘Food Manufacturing,’’ ‘‘Beverage 

and Tobacco Product Manufacturing,’’ ‘‘Paper 

Manufacturing,’’ etc. could be a ‘‘trade, industry, 

line of business or profession’’ within the meaning 

of paragraph (c)(1)(i) of the final rule, combinations 

of the listed manufacturing subcategories could also 

satisfy this provision in the final rule. However, a 

categorization that is defined or applied so broadly 

so as to potentially include practically any type of 

business would not satisfy the final rule. 

29 26 CFR 1.501(c)(9)-2(a)(1) says that 

membership in a VEBA must consist of individuals 

who become entitled to participate by reason of 

their being employees and whose eligibility for 

membership is defined by reference to objective 

standards that constitute an employment-related 

common bond among such individuals. That 

regulation further states that employees of one or 

more employers engaged in the same line of 

business in the same geographic locale will be 

considered to share an employment related bond for 

purposes of an organization through which their 

employers provide benefits. 

30As discussed elsewhere in this preamble, other 

Federal and State nondiscrimination rules may also 

apply. 

31This flexibility is also consistent with the final 

rule’s nondiscrimination rules, described below, 

which permit employment-based distinctions to be 

used within an AHP, provided that such 

distinctions are not directed at individual 

participants or beneficiaries based on any health 

factor. 

on the main provisions are addressed 

below. 

(i) Trade, Industry, Line of Business, or 

Profession 

Commenters generally supported the 

provision in the Proposed Rule 

establishing trade, industry, line of 

business, or profession, as a basis for 

finding commonality of interest, noting 

that groups or associations comprised of 

these classes of employer groups tend to 

be more stable, provide more 

predictable risk pools, allow formation 

of AHPs that are tailored to healthcare 

needs in the industry, and are more cost 

effective. Many commenters, however, 

requested that the Department clarify 

the terms ‘‘trade,’’ ‘‘industry,’’ ‘‘line of 

business,’’ and ‘‘profession’’ so that 

persons interested in forming AHPs 

would have more certainty regarding the 

permissible scope and membership 

classifications that would satisfy the 

rule. Some of these commenters 

suggested that the Department develop 

specific definitions for these terms, 

including one suggestion that these 

definitions dovetail with existing 

definitions of similar terms for VEBAs 

under Treasury Regulations.25 Other 

commenters suggested a number of 

preexisting industry classification 

systems that the Department could 

sanction for this purpose. Among them 

were the North American Industry 

Classification System (NAICS) codes 

developed in part by the Office of 

Management and Budget (and which the 

Department incorporates in its Form 

5500 series returns), the codes for the 

Standard Industrial Classification, 

which preceded the NAICS, and the 

OECD 26 International Standard 

Industrial Classification. 

Determinations of what is a ‘‘trade,’’ 

‘‘industry,’’ ‘‘line of business,’’ or 

‘‘profession,’’ as well as whether an 

employer fits into one or more these 

categories, are based on all the relevant 

facts and circumstances. The 

Department is not persuaded that 

embracing proscriptive definitions or 

sanctioning a specific industry 

classification list is appropriate because 

doing so might interfere with the ability 

of groups or associations to determine 

the scope of their own membership. In 

general, the Department intends for 

these terms to be construed broadly to 

expand employer and employee access 

to AHP coverage.27 The Department will 

consider the use of any generallyaccepted classification system of the 

sort identified by the commenters 

above, as sufficient to meet the 

commonality condition in paragraph 

(c)(1)(i) of the final rule.28 That is 

because each of these definitions 

adequately articulates a concept of 

nexus or commonality that serves to 

distinguish a bona fide association from 

a commercial health insurance issuer. 

Similarly, if an association or group can 

establish that it would satisfy the ‘‘line 

of business’’ definition for VEBAs, as 

applicable in Treasury Regulations, the 

association or group is considered to 

meet the commonality test under the 

requirements of the final rule.29 Finally, 

in the case of a bona fide group or 

association that is sponsoring an AHP 

and that is itself an employer member 

of the group or association, the 

Department will consider any trade, 

industry, line of business, or 

professional group or association to be 

in that same trade, industry, line of 

business, or profession, as applicable, as 

the other employer members of the bona 

fide group or association. 

Several commenters requested 

clarification on whether subsets of 

businesses clearly within trades, 

industries, or professions could further 

organize themselves around shared 

principles, values, or beliefs that, alone, 

would not be sufficient to establish 

commonality under paragraph (c) of the 

final rule. According to the commenters, 

these situations tend to focus on the 

characteristics of the owners, such as 

owners who are women, minorities, or 

veterans, or the structure of the 

businesses, such as franchises or 

companies owned by an employee stock 

ownership plan (ESOP). Commenters 

suggested that subset-associations 

organized in this manner may share 

more in common than those linked by 

line of business alone, including a 

shared culture or regulatory scheme. As 

mentioned above, the commonality test 

is based on all the relevant facts and 

circumstances. In the Department’s 

view, therefore, a subset of otherwise 

eligible employers does not cease to 

have the requisite level of commonality 

under the final rule merely because it 

chooses to further segment itself inside 

its trade, industry, or profession into 

smaller groups based on other, 

reasonable similarities among 

employers, and thus such segmentation 

is permitted, provided that it is not a 

subterfuge for discriminating based on a 

health factor as prohibited under 

paragraph (d) of this final rule.30

Therefore, for example, a subset of 

information technology firms, such as 

cloud storage companies, could meet 

this test, without having to cover the 

entire information technology industry. 

Restaurant owners that are military 

veterans could also meet this test, 

without having to include all restaurant 

owners.31

(ii) Geography 

The Proposed Rule’s definition also 

permits a bona fide employer group or 

association to base its membership on a 

common geographic location, even if the 

membership is comprised of unrelated 

employers in multiple unrelated trades, 

industries, lines of business or 

professions. To meet the terms of the 

geographic test, the group or 

association’s employer members each 

must have a principal place of business 

within a region that does not exceed the 

boundaries of the same State or 

metropolitan area (even if the 

metropolitan area includes more than 

one State). The preamble to the 


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28924 Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Rules and Regulations 

Proposed Rule cited examples of such 

metropolitan areas as the Greater New 

York City Area/Tri-State Region 

covering portions of New York, New 

Jersey and Connecticut; the Washington 

Metropolitan Area of the District of 

Columbia and portions of Maryland and 

Virginia; and the Kansas City 

Metropolitan Area covering portions of 

Missouri and Kansas. The preamble also 

made it clear that AHPs could satisfy 

the commonality requirement by 

limiting themselves to a smaller 

geographic region, such as a city or 

county. 

The Department invited comments 

specifically on whether more 

clarification would be helpful regarding 

the definition of a metropolitan area. 

The Department asked in particular 

whether a federal designation by the 

U.S. Census or the Office of 

Management and Budget (OMB), which 

delineates and defines Metropolitan and 

Micropolitan Statistical Areas according 

to published standards (see 

www.census.gov/programs-surveys/ 

metro-micro.html), or another 

definition, should be used and, if so, 

how, for purposes of establishing 

eligibility for continued or new 

employer membership (e.g., at the 

beginning of each plan year). The 

Department also asked whether there is 

any reason for concern that groups or 

associations could manipulate 

geographic classifications to avoid 

offering coverage to employers expected 

to incur more costly health claims. The 

Department also sought comments on 

whether there are other examples that 

would be helpful to clarify the provision 

and on whether there should be a 

special process established to obtain a 

determination from the Department that 

all of a group or association’s members 

have a principal place of business in the 

same metropolitan area. 

Many commenters supported this 

provision and said a geography-based 

ability to satisfy the commonality 

requirement would provide employer 

groups and associations with important 

flexibility and allow more employers to 

join together to secure lower cost 

healthcare coverage for themselves and 

their employees through AHPs. Many 

commenters supporting an expansion of 

the commonality of interest test to allow 

employers with a principal place of 

business in a single State said that such 

a provision in the final rule would allow 

well-established organizations like a 

State chamber of commerce to take 

advantage of the new health coverage 

choice that AHPs represent. Many 

commenters also sought clarification of 

what would constitute a metropolitan 

area for purposes of the final rule. Some 

commenters suggested that the final rule 

define a metropolitan area consistent 

with definitions developed by OMB and 

used by the Census Bureau and other 

federal agencies, such as the Bureau of 

Labor Statistics (BLS). Some of those 

commenters noted that although they 

would prefer the OMB Metropolitan 

Statistical Areas definition, other federal 

sources would be acceptable. The 

commenters noted that OMB, in 

identifying Metropolitan Statistical 

Areas, requires that the regions 

demonstrate high degrees of economic 

and social ties, and that Metropolitan 

Statistical Areas could, therefore, serve 

as appropriate geographic markers for 

bona fide associations and AHPs. Some 

of those commenters noted that one of 

the benefits of using the OMB definition 

of Metropolitan Statistical Areas is that 

it is an objective and standard 

benchmark that would create a level of 

certainty for groups and associations to 

use in structuring the scope of their 

bona fide group and association and 

their AHP. Others suggested that the 

rule expressly allow associations and 

groups sponsoring AHPs to rely on 

OMB’s definitions of Metropolitan and 

Micropolitan Statistical areas. One 

commenter urged the Department not to 

limit the geographic commonality 

standard to one State or a single 

Metropolitan Standard Area, claiming it 

was arbitrary because employers that 

satisfy the commonality of interest 

requirement on the basis of trade, 

industry, line of business, or profession 

are not subject to geographic constraints 

and any employer group or association 

that sponsors an AHP will demonstrate 

that it acts in the interest of its members 

by meeting the control requirements. 

The commenter suggested that if any 

geographic limitation were to be 

included in the final rule it should 

allow employers in three contiguous 

States to meet the test. 

Other commenters generally opposed 

the geography-based expansion of the 

commonality of interest test, saying it is 

so broad that employers with no 

genuine common interest other than 

being in the same State will be allowed 

to join together to offer AHPs, opening 

the door to fraudulent entities to offer 

coverage. These commenters expressed 

concern that the proposed test was so 

permissive as to promote the formation 

of AHPs across State lines with the 

result that some sponsors of AHPs might 

attempt to manipulate geographic 

boundaries with the goal of choosing 

particular State regulators. They argued 

that the ability of State insurance 

regulators to assist consumers would 

also decrease because State regulatory 

jurisdiction typically does not extend 

across State lines. One commenter said 

that the final rule should allow multiState metropolitan areas only if, after 

consultation with the NAIC, the 

Department finds that such a provision 

would not diminish the ability of States 

to have proper oversight. One 

commenter said that if the final rule 

envisions AHPs operating in multiple 

States, then the Department should 

establish an independent task force to 

resolve issues of interstate regulation 

and oversight among impacted States. 

One commenter suggested that the 

Department create a process to review 

and issue a determination that all of the 

employer members of a bona fide group 

or association sponsoring an AHP have 

a principal place of business in the same 

metropolitan area. The commenter 

reasoned that verification that the plan 

service areas align with the employers’ 

principal places of business is essential 

to determining an accurate quote for the 

cost of coverage. 

Some commenters said the ‘‘principal 

place of business’’ standard was 

confusing. They said that health 

insurance issuers typically declare a 

‘‘situs’’ State for large employer plans 

that is typically the location of the 

company’s headquarters and/or the 

State where most of the employees 

reside. The commenter was concerned 

that, without more conditions, the 

principal-place-of-business provision 

could be used by sponsors of AHPs to 

pick as a situs one State with perceived 

regulatory advantages. The commenter 

suggested that the final rule also require 

that the situs State be where the 

principal place of business of most of 

the employer members of the AHP are 

or are anticipated to be. Another 

suggested that if an AHP is formed for 

members in a certain region, the AHP 

should be required to cover a minimum 

number of members to assure that the 

group or association is not formed to 

provide a special benefit for a limited 

number of individuals. Another 

suggestion was that the final rule 

require the situs of the AHP to be a 

physical location and not merely a post 

office box. 

Other commenters said that if the 

geography provision was included in 

the final rule, the group or association 

and AHP should be required to cover 

the whole State or metropolitan area or, 

if sub-areas were permitted, the subareas should be required to be 

contiguous in order for the group or 

association to qualify as bona fide. The 

commenters said that, without such 

requirements, an AHP could ‘‘redline’’ 

to achieve favorable risk pools by 

defining a region or a metropolitan area 


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32The Office of Management and Budget is 

responsible for maintaining and updating statistical 

area delineations, a task it has performed every 

decade since the 1950 Census. OMB establishes and 

maintains these areas solely for statistical purposes. 

The delineations are intended to provide a 

nationally consistent set of geographic areas for 

collecting, tabulating, and publishing federal 

statistics. More information, including current and 

historical federal statistical area delineation files, is 

available on the Census Bureau website at 

www.census.gov/programs-surveys/metromicro.html. In periodically reviewing and revising 

the definitions of these areas, OMB does not take 

into account or attempt to anticipate any 

nonstatistical uses that may be made of the 

definitions, nor will OMB modify the definitions to 

meet the requirements of any nonstatistical 

program. Thus, OMB has advised agencies that in 

cases where there is no statutory requirement and 

an agency elects to use the Metropolitan, 

Micropolitan, or Combined Statistical Area 

definitions in nonstatistical programs, it is the 

sponsoring agency’s responsibility to ensure that 

the definitions are appropriate for such use. 

33See ERISA sections 510 and 702. See also 29 

CFR 2590.702. Other federal and State 

nondiscrimination laws may also apply. 

34As discussed elsewhere in this preamble, if a 

group or association organizes or offers health 

coverage to a segment of an industry or geography 

as a subterfuge for discriminating against an 

individual based on a health factor, the association 

will not meet the commonality of interest 

requirement. Moreover, the HIPAA health 

nondiscrimination rules and paragraph (d) of the 

final rule prohibit AHPs from making distinctions 

between groups of participants for purposes of 

eligibility, benefits, or premiums, if such 

distinctions are directed at individual participants 

or beneficiaries based on any health factor. 

to avoid areas that are less affluent and, 

therefore, more likely to have chronic 

health problems. Other commenters 

similarly argued that the Proposed Rule 

should be revised to prohibit redlining 

in geographic or commonality 

definitions. The commenters expressed 

concern that geographically-based 

AHPs, in particular, could cater to 

upper income, more highly educated zip 

codes and avoid lower-income, innercity areas with lower levels of collegeeducated residents, and effectively 

exclude individuals in poorer health. 

The commenters also expressed concern 

about the ability of AHPs to use 

geographic restrictions to exclude 

certain high-cost areas or high-risk 

profession employees (e.g., defining 

their region to cover only a high density 

area while excluding a rural area) and 

to favor participation of lower risk 

industries, professions, and geographic 

areas. One commenter suggested that 

the Department rely on rating areas that 

already exist in every State. The 

commenter said each State already has 

a set of geographic rating areas that 

issuers must use to set rates, and that 

these areas are generally the size of 

Metropolitan Statistical Areas, or larger 

to include adjacent rural areas, and are 

designed to be reasonably economically 

diverse. 

This final rule retains the geography 

standard as a basis for meeting the 

commonality test as proposed without 

substantive revision. The Department 

acknowledges stakeholders’ interest in 

clear guidelines so that employer groups 

interested in establishing and 

maintaining AHPs pursuant to the final 

rule can have an acceptable level of 

certainty regarding the group or 

association’s status as an employer 

under ERISA section 3(5) and the plan’s 

status as an employee welfare benefit 

plan under ERISA section 3(1). The 

Department did not intend the 

commonality of interest provisions to be 

overly restrictive or to be applied in an 

overly rigid way. In the Department’s 

view, an area that matches a 

Metropolitan Statistical Area or a 

Combined Statistical Area, as defined by 

OMB (and as used by U.S. government 

agencies for statistical purposes), would 

constitute a metropolitan area for 

purposes of the rule.32 The Department 

does not intend, however, that the OMB 

standard be the exclusive definition of 

metropolitan area for purposes of the 

final rule. Rather, by adopting the 

proposed geography provision as the 

final rule the Department intends to 

leave open the possibility that other 

geographic areas may also qualify as 

metropolitan areas based on the 

particular facts and circumstances 

involved. For instance, the area from 

which a city regularly draws its 

commuters may qualify as a 

metropolitan area, regardless of whether 

it would qualify under OMB’s 

definition. 

Further, as noted in the Proposed 

Rule, the Department did not intend, 

and nothing in the final rule requires, 

that a group or association or their AHP 

cover the entire State or an entire 

metropolitan area in order for the group 

or association to qualify as bona fide. 

Rather, as explained elsewhere in this 

preamble, in the Department’s view, the 

final rule provides substantial flexibility 

for groups and associations to cover 

segments of a geographic area that 

otherwise meets the commonality of 

interest definition, provided such 

segmentation is not gerrymandered or 

manipulated in such a way as to be a 

subterfuge for discriminating based on a 

health factor.33

The Department does not agree that it 

would be appropriate to expand the 

single-State provision to include, as one 

commenter suggested, three contiguous 

States. The Department believes that the 

final rule’s provisions allowing 

nationwide AHPs based on a common 

trade, industry, line of business or 

profession and multi-state AHPs based 

on a common metropolitan area provide 

sufficient flexibility to groups or 

associations interested in sponsoring 

multi-State AHPs. At the same time, the 

final rule appropriately balances the 

need for flexibility with the concerns 

expressed by State regulators and other 

stakeholders about potential confusion 

related to compliance with insurance 

laws and regulations when AHPs, 

especially self-insured AHPs, operate in 

multiple States. 

With respect to the comments 

suggesting that more clarity is needed in 

defining the ‘‘principal place of 

business’’ provision, the Department 

does not agree that further clarification 

is necessary or would be helpful. First, 

several commenters raising this issue 

seemed to believe that the principal 

place of business provision applied to 

the group or association and their AHP. 

However, the requirement in the 

Proposed Rule, which is adopted in the 

final rule, applies to the principal place 

of business of the employers that are 

participating in the group or association, 

not the principal place of business of 

the group or association or AHP. To the 

extent the commenters were intending 

to raise issues about situs states and 

state insurance regulation, those issues 

are not germane here. The application 

and coordination of state insurance law 

remains the province of the States and 

is discussed by the Department 

elsewhere in this document in 

connection with other provisions of the 

final rule. 

The Department believes that the 

inclusion of the subterfuge provision in 

the final rule, as well as other 

provisions of federal and State law, 

sufficiently address the concern about 

groups or associations and their AHPs 

being structured to define eligibility for 

membership in a way that will avoid 

high cost areas and/or high risk 

professions.34 The Department agrees 

with those commenters who suggested 

that these issues are more appropriately 

addressed under State authorities. 

Additionally, the Department explains 

elsewhere in this preamble that the final 

rule does not change existing ERISA 

preemption rules that authorize broad 

State insurance regulation of AHPs, 

either through the health insurance 

issuers through which they purchase 

coverage or directly in the case of selfinsured AHPs. State insurance 

regulators have a long history of 

preventing redlining in insurance; the 

Department is confident that States will 

continue to use their authority to play 

that important role successfully in this 


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35See, e.g., https://

kaiserfamilyfoundation.files.wordpress.com/2013/ 

01/8328.pdf. 

36See ERISA section 702 and 29 CFR 2590.702– 

1. This final rule generally refers to the HIPAA 

health nondiscrimination provisions in ERISA. 

Parallel provisions are included in the Code and 

PHS Act at Code section 9802, PHS Act section 

2705, 26 CFR 54.9802–1 and 45 CFR 146.121. The 

Department notes that HIPAA was amended by the 

ACA in certain respects not relevant to this final 

rule. 

37 29 CFR 2590.702(c)(3) provides that, 

notwithstanding the general nondiscrimination 

rule, a plan or issuer may vary premium or 

contribution amounts that it requires similarly 

situated individuals to pay based on whether an 

individual has met the standards of a wellness 

program that satisfies 29 CFR 2590.702(f). 

38The term health factor means, in relation to an 

individual, any of the following health statusrelated factors: Health status, medical condition 

(including both physical and mental illnesses), 

claims experience, receipt of healthcare, medical 

history, genetic information, evidence of 

insurability, or disability. Evidence of insurability 

includes conditions arising out of acts of domestic 

violence and participation in activities such as 

motorcycling, snowmobiling, all-terrain vehicle 

riding, horseback riding, skiing, and other similar 

activities. ERISA section 702(a)(1); 29 CFR 

2590.702(a). In the Department’s view, ‘‘[t]hese 

terms are largely overlapping and, in combination, 

include any factor related to an individual’s 

health.’’ Nondiscrimination in Health Coverage in 

the Group Market; Interim Final Rules and 

Proposed Rules, 66 FR 1378, 1379 (Jan. 8, 2001). 

context.35 Moreover, the Department 

does not believe that imposing 

contiguity requirements or similar 

constraints would effectively address 

the rating and redlining concerns 

described above because even with such 

restrictions an AHP could rate coverage 

within the AHP based on sub-areas. 

(iii) Other Factors for Commonality of 

Interest 

The Proposed Rule also requested 

comments on whether the final rule, if 

adopted, should also recognize other 

bases for finding a commonality of 

interest. In response, stakeholders 

suggested other bases for finding 

commonality such as ownership 

characteristics (e.g., an association of 

owners who are women, minorities or 

veterans), business models or structures 

(such as businesses owned by ESOPs, 

franchises, or not-for-profits), size of 

business (e.g., small businesses), shared 

religious and moral convictions, and 

those without any commonality at all. 

According to the commenters, 

employers within these relationships 

often share unique bonds, interests, 

needs, and regulatory schemes, and may 

have significantly more commonality of 

interest than those in the same industry 

or region due to these shared traits. 

Commenters argued that permitting 

such employers to work together 

through their groups and associations to 

establish market power and economies 

of scale is consistent with the 

Department’s stated goals, and, 

therefore, should be permitted to benefit 

from the final rule. 

The Department does not agree that 

these characteristics should be included 

as additional commonality of interest 

criteria in the final rule. To the extent 

these classes of unrelated businesses are 

not part of a single trade, industry, line 

of business, or profession, the geography 

standard for establishing a commonality 

of interest at paragraph (c)(1)(ii) already 

provides them with the ability to form 

State-wide and metropolitan area groups 

and associations that qualify as an 

employer for purposes of sponsoring an 

AHP. Thus, for example, groups or 

associations of employers with no 

commonality of interest other than 

shared moral convictions may sponsor 

AHPs, provided they satisfy the 

geography standard and other 

requirements of the final rule. Similarly, 

the ‘‘same business’’ standard in 

paragraph (c)(1)(i) also is available to all 

of these scenarios to the extent the 

employers are in the same trade, 

industry, line of business, or profession. 

For example, a national affinity group or 

association of military veteran business 

owners or franchise operators may, 

through its constitution and bylaws, 

establish subgroups of its members 

along relevant industry or business 

lines, such as entertainment, 

construction, security, agriculture, 

gaming, information technology and so 

forth. Each subgroup, in turn, could 

serve as the ‘‘employer’’ for purposes of 

section 3(5) of ERISA and could 

establish an AHP without geographic 

limitations covering the employer 

members within the subgroup. In these 

circumstances, the provisions of the rule 

would apply at the subgroup level, 

including the control requirement in 

section (b), and the subgroups could 

rely on their membership in the national 

affinity group or association to satisfy 

the requirement that the subgroup have 

a substantial business purpose other 

than providing benefits. However, a test 

that would treat all nationwide 

franchises, all nationwide small 

businesses, or all nationwide minorityowned businesses, as having a common 

employment-based nexus—no matter 

the differences in their products, 

services, regions, or lines of work— 

would not be sufficient to establish 

commonality of interest for a national 

group or association and AHP because 

it would be impossible to define or limit 

(e.g., business owners who support 

democracy) and, in the Department’s 

view, would effectively eviscerate the 

genuine commonality of interest 

required under ERISA. 

g. Nondiscrimination 

The Proposed Rule included certain 

nondiscrimination requirements that 

built on the existing health 

nondiscrimination provisions 

applicable to group health plans under 

the Health Insurance Portability and 

Accountability Act of 1996 (HIPAA).36

As explained in the preamble to the 

Proposed Rule, the HIPAA health 

nondiscrimination rules generally 

prohibit health discrimination in 

eligibility for benefits and 

premiums 37 within groups of similarlysituated individuals, but they do not 

prohibit discrimination across different 

groups of similarly-situated individuals. 

In determining what counts as a group 

of similarly-situated individuals, for 

these purposes, paragraph (d) of the 

HIPAA health nondiscrimination rules 

at 29 CFR 2590.702, generally provides 

that plans may, subject to an anti-abuse 

provision for discrimination directed at 

individuals, treat groups of participants 

as distinct groups if the groups are 

defined by reference to a bona fide 

employment-based classification 

consistent with the employer’s usual 

business practice. 

As stated in the HIPAA health 

nondiscrimination rules, whether an 

employment-based classification is bona 

fide is determined based on all the 

relevant facts and circumstances, 

including whether the employer uses 

the classification for purposes 

independent of qualification for health 

coverage (e.g., determining eligibility for 

other employee benefits or determining 

other terms of employment). Examples 

in the HIPAA health nondiscrimination 

rules of classifications that may be bona 

fide, based on all the relevant facts and 

circumstances, include full-time versus 

part-time status, different geographic 

location, membership in a collective 

bargaining unit, date of hire, length of 

service, current employee versus former 

employee status, and different 

occupations. Under an anti-abuse 

provision contained in the HIPAA 

health nondiscrimination rules at 29 

CFR 2590.702(d)(3), however, a 

distinction between groups of 

individuals is not permitted if the 

creation or modification of an 

employment or coverage classification is 

directed at individual participants or 

beneficiaries based on any health factor 

of the participants or beneficiaries.38

In addition, under the HIPAA health 

nondiscrimination rules, a plan may, 

generally, subject to certain anti-abuse 

provisions for discrimination directed at 


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individuals, treat beneficiaries as 

distinct groups based on the bona fide 

employment-based classification of the 

participant through whom the 

beneficiary is receiving coverage, the 

relationship to the participant, marital 

status, with respect to children of a 

participant, age or student status 

(subject to PHS Act section 2714, as 

incorporated in ERISA section 715, as 

well as ERISA section 714) and other 

factors if the factor is not a health factor. 

Finally, the HIPAA health 

nondiscrimination rules generally allow 

group health plans to treat participants 

and beneficiaries as distinct groups. 

The HIPAA nondiscrimination rules 

apply to group health plans, including 

AHPs. Therefore, AHPs, like any other 

group health plan, cannot discriminate 

in eligibility, benefits, or premiums 

against an individual within a group of 

similarly situated individuals based on 

a health factor. AHPs, like other group 

health plans, generally may make 

distinctions between groups of 

individuals based on bona fide 

employment-based classifications 

consistent with the employer’s usual 

business practice, provided such 

distinction is not directed at individual 

participants or beneficiaries based on a 

health factor. Accordingly, as illustrated 

in examples in the final rule, an 

agricultural AHP may offer a different 

coverage package to dairy farmers than 

to corn growers, and a metropolitan 

AHP may offer different pricing to 

retailers than to restauranteurs, 

provided such distinctions are not 

directed at individual participants or 

beneficiaries based on a health factor. 

The Proposed Rule proposed that, in 

applying the HIPAA health 

nondiscrimination rules for defining 

similarly-situated individuals, the group 

or association may not treat member 

employers as distinct groups of 

similarly-situated individuals if it 

wishes to qualify as a bona fide group 

or association for purposes of 

sponsoring an AHP. As noted above, the 

HIPAA health nondiscrimination rules 

apply within groups of similarlysituated individuals. If a bona fide 

group or association could treat 

different employer-members as different 

bona fide employment classifications, 

the preamble to the Proposed Rule said 

that the nondiscrimination protections 

in paragraphs (d)(1) through (d)(3) could 

be ineffective, as AHPs could offer 

membership to all employers meeting 

the group or association’s membership 

criteria, but then charge specific 

employer members higher premiums, 

based on the health status of those 

employers’ employees and dependents. 

Accordingly, the preamble to the 

Proposed Rule stated that a group or 

association that seeks treatment as an 

‘‘employer’’ under ERISA section 3(5) 

for purposes of sponsoring a single 

group health plan under ERISA section 

3(1) cannot simultaneously undermine 

that status by treating different 

employers as different groups based on 

a health factor of an individual or 

individuals within an employer 

member. The Department sought 

comment on whether this structure, 

which could potentially represent an 

expansion of current regulations, would 

create involuntary cross-subsidization 

across firms that would discourage 

formation and use of AHPs. 

Many commenters strongly supported 

the proposed nondiscrimination 

provisions and urged that such 

provisions be retained in any final rule. 

Some commenters believed that the 

nondiscrimination provisions would 

provide important protection for AHP 

participants and beneficiaries and that 

they would reduce, if not eliminate, 

opportunities for AHPs to engage in risk 

selection. One commenter felt that 

prohibiting discrimination based on 

health factors alone is appropriate for 

AHPs because AHPs differ from singleemployer plans which typically have 

steady enrollment based on the 

employer’s workforce and do not see 

variability in the underlying 

demographics of the eligible versus 

enrolled population. The commenter 

speculated that allowing AHPs to make 

distinctions based on non-health factors 

would ensure that premiums and 

contributions will be sufficient to pay 

incurred claims and attract a mix of risk. 

Numerous commenters also expressed 

support for the proposed restriction on 

AHPs treating different employers as 

distinct groups based on a health factor 

of an individual or individuals within 

an employer member. These 

commenters argued that this provision 

is essential for preventing AHPs from 

discriminating against at-risk 

populations and individuals with 

preexisting conditions. In their view, 

without this requirement, AHPs would 

also have an excessively unfair 

advantage over commercial insurance 

issuers offering coverage in the 

community rated small group and 

individual markets, which would lead 

to adverse selection and increased 

premiums for non-AHP employer 

sponsored coverage. Many commenters 

urged DOL to go even further in a final 

rule because non-health factors such as 

age, gender, industry, occupation, and 

geography are closely related to health 

status and, in their view, rating on these 

criteria would actually be a pretext for 

discrimination based on health factors. 

These commenters stated that AHPs 

should be limited to the rating factors 

currently allowed in the small group 

market. 

Other commenters argued that 

additional requirements are necessary 

and pointed to the fact that age, gender, 

occupation, and other characteristics are 

likely to affect an individual’s claims 

experience but do not meet the 

definition of a health factor. Thus, the 

commenters stated, groups and 

associations that wish to be treated as a 

bona fide group or association and offer 

a group health plan may still be able to 

set criteria for membership and set rates 

in ways that favor healthier populations, 

because, for example, younger age 

correlates with lower healthcare 

expenditures. Commenters also asserted 

that the Proposed Rule could create an 

uneven playing field where AHPs were 

exempt from rating rules and 

nondiscrimination requirements 

applicable to health insurance issuers 

(especially those in the individual and 

small group markets) and could 

therefore exercise competitive 

advantages by charging more actuarially 

fair premiums. Such practices could 

encourage healthy groups to obtain AHP 

coverage while discouraging less 

healthy groups from doing so. As a 

result, premiums would likely rise for 

individuals and small employers with 

non-AHP coverage. Many of these 

commenters further suggested that these 

effects could be avoided if AHPs were 

made subject to some or all of the rating 

rules that apply to issuers in the 

individual and small group markets. 

Other commenters argued that the 

proposed nondiscrimination provisions 

were too restrictive. With respect to 

paragraph (d)(4) of the Proposed Rule, 

which provides that different employer 

members of a group or association 

offering an AHP may not be treated as 

distinct groups of similarly-situated 

individuals if the group or association 

wishes to qualify as bona fide, many 

commenters claimed that this provision 

presented a new regulatory restraint for 

existing AHPs and would discourage the 

formation and use of new AHPs. They 

argued that the provision would 

effectively prohibit AHPs from setting 

rates for each employer member based 

on prior or expected claims experience 

(‘‘experience-rate’’). Such rate-setting, 

they argued, is critical to AHPs’ ability 

to offer affordable coverage because a 

key component of balancing risk and 

creating a stable and sustainable plan is 

directly related to the ability to assign 

appropriate premiums through medical 

underwriting of each employer-member. 

The commenters asserted that if AHPs 

cannot separately experience-rate each 


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39The Department is not persuaded that AHPs 

will fail to offer wellness programs due to 

paragraph (d)(4). Paragraph (d)(4) does not preclude 

an AHP established under this final rule from 

offering a wellness program. Employers will retain 

many incentives to offer incentives to offer wellness 

programs, even though an AHP cannot rate the 

employer based on a health factor (e.g., reduced 

absenteeism and increased productivity). 

40As explained elsewhere in the preamble, bona 

fide employer groups or associations and AHPs that 

meet the Department’s pre-rule sub-regulatory 

guidance are not required to satisfy the standards 

of this final rule, including paragraph (d)(4) of this 

final rule, in order to be considered an employer 

under ERISA section 3(5) that can sponsor a single 

group health plan. The pre-rule sub-regulatory 

guidance had a stronger employer nexus 

requirement in that geography, alone, was not 

sufficient to establish commonality, and working 

owners without common law employees were not 

permitted to participate in the plan. Accordingly, 

whether a single plan MEWA that meets the 

Department’s pre-rule sub-regulatory guidance can 

treat employer members as distinct groups of 

similarly-situated individuals depends on whether 

the creation or modification of the classification is 

directed at individual participants or beneficiaries 

based on a health factor. For example, if the 

classification was implemented to single out 

individual participants and beneficiaries based on 

a health factor and deny them health coverage, the 

classification would not be permitted under the 

HIPAA health nondiscrimination rules. 29 CFR 

2590.702(d)(3). See also 29 CFR 2590.702(d)(4) 

Example 5. 

41See AO 94–07A at www.dol.gov/agencies/ebsa/ 

employers-and-advisers/guidance/advisoryopinions/1994-07a and AO 2001–04A at 

www.dol.gov/agencies/ebsa/employers-andadvisers/guidance/advisory-opinions/2001-04a. 

42See supra footnote 4. 

employer member based on the health 

status of its employees, employers with 

healthier employees will leave the AHP 

to obtain better rates elsewhere, leaving 

the AHP with a less stable risk pool. 

Several commenters noted that it is 

common for existing AHPs to treat 

employer members as distinct groups of 

similarly-situated individuals and 

experience-rate each employer-member. 

Some commenters believed that 

requiring existing AHPs to comply with 

the proposed nondiscrimination rules 

could be so burdensome and disruptive 

that it would cause many AHPs to cease 

operations. 

One commenter stated that omitting a 

risk adjustment mechanism to address 

differences in enrollees’ aggregate health 

conditions would make AHPs unstable 

and would lead to their failure. Another 

commenter argued that this would 

disincentivize large employers, whose 

plans can be experience-rated, from 

participating in an AHP unless their risk 

pool was significantly sicker than that of 

the AHP. Some commenters also stated 

that experience rating was necessary 

due to the fact that AHPs have a smaller 

risk pool as compared to a commercial 

insurer and without the ability to 

manage risk by experience rating, they 

will be unable to compete with 

commercial issuers. Another commenter 

claimed that without the ability to 

experience-rate each member employer, 

AHPs would be left to compete with 

other coverage options on the basis of 

benefits, such as by offering less 

generous benefit packages to achieve 

lower prices. A few commenters were 

also concerned that the Proposed Rule 

could interfere with AHPs’ ability to 

establish wellness programs by 

preventing AHPs from rewarding those 

groups that do participate, or by 

reducing the incentive to offer wellness 

programs.39

Commenters also claimed that a 

prohibition against experience-rating 

was not necessary to distinguish AHPs 

from commercial insurance 

arrangements because the Proposed 

Rule retained the requirements of 

commonality and control. Also, several 

commenters pointed out that some 

States, including Washington and 

Kentucky, appear to allow such 

practices pursuant to laws and 

regulations applicable to MEWAs. Many 

commenters suggested that the 

Department should include a type of 

grandfather rule to accommodate AHPs 

that already use experience-rating for 

each employer-member, to prevent 

market disruption and burdens 

associated with coming into compliance 

with new rules that are inconsistent 

with long-standing business practices. 

After considering the comments and 

feedback received from stakeholders, 

the Department is finalizing the 

proposed nondiscrimination provisions 

in paragraph (d) with one clarification 

and adding four new examples to 

illustrate the nondiscrimination 

provisions.40 The final rules include an 

adaptation of the HIPAA health 

nondiscrimination rules for AHPs, but 

the Department declines to adopt 

additional rating requirements in this 

final rule. Federal rating rules that some 

commenters suggested should apply to 

AHPs are grounded in the PHS Act and 

apply to health insurance issuers in the 

individual and small group markets, but 

not to issuers in the large group market 

or to group health plans. Thus, these 

rules do not apply those Federal rating 

rules to self-insured AHPs, or to insured 

AHPs that have employer members with 

a total of more than 50 employees, as 

insurance coverage sold to the latter 

would generally be regulated as large 

group coverage. 

Additionally, AHPs’ ability to 

discriminate based on non-health 

factors is subject to State regulation. As 

discussed in more detail in section B.7., 

below (entitled ‘‘ERISA Preemption and 

State Regulation of AHPs’’), under 

ERISA section 514, States maintain 

significant authority to impose 

additional rating rules on insured AHPs 

through regulation of the underlying 

insurance policies obtained by AHPs to 

fund the benefits they provide, and may 

also impose similar requirements for 

self-insured AHPs. 

The Department understands the 

concerns raised by commenters 

regarding the importance of allowing 

AHPs to experience-rate each employer 

member but has decided to keep 

paragraph (d)(4), with one clarification 

and several new examples to illustrate 

the circumstances under which an AHP 

could charge different premiums to 

different member employers under 

paragraph (d)(4). As explained in the 

preamble to the Proposed Rule, 

paragraph (d)(4) was intended to 

distinguish bona fide AHPs from 

commercial arrangements that more 

closely resemble State-regulated private 

insurance offered to the market at large, 

a distinction the Department viewed as 

especially important with the 

broadening of the employment nexus 

requirement. See, e.g., Advisory 

Opinion 94–07A; Advisory Opinion 

2001–04A.41 As discussed earlier in this 

document, Congress did not intend to 

treat commercial insurance products 

marketed by private entrepreneurs, who 

lack the close economic or 

representational ties to participating 

employers and employees, as ERISAcovered welfare benefit plans.42

Accordingly, as noted above, the 

touchstone of the Department’s analysis 

has long been whether the group or 

association has a sufficiently close 

economic or representational nexus to 

the employers and employees that 

participate in the plan. Only groups or 

associations that have such a nexus can 

be appropriately treated as sponsors of 

ERISA-covered plans, as opposed to 

commercial insurance providers. 

Moreover, when plans are sponsored by 

employers, or by groups or associations 

that have the requisite connection or 

commonality, there is less cause for 

concern about fraud, because an 

employer or group or association with 

the requisite commonality pursues 

objectives—e.g., maintaining a satisfied 

workforce or advancing the well-being 

of a particular industry or economic 

community—that could be imperiled by 

fraud. Because the final rule relaxes the 

Department’s pre-rule guidance on the 

groups or associations that may sponsor 

a single ERISA-covered group health 

plan, it is especially important to 

maintain paragraph (d)(4) as proposed. 

In the context of these new, broader 

arrangements, paragraph (d)(4) ensures 


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43Under HIPAA, employer members could then 

pass through the different premium charges to their 

employees based on these same non-health factors. 

44As discussed earlier in this preamble, examples 

in the HIPAA health nondiscrimination rules of 

classifications that may be bona fide, based on all 

the relevant facts and circumstances, include fulltime versus part-time status, different geographic 

locations, membership in a collective bargaining 

unit, date of hire, length of service, current 

employee versus former employee status, and 

different occupations. Under an anti-abuse 

provision contained in the HIPAA health 

nondiscrimination rules at 29 CFR 2590.702(d)(3), 

however, a distinction between groups of 

individuals is not permitted if the creation or 

modification of an employment or coverage 

classification is directed at individual participants 

or beneficiaries based on any health factor of the 

participants or beneficiaries. 

45The number and proportion of U.S. workers 

with at least some degree of self-employment or 

working-ownership has been increasing for some 

time. See for example: Emilie Jackson, Adam 

Looney, and Shanthi Ramnath, ‘‘The Rise of 

Alternative Work Arrangements: Evidence and 

Implications for Tax Filing and Benefit Coverage,’’ 

U.S. Department of the Treasury, Office of Tax 

Analysis Working Paper 114 January 2017, https:// 

www.treasury.gov/resource-center/tax-policy/taxanalysis/Documents/WP-114.pdf; Steven F. Hipple 

and Laurel A. Hammond, ‘‘Self-employment In The 

United States,’’ U.S. Bureau of Labor Statistics 

Spotlight on Statistics, March 2016, https:// 

Continued 

that the group or association is 

distinguishable from commercialinsurance-type arrangements, which 

lack the requisite connection to the 

employment relationship and whose 

purpose is, instead, principally to 

identify and manage risk on a 

commercial basis. Such an AHP that 

provides benefits for employer members 

(including working owners without 

employees), but classifies each of them 

as distinct groups of similarly-situated 

individuals that can be experience-rated 

or otherwise discriminated against 

based on a health factor, may be more 

comparable to a commercial insurance 

issuer. 

An important purpose of the 

commonality of interest test is to ensure 

that the members of the group or 

association are bound by a common 

interest as employers, as reflected in the 

uniform treatment of members based on 

their common nexus. Generally, one of 

the primary benefits of participation in 

a group health plan is that required 

premiums and contributions, as well as 

benefits, are determined for groups of 

similarly-situated individuals and 

individual employees cannot be singled 

out. Absent paragraph (d)(4), the rating 

practices of AHPs forming under the 

broader nexus test could too closely 

resemble medically-underwritten 

individual or small employer market 

commercial-type insurance coverage. 

At the same time, the final rule 

clarifies that AHPs are not precluded 

from making distinctions between 

employer members in all circumstances. 

Several commenters asked the 

Department to confirm that paragraph 

(d)(4) of the Proposed Rule would not 

have prevented an AHP from charging 

employer members different premiums 

or contributions based on non-health 

factors, such as age, case size, industry, 

and gender. According to these 

commenters, many AHPs may fail 

without the ability to make these 

distinctions. Distinctions based on a 

factor other than a health factor (such as 

industry, occupation, or geography) are 

permitted, provided they are not 

directed at individual participants or 

beneficiaries based on a health factor of 

one or more of those individuals. This 

clarification is consistent with the 

HIPAA health nondiscrimination rules. 

AHPs could draw distinctions based on 

non-health attributes of a particular 

member employer (e.g., the industry or 

region in which it operates) or based on 

non-health factors of a member 

employer’s workforce (e.g., adjusting the 

member employer’s rate based on the 

employees’ occupations within the 

member).43

New examples seven through nine in 

the final rule illustrate some 

circumstances under which an AHP 

could charge different premiums to 

different member employers while 

complying with paragraph (d)(4) of the 

final rules. These examples draw on the 

bona fide business classification 

principles set forth in the HIPAA health 

nondiscrimination rules.44 For this 

reason, AHPs will be permitted to 

charge different premiums to different 

member employers in much the same 

way that a single large employer could 

charge different premiums to employees 

in different operating divisions, 

locations, or occupations within the 

company, but may not make 

distinctions in premiums that a single 

large employer could not make. The 

final rule thus continues to maintain the 

important distinction between rating 

approaches that are appropriate for 

AHPs and those that are used by 

commercial insurers. 

New example 10 was also added to 

make clear that the wellness program 

provisions of the HIPAA health 

nondiscrimination rules at 29 CFR 

2590.702(f) apply. The wellness 

program provisions permit plans to vary 

benefits (including cost-sharing 

mechanisms, such as a deductible, 

copayment, or coinsurance), and the 

amount of premium or contribution they 

require similarly situated individuals to 

pay, based on whether an individual has 

met the standards of a wellness program 

that satisfies the HIPAA health 

nondiscrimination rules. The HIPAA 

health nondiscrimination rules 

generally permit rewards of up to the 30 

percent of the total cost of coverage 

under the plan, except that the 

percentage is increased by an additional 

20 percentage points (to 50 percent) to 

the extent that the additional percentage 

is in connection with a program 

designed to prevent or reduce tobacco 

use. Moreover, the total cost of coverage 

for such purpose is generally 

determined based on the total cost of 

employee-only coverage under the plan. 

However, if, in addition to employees, 

any class of dependents (such as 

spouses, or spouses and dependent 

children) may participate in the 

wellness program, the plan may use the 

total cost of the coverage in which an 

employee and any dependents are 

enrolled. In either case, the cost of 

coverage is determined based on the 

total amount of employer and employee 

contributions towards the cost of 

coverage for the benefit package under 

which the employee is (or the employee 

and any dependents are) receiving 

coverage. 

3. Working Owner Provision 

a. Treatment of Working Owners as 

Employers and Employees 

A number of commenters, including 

many associations and working owners 

(such as farm owners, realtors and court 

reporters) strongly supported the 

‘‘working owner’’ provision of the 

Proposed Rule. These small business 

owners noted that while most 

Americans get their health coverage 

through an employer, self-employed 

professionals without common law 

employees are forced to purchase 

insurance in the more volatile 

individual insurance market, which 

tends to offer fewer choices at much 

higher costs. These commenters said 

that the working owner provision will 

offer sole proprietors and other selfemployed individuals without 

employees more flexibility in insurance 

plan design, improved negotiating 

power, and lower cost health coverage. 

The Department agrees that allowing 

working owners such as sole proprietors 

to participate in AHPs covered by 

ERISA will give additional coverage 

options to certain individuals who may 

not currently have access to affordable 

health coverage. In the time since the 

Department first issued sub-regulatory 

guidance on bona fide groups or 

associations, increasing numbers of 

workers fall into these categories.45 The 


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www.bls.gov/spotlight/2016/self-employment-inthe-united-states/pdf/self-employment-in-theunited-states.pdf; and Katharine G. Abraham, John 

C. Haltiwanger, Kristin Sandusky, and James R. 

Spletzer, ‘‘Measuring the Gig Economy: Current 

Knowledge and Open Issues,’’ March 2, 2017, 

https://aysps.gsu.edu/files/2016/09/Measuring-theGig-Economy-Current-Knowledge-and-OpenIssues.pdf. 

46Congress in HIPAA itself expressly provided 

for dual status treatment of partners and other 

working owners in defining group health plans 

covered by Part 7 of Title I of ERISA, which 

encompasses plans that cover only sole proprietors 

and spouses. See ERISA section 732(d) and PHS Act 

2721. 

final rule is responsive to these changes 

in the composition of the workforce and 

to the needs of that workforce. 

Other commenters opposed the 

working owner provision and argued 

that allowing working owners without 

employees to participate in AHPs, and 

even permitting an AHP to consist 

entirely of such individuals, would 

harm the small group and individual 

markets. These commenters expressed 

concern that such AHPs would be able 

to design and market plans with the 

result that a disproportionate number of 

healthy individuals might shift out of 

ACA-compliant individual markets and 

small group markets, resulting in 

increased rates and decreased choice in 

those markets. These commenters also 

argued that allowing working owners 

without employees to be considered 

‘‘employers’’ under ERISA section 3(5) 

would upset existing DOL guidance and 

court decisions. Specifically, these 

commenters asserted that the 

Department has consistently taken the 

position in sub-regulatory guidance that 

where membership in a group or 

association is open to anyone engaged 

in a particular trade or profession 

regardless of employer status (such as 

working owners and self-employed 

individuals without common law 

employees), and where control of the 

group or association is not vested solely 

in employer members, the group or 

association is not a group or association 

of employers within the meaning of 

ERISA section 3(5). 

Some commenters also noted that the 

Proposed Rule would have permitted an 

AHP to consist entirely of working 

owners. They complained that it was an 

impermissible reading of ERISA for the 

Department to conclude that a plan with 

no common law employees was an 

employment-based plan that Congress 

intended to be regulated under ERISA. 

They cited the U.S. Supreme Court 

decision in Nationwide Mutual 

Insurance Co. v. Darden, 503 U.S. 318 

(1992), as supporting that argument. 

They asserted that even where a 

working owner participates in an AHP 

with unrelated persons who are 

common law employees, there still is no 

employment-based nexus sufficient for 

that working owner to be treated as a 

plan participant. 

Additionally, some commenters 

argued that the inclusion of ‘‘working 

owners’’ in the definition of ‘‘employer’’ 

is in conflict with the ACA. Specifically, 

they argued that Congress, in adopting 

the ACA, was aware of the existing case 

law and the Department’s sub-regulatory 

guidance, and intended to retain that 

legal structure, as reflected in the ACA’s 

inclusion of various protections for 

individual market participants. In 

particular, they point to ACA 

definitions of the individual, small 

group, and large group markets (42 

U.S.C. 18024) that continue to provide 

that owners of businesses who have no 

employees cannot qualify for group 

coverage (although the ACA permitted 

small group coverage for groups that 

included only one employee other than 

the owner). They claim that adopting 

the working owner provision as part of 

the final rule would violate the ACA. 

The Department disagrees. As 

described in the preamble to the 

Proposed Rule, the working owner 

provision is consistent with the 

Department’s longtime recognition that 

working owners should be able to 

participate in ERISA-covered plans. See 

Advisory Opinion 99–04A (various 

ERISA and Code provisions ‘‘reveal a 

clear Congressional design to include 

‘working owners’ within the definition 

of ‘participant’ for purposes of Title I of 

ERISA.’’). The Department also 

explained in the preamble to the 

Proposed Rule that the policy 

underlying its regulation at 29 CFR 

2510.3–3, which excludes ‘‘plans 

without employees’’ from the definition 

of employee benefit plans covered by 

Title I of ERISA, was not to prevent 

working owners from participating in 

ERISA covered plans, but to confirm 

that ERISA does not mandate that a 

working owner incur costs to comply 

with reporting and disclosure, fiduciary, 

and enforcement provisions that serve 

no practical purpose in the context of a 

plan run by and covering only the 

working owner and spouse. In the case 

of an AHP, however, many or most of 

the affected employers and employees 

will not be directly involved in the 

administration of the AHP or the 

provision of benefits, and would benefit 

from ERISA’s prudence and loyalty 

requirements for those administering 

the AHP, as well as such other 

protections as reporting and disclosure 

obligations and claims procedure 

requirements, and enforcement, in the 

same manner and to the same extent as 

participants in other ERISA plan 

arrangements. 

The working owner provision in the 

rule also is consistent with longstanding 

conclusions the Department has reached 

that address the operational 

impracticalities of having a plan 

alternate between being ERISA and nonERISA coverage as a result, for example, 

of a sole proprietor sometimes having 

common law employees and sometimes 

not based on business cycles, or a 

person who was a common law 

employee participating in the plan 

becoming an independent contractor of 

the member employer. See, e.g., DOL 

Advisory Opinion 99–04A 

(acknowledging that nothing in the 

definition of Title I of ERISA precluded 

a working owner who had initially 

participated in a plan as an employee of 

a contributing employer from 

continuing to participate in the plan). 

The Department also does not believe 

that the U.S. Supreme Court decision in 

Darden precludes it from including the 

working owner provision in this rule. 

The Darden Court did not address the 

validity of an agency rule promulgated 

after notice and comment defining 

‘‘employer’’ or ‘‘employee’’ under 

ERISA. It also must be read in the 

context of the specific issue the Court 

was addressing (an attempt to disqualify 

an individual from receiving benefits) 

and the fact that the ‘‘expectations’’ test 

advocated by the plaintiff would have 

severely undermined ERISA purposes 

insofar as it would have ‘‘severely 

compromise[d] the capacity of 

companies to figure out who their 

‘employees’ are and what, by extension, 

their pension-fund obligations will be.’’ 

Id. at 327. In the subsequent case Yates 

v. Hendon, 541 U.S. 1 (2004), the Court 

clarified that ‘‘[u]nder ERISA, a working 

owner may have dual status, i.e., he can 

be an employee entitled to participate in 

a plan and, at the same time, the 

employer (or owner or member of the 

employer) who established the plan.’’ 

Id. at 14. 

Also, unlike the issue in Darden, 

there are other provisions of ERISA and 

related federal laws governing employee 

benefit plans that address the ability of 

working owners to act both as employer 

members of groups or associations and 

to participate as employee participants 

in AHPs. The varying treatment of 

working owners in Title I, Title II, and 

Title IV of ERISA establishes that the 

statute allows the Department, where 

appropriate, to treat a working owner as 

having dual status as an ‘‘employer’’ 

and ‘‘employee.’’ 46


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47Public Law 114–60 (2015). 

48One commenter stated that the PHS Act 

definitions supersede ERISA in that ERISA section 

715(a)(2) provides that, to the extent any provision 

of ‘‘this part’’ conflicts with a provision of part A 

of title XVII of the PHS Act with respect to group 

health plans or health insurance issuers, then the 

provisions of the PHS Act shall apply. First, the 

reference to ‘‘this part’’ is to the provisions of Part 

7 of ERISA, which does not include section 3(5) of 

ERISA. Moreover, the Department does not agree 

there is a conflict between the PHS Act definitions 

that cross-reference ERISA in any case. 

49Some commenters urged that the final rule 

make clear that the AHPs are not required to 

include working owners in their plans and, 

therefore, are permitted to exclude working owners 

from their AHPs. The Department believes the final 

rule leaves groups or associations with substantial 

flexibility to determine their own membership 

requirements, including whether to include 

working owners. If groups or associations decide to 

include working owners they can also set criteria 

for working owner participants that are more 

stringent than the minimum criteria in the final 

rule, provided such criteria are consistent with the 

applicable nondiscrimination provisions under 

paragraph (d) of this final rule. 

Moreover, the Department’s treatment 

of working owners as such does not 

violate the ACA. The PHS Act 

definitions (which were added to the 

PHS Act by HIPAA and later amended 

by the ACA and the Protecting 

Affordable Coverage for Employees 

Act 47 (PACE Act)) all specifically 

incorporate the ERISA definitions of 

employer, employee, and employee 

welfare benefit plan under ERISA 

sections 3(5), (3)(6), and 3(1), 

respectively, by reference. Under all of 

the ACA provisions, related to whether 

coverage is in the individual or group 

market, who is an employer (and who 

is an employee) is determined under 

ERISA section 3(5). 

Accordingly, although a working 

owner without common law employees 

generally would not meet the PHS Act 

definition of a small employer (and, 

thus, would generally have to purchase 

insurance in the individual market, to 

the extent he desired coverage), such a 

working owner participating in a group 

or association that meets the ERISA 

section 3(5) definition of an employer 

would be counted as an employee of the 

single group or association employer, 

which allows him to obtain group 

health coverage through the AHP. The 

final rule makes explicit that working 

owners without common law employees 

may qualify as both an employer and as 

an employee for purposes of 

participating in an AHP. HHS has 

reviewed this final rule and has advised 

the Department that nothing in the PHS 

Act precludes the Department from 

amending its interpretation of the 

definition of an employer under ERISA 

section 3(5), and that it concurs with 

this interpretation of PHS Act section 

2791(d)(6) in light of this final rule.48

b. Working Owner Definition and 

Verification of Working Owner Status 

As in the Proposed Rule, the working 

owner criteria in the final rule are 

designed to ensure that a legitimate 

trade or business exists, because ERISA 

governs benefits provided in the context 

of a work relationship, as opposed to the 

mere marketing of insurance to 

individuals unrelated to their status as 

employees in a trade or business and 

any benefits they obtain through that 

status. Thus, a group or association 

would fall outside the purview of the 

final rule if it offered coverage to 

persons who are not genuinely engaged 

in a trade or business (e.g., a group or 

association offering AHP coverage could 

not make eligibility for ‘‘working 

owners’’ turn on such de minimis 

‘‘commercial activities’’ as merely 

registering with a ride sharing service or 

giving a ‘‘customer’’ a single on-demand 

ride for a fee, or knitting a single scarf 

to be offered for sale on the internet, 

with no requirement that the individual 

engage in the supposed ‘‘trade or 

business’’ ever again). The rule is 

intended to cover genuine work 

relationships, including selfemployment relationships, not to permit 

individual coverage masquerading as 

employment-based coverage. 

The Department also solicited 

comments on whether the criteria in the 

proposed standard were workable, 

whether any additional clarifications 

would be helpful to address issues 

relating to how working owners could 

reasonably predict whether they will 

meet the earned income and hours 

worked requirements, and whether 

AHPs should be required to obtain any 

evidence in support of such a prediction 

beyond a representation from the 

working owner. 

The Proposed Rule’s definition of 

‘‘working owner’’ required that the 

individual either work at least 30 hours 

per week or 120 hours per month 

providing services to the trade or 

business, or have earned income from 

such trade or business that at least 

equals the working owner’s cost of 

coverage for participation by the 

working owner and any covered 

beneficiary in the group health plan. 

The Proposed Rule also expressly would 

have allowed the group or association 

sponsoring the group health plan to rely 

on written representations from the 

individual seeking to participate as a 

working owner as a basis for concluding 

that these conditions are satisfied. 

The Department received comments 

stating that the final rule should (1) 

retain requirements for minimum hours 

worked or income; (2) include a 

verification or audit process to confirm 

that participating working owners meet 

eligibility requirements and confirm 

that issuers may separately verify that 

working owners meet eligibility 

requirements as a condition of 

providing insurance coverage; and (3) 

clarify that issuers will be held harmless 

in the event of fraudulent enrollments of 

working owners.49

With respect to the verification 

process, some commenters said that the 

Proposed Rule would allow working 

owner enrollment in an AHP based on 

the mere attestation that the individual 

is actually a ‘‘working owner,’’ without 

a requirement that the AHP take steps 

to confirm this basic element of 

eligibility. Some commenters argued 

that such an attestation approach invites 

abuse and does not ensure an adequate 

employment nexus as required by 

ERISA. Those commenters suggested 

that, if the Department decided to retain 

the working-owners provision in the 

final rule, the Department should 

strengthen the verification requirements 

to ensure that these individuals are 

genuinely engaged in a trade or business 

and are performing services for the trade 

or business in a manner that is in the 

nature of an employment relationship. 

Other commenters suggested that the 

Department should include a 

requirement in the final rule that the 

working owners have been in business 

for a certain number of years before 

joining the AHP. 

The Department notes as a 

preliminary matter, that the attestation 

provision was included in the Proposed 

Rule to reduce compliance burdens and 

potential liability exposure in the case 

of errors or failures. Plan fiduciaries 

have an obligation under ERISA to take 

steps to ensure that only eligible 

individuals participate and receive 

benefits under the plan. In carrying out 

that responsibility, ERISA section 

404(a)(1)(B) requires fiduciaries to make 

eligibility determinations ‘‘with the 

care, skill, prudence, and diligence 

under the circumstances then prevailing 

that a prudent man acting in a like 

capacity and familiar with such matters 

would use . . . .’’ The Department 

agrees with commenters that a written 

representation from an individual that 

he or she meets the working owner 

conditions, without more, may be 

insufficient in some cases and even 

could lead to abuses. The Department 

revised the final rule to eliminate that 

provision. In its place, the final rule 


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50 In paragraph (e)(2)(iii)(B) of the final rule, the 

words ‘‘wages or self-employment income’’ replace 

‘‘earned income’’ to conform this paragraph to 

language in paragraph (e)(2)(ii) of the final rule. 

This change is to eliminate the use of inconsistent 

terminology in these two paragraphs and to avoid 

confusion. 

51Some commenters asked the Department more 

generally to address the liability of the respective 

parties to the AHP for violations of the 

nondiscrimination provisions in the rule, general 

ERISA reporting and disclosure requirements and 

fiduciary rules, Code section 4980H and the related 

Code sections 6055 and 6056 reporting 

requirements, Form W–2 reporting, COBRA 

compliance, and ‘‘all of the other responsibilities 

that come with the maintenance of a single large 

employer plan.’’ With regard to the provisions 

under the Department’s jurisdiction, the 

Department does not believe this document is the 

appropriate place to address these questions 

because they also will invariably depend on the 

application of the particular law involved and the 

particular facts and circumstances of each case. The 

Code provisions listed are under the jurisdiction of 

Treasury and the IRS and are outside the scope of 

this rulemaking; stakeholders should refer to the 

relevant Code sections and guidance thereunder. 

52See ERISA section 733. See also Preamble to 

Health Insurance Portability for Group Health 

Plans; Interim Rules, explaining that there are four 

types of excepted benefits and that ‘‘category 1’’ 

benefits, for example, automobile insurance, 

liability insurance, workers compensation and 

accidental death and dismemberment coverage, are 

generally not ‘‘health insurance coverage’’ and are 

excepted in all circumstances. The other three 

categories are considered health insurance (for 

example, limited scope dental and vision benefits, 

employee assistance programs) and are excepted 

only if certain conditions are met. 62 FR 16894, 

16903 (April 8, 1997). 

offers flexibility, but clarifies that plan 

fiduciaries have a duty to reasonably 

determine that the conditions of 

paragraph (e)(2) are satisfied and 

monitor continued eligibility for 

coverage under the AHP. The 

Department recognizes that there are 

various ways that fiduciaries could 

establish prudent processes for making 

working owner (and other eligibility) 

determinations, and it would not be 

appropriate for the Department to 

establish a one-size-fits-all process 

under this final rule. For instance, in the 

Department’s view, a reasonable 

determination could involve the 

fiduciary relying on the accuracy of the 

information in written documentation 

or a sworn statement submitted by a 

working owner, without independent 

verification, unless something in the 

written document or sworn statement, 

or other knowledge of the fiduciary, 

would cause a reasonable fiduciary to 

question the accuracy or completeness 

of the documentation. Nothing in the 

final rule precludes groups or 

associations sponsoring AHPs from 

establishing their own, separate 

verification processes and requirements 

for working owners, or any employer or 

employee, as a condition of membership 

in the group or association. Similarly, 

health insurance issuers doing business 

with AHPs could establish a verification 

and monitoring requirement as part of 

the insurance policy or an 

administrative service arrangement with 

the AHP. 

Commenters stated that the Proposed 

Rule’s ‘‘hours worked’’ provision should 

be modified to take into account that 

many industries include workers that do 

not have a defined work schedule that 

results in a steady and predictable 30- 

hour work week or 120-hour month. 

One commenter noted that in its 

industry, over 15% of working owners 

work fewer than 30 hours per week and 

make less than $10,000. The commenter 

also suggested that the provision should 

also provide for workers who are 

reducing their hours, as they make a 

transition out of their former job. 

Another commenter suggested that the 

final rule include a ‘‘variable’’ worker 

provision allowing flexibility in making 

an hours-worked determination to 

address situations in which a working 

owner’s time performing services for his 

business can often vary due to various 

industry, seasonal, and other business 

and market factors, and said it would be 

particularly useful to owners of start-up 

businesses and other newly formed 

entities. The Department agrees that the 

‘‘hours-worked’’ criterion could be 

made more flexible without impairing 

the objective of limiting the provision to 

self-employed individuals who are 

genuinely engaged in a trade or 

business. Accordingly the final rule 

reduces the hours-worked provision to 

an average of 20 hours per week or 80 

hours per month. A working owner 

could demonstrate this by evidence of a 

work history or a reasonable projection 

of expected self-employment hours 

worked in a trade or business. For this 

purpose, consistent with the principles 

of the gig economy, hours worked in a 

trade or business can be aggregated 

across individual jobs or contracts. 

Therefore, for example, an on-demand 

driver could aggregate hours driven 

using different ride assignment 

technology platforms. (Similarly, wages 

earned could be aggregated so that, for 

example, a pianist could aggregate 

money earned teaching piano lessons 

and money earned while giving 

performances.) 

The Proposed Rule stated that the 

earned income standard and other group 

health eligibility provisions are 

informed by Federal tax standards, 

including section 162(l) of the Code, 

that describe conditions for selfemployed individuals to deduct the cost 

of health insurance. (In the final rule, 

the term ‘‘self-employment income’’ 

replaces the term ‘‘earned income’’ that 

was used by the Proposed Rule.) 50

Accordingly, in applying the working 

owner provisions of paragraph (e) of the 

final rule, AHPs may rely on the 

definitions of ‘‘wages’’ and ‘‘selfemployment income’’ in Code sections 

3121(a) and 1402(b) (but without regard 

to the exclusion in section 1402(b)(2)), 

respectively. 

Concerns about the potential liability 

of issuers with respect to ineligible 

individuals wrongly treated as working 

owners would invariably depend on the 

particular facts and circumstances 

involved, including contractual 

provisions establishing the parties’ 

respective rights and obligations. 

Accordingly, the final rule does not 

include any provision on that subject.51

Section 2510.3–5(e)(2)(iii) of the 

Proposed Rule would have provided 

that an individual would not be treated 

as a ‘‘working owner’’ if the individual 

was eligible to participate in any 

subsidized group health plan 

maintained by any other employer of 

the individual or the individual’s 

spouse. Many commenters opposed this 

provision. Some argued that coverage 

available through a separate employer or 

through a spouse’s employer may not be 

the most affordable option for a family, 

the AHP coverage may in fact provide 

more comprehensive coverage than that 

made available by a separate employer, 

and that the provision in the Proposed 

Rule would result in a ‘‘marriage 

penalty’’ that is not applied to other 

employers or their employees. These 

commenters also noted that this 

requirement would be very hard to 

enforce and would require the fiduciary 

of the AHP to establish a verification 

process that would add unnecessary 

complexity and burden to the workingowner provision. For example, 

commenters said that they did not 

believe the Department intended that 

eligibility for ‘‘excepted benefits’’ would 

be disqualifying. Excepted benefits 

generally provide only limited health 

coverage (e.g., dental-only coverage, 

vision-only coverage, certain employee 

assistance plans, or fixed indemnity 

coverage) or are generally not primarily 

health insurance coverage (e.g., 

accidental death and dismemberment or 

automobile coverage).52 Those 

commenters said that if ‘‘excepted 

benefits’’ coverage was not 

disqualifying, administrators of AHPs 

would not only have to monitor for 

group health coverage but would also 

have to make determinations on 

whether the coverage was limited to 

excepted benefits. Other commenters 

pointed out that the Proposed Rule did 


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53Unless otherwise specified, the Department 

interpreted commenters’ use of ‘‘minimum value’’ 

to refer to the term as used in Code section 

36B(c)(2)(C)(ii) and 26 CFR 1.36B–6, which 

generally means that the percentage of the total 

allowed costs of benefits provided under the plan 

is greater than or equal to 60 percent, and that the 

plan also provides substantial coverage for inpatient 

hospitalization and physician services. See also 45 

CFR 156.145. 

54See Code sections 36B and 4980H. 

55See PHS Act section 2713, which is 

incorporated in ERISA section 715 and Code 

section 9815. 

56 29 CFR 1604.110(b); EEOC Enforcement 

Guidance: Pregnancy and Related Issues, No. 

915.003 (June 25, 2015), available at https://

www.eeoc.gov/laws/guidance/pregnancy_

guidance.cfm. Moreover, the protections of the 

Newborns’ and Mothers’ Health Protection Act 

contained in section 9811 of the Code, 711 of 

ERISA, and section 2725 of the Public Health 

Services Act generally provides, if plans cover 

Continued 

not include any guidance on how 

administrators would address situations 

when a working owner or a working 

owner’s spouse is offered or loses 

subsidized coverage during the middle 

of the year. 

After consideration of the public 

comments, the Department agrees that 

the condition is not a good indicator of 

whether a working owner is involved in 

a legitimate trade or business, as 

opposed to engaged in de minimis 

‘‘commercial activities’’ that cannot 

fairly be classified as meaningful selfemployment. Accordingly, the 

subsidized health coverage provision in 

the Proposed Rule is not adopted as part 

of the final rule. 

4. Essential Health Benefits and 

Comprehensive Coverage Requirements 

Many commenters opposed the 

Proposed Rule on the grounds that 

because AHPs will generally be insured 

in the large group market or be selfinsured, AHPs would not be subject to 

the requirement to provide EHBs, which 

only applies to non-grandfathered 

individual market and small group 

market insurance coverage. Commenters 

raised the possibility that AHPs would 

seek to deliver low premiums by 

providing benefits that are not as 

comprehensive as other coverage 

options available to working owners and 

small employers. They asserted that the 

Proposed Rule could lead to adverse 

selection in the individual and small 

group markets because healthier groups 

and working owners could be attracted 

to AHPs providing minimal benefits 

because of the lower costs, while less 

healthy groups and working owners 

would seek out more robust coverage in 

the individual and small group markets. 

This could lead to less stable risk pools 

in the individual and small group 

markets, rising premiums, and 

cascading effects that could leave 

certain markets without any active 

health insurance issuers. Further, they 

stated that AHPs offering 

comprehensive benefits may also be 

disadvantaged, as healthy members 

could leave to join lower-cost AHPs 

(and return when their medical needs 

increase). Commenters noted that 

certain populations with specific needs, 

such as those with disabilities, could be 

disproportionately affected if their 

coverage does not include a robust level 

of benefits. Some of these commenters 

suggested that in order to mitigate these 

effects, the Department should require 

AHPs to provide EHBs or some other 

minimum level of benefits, or require 

them to provide ‘‘minimum value’’ 

within the meaning of Code section 

36B(c)(2)(C)(ii) and 26 CFR 1.36B–6.53

Other commenters acknowledged 

concerns that AHPs may provide 

inadequate benefits but did not believe 

that legitimate membership 

organizations would risk their goodwill 

and reputation by offering such health 

plans. Instead, they argued that 

economies of scale would enable AHPs 

to offer more comprehensive coverage to 

their members than they would be able 

to purchase on their own. Another 

commenter noted that even though selfinsured plans and large group market 

policies are not required to provide 

EHBs, most do, in fact, provide 

comprehensive coverage. 

The Department declines to adopt 

commenters’ recommendations to make 

the provision of EHBs in an AHP a 

condition for a group or association to 

qualify as bona fide. Such a mandate 

would run contrary to the goal of 

leveling the playing field between small 

employers in AHPs, on the one hand, 

and large employers, on the other, who 

generally are not subject to the EHB 

requirements. Furthermore, such a 

mandate could reduce AHPs’ flexibility 

to tailor coverage to the particular needs 

of the members of the group or 

association offering the benefits, and 

thereby reduce access to AHPs by 

making them less attractive options for 

providing affordable coverage. For this 

reason, the Department also declines to 

require the provision of minimum value 

coverage as a condition for a group or 

association to qualify as bona fide. The 

ability to design AHP benefit packages 

and set cost-sharing requirements 

without the burden of certain Federal 

restrictions is critical to enabling AHPs 

to provide an additional, more 

affordable coverage option to small 

businesses and working owners who 

may otherwise have been unable or 

unwilling to obtain higher-priced 

coverage. Moreover, the Department 

believes that concerns regarding adverse 

selection as result of AHPs not 

providing comprehensive coverage are 

overstated because we agree with those 

commenters who asserted that AHPs are 

not likely to offer relatively low levels 

and scope of benefits, which could 

jeopardize their relationship with their 

members and because other federal and 

State coverage requirements may apply. 

The Department notes that for those 

AHPs that choose to offer coverage to 

employers that are applicable large 

employers subject to the employer 

shared responsibility provisions of Code 

section 4980H, the participating 

applicable large employers face the 

possibility of having to make an 

employer shared responsibility payment 

if the AHP does not provide minimum 

value coverage.54 AHPs also remain 

subject to Federal and State laws other 

than EHB requirements that require the 

provision of certain benefits. For 

example, AHPs must provide coverage 

for certain recommended preventive 

services without the imposition of costsharing.55 These services include: 

(1) Evidence-based items or services that 

have in effect a rating of A or B in the current 

recommendations of the United States 

Preventive Services Task Force (Task Force) 

with respect to the individual involved; 

(2) Immunizations for routine use in 

children, adolescents, and adults that have in 

effect a recommendation from the Advisory 

Committee on Immunization Practices of the 

Centers for Disease Control and Prevention 

(Advisory Committee) with respect to the 

individual involved. A recommendation of 

the Advisory Committee is considered to be 

‘‘in effect’’ after it has been adopted by the 

Director of the Centers for Disease Control 

and Prevention. A recommendation is 

considered to be for routine use if it appears 

on the Immunization Schedules of the 

Centers for Disease Control and Prevention; 

(3) With respect to infants, children, and 

adolescents, evidence-informed preventive 

care and screenings provided for in the 

comprehensive guidelines supported by the 

Health Resources and Services 

Administration (HRSA); and 

(4) With respect to women, evidenceinformed preventive care and screening 

provided for in comprehensive guidelines 

supported by HRSA (not otherwise addressed 

by the recommendations of the Task Force). 

In addition, Title VII of the Civil 

Rights Act (as amended by the 

Pregnancy Discrimination Act and 

administered by the Equal Employment 

Opportunity Commission (EEOC)) 

generally provides that pregnancyrelated expenses for employees and 

their spouses must be reimbursed in the 

same manner as those incurred for other 

medical conditions.56


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hospital stays in connection with childbirth, that 

plans must provide hospital stays of at least 48 

hours (or 96 hours in the case of a caesarian section) 

following delivery. 57See 40 P.S. sections 764g, 908–2, 764h, 3502, 

764c. (For a list of state benefit mandates, see 

generally the Center for Consumer Information & 

Insurance Oversight Information on Essential 

Health Benefits (EHB) Benchmark Plans available at 

https://www.cms.gov/cciio/resources/dataresources/ehb.html; or see http://www.ncsl.org/ 

research/health/state-ins-mandates-and-acaessential-benefits.aspx#State_EHB_2016). 

58For more information regarding the application 

of the MOOP and prohibition of lifetime and annual 

limits for plans not subject to the requirement to 

provide EHBs, see 29 CFR 2590.715–2711(c); See 

also Q10 of Frequently Asked Questions on 

Essential Health Benefits Bulletin, available at 

https://www.cms.gov/CCIIO/Resources/Files/ 

Downloads/ehb-faq-508.pdf. 

59See Frequently Asked Questions about 

Affordable Care Act Implementation, Part XII, Q2 

(February 22, 2014), available at https://

www.dol.gov/sites/default/files/ebsa/about-ebsa/ 

our-activities/resource-center/faqs/aca-part-xii.pdf 

and https://www.cms.gov/CCIIO/Resources/FactSheets-and-FAQs/aca_implementation_faqs12.html 

and Frequently Asked Questions about Affordable 

Care Act Implementation, Part XVIII Q2, (January 9, 

2014), available at https://www.dol.gov/sites/ 

default/files/ebsa/about-ebsa/our-activities/ 

resource-center/faqs/aca-part-xviii.pdf and https://

www.cms.gov/CCIIO/Resources/Fact-Sheets-andFAQs/aca_implementation_faqs18.html. 

60ERISA section 712(c)(1). 

61See HIPAA section 104. See also Memorandum 

of Understanding 64 FR 70164 (Dec. 15, 1999). 

62The Code does not reference the ERISA 

definition of employer. For purposes of determining 

applicability of, and potential for excise taxes 

under, the Code, interested parties should contact 

the Internal Revenue Service. 

Many AHPs, or the insurance 

coverage that insures them, will also be 

subject to State benefit mandates. The 

State of Pennsylvania, for example, 

requires policies issued in the large 

group market to cover in-patient and 

out-patient services for severe mental 

illness, inpatient and outpatient services 

for substance use disorders, autism 

services, childhood immunizations, and 

mammography.57 These types of State 

mandates may apply to fully-insured 

AHPs through the health insurance 

policies they purchase. In addition, 

under ERISA’s provisions saving State 

regulation of MEWAs from preemption, 

States may also extend benefit mandates 

to self-insured AHPs. 

Some commenters also expressed 

concern that the maximum out of pocket 

limit (MOOP) under PHS Act section 

2707(b) (incorporated into ERISA 

section 715) and the prohibition of 

lifetime and annual dollar limits under 

PHS Act section 2711 (also incorporated 

into ERISA section 715) only apply with 

respect to EHBs. These commenters 

were generally concerned that in the 

absence of these protections, AHPs 

would impose burdensome cost-sharing 

requirements or annual and lifetime 

limits for critical benefits, such as 

mental health care, substance-use 

disorder services, prescription drugs, 

and maternity services, in an effort to 

drive down costs, as had happened in 

the pre-ACA insurance market. 

While group health plans that are 

offered in the large group market or are 

self-insured are exempt from the 

requirement to offer EHBs, all nongrandfathered group health plans are 

subject to the MOOP and the 

prohibition on annual and lifetime 

dollar limits on EHBs. Accordingly, to 

the extent a plan covers EHBs, the 

MOOP and annual and lifetime dollar 

limits provisions apply.58 As such, if an 

AHP covers a benefit that would be 

considered an EHB, the AHP must count 

an individual’s out-of-pocket spending 

for in-network provision of that benefit 

toward the MOOP; any EHBs in excess 

of the MOOP must be covered without 

cost-sharing.59 Similarly, if an AHP 

covers any benefits that would be 

considered an EHB, all such benefits 

must be covered without any annual or 

lifetime dollar limit. 

5. Application of ERISA Group Health 

Plan Requirements to AHPs 

An AHP sponsored by a bona fide 

group or association under this final 

rule is a group health plan and an 

employee welfare benefit plan under 

ERISA. Accordingly, the AHP is subject 

to all ERISA provisions applicable to 

group health plans and employee 

welfare benefit plans, including Title I 

of ERISA. 

Some commenters expressed concerns 

about the Proposed Rule on the broad 

assumption that AHPs would be exempt 

from various consumer protections 

included in ERISA and other Federal 

laws, including changes made by the 

ACA, and that the rule would lead to a 

diminution in rights and protections for 

AHP participants. As the Department 

explained in the Proposed Rule, the 

primary purpose of allowing more 

flexibility for groups or associations to 

sponsor AHPs is to expand access to 

affordable health coverage, especially 

among small employers and working 

owners—many of whom currently do 

not provide health benefits to their 

workers—by removing undue 

restrictions on the establishment and 

maintenance of AHPs. However, as 

noted above, an AHP offered by a bona 

fide group or association under this 

final rule remains a group health plan 

under ERISA and participants in AHPs 

are entitled to the same protections 

under ERISA that are available to 

participants in single employer group 

health plans. 

Some commenters requested that the 

Department provide clarification with 

respect to the application of the Paul 

Wellstone and Pete Domenici Mental 

Health Parity and Addiction Equity Act 

of 2008 (MHPAEA) and the COBRA 

continuation coverage requirements. 

Specifically, because these requirements 

include an exemption for employers 

with a certain number of employees, 

commenters inquired whether it was the 

total number of employees of the 

separate participating memberemployers or the number of employees 

of employers, collectively, participating 

in the bona fide group or association 

that matters for purposes of determining 

whether the requirements apply to an 

AHP. 

Generally, MHPAEA requires that 

financial requirements and treatment 

limitations for mental health and 

substance use disorder benefits must be 

no more restrictive than those placed on 

medical and surgical benefits. MHPAEA 

provides an exemption for group health 

plans for ‘‘any plan year of a small 

employer.’’ 60 Under ERISA section 

712(c)(1)(B), a small employer is defined 

as an employer who employed between 

2 (or 1 in the case of an employer 

residing in a State that permits small 

groups to include a single individual) 

and 50 employees on business days 

during the preceding calendar year. As 

one commenter observed, because the 

ERISA provisions of MHPAEA provides 

a definition of a ‘‘small employer’’ that 

makes no reference to the separate 

definition of an ‘‘employer’’ under 

ERISA section 3(5), some AHP operators 

may try to argue that the definition 

refers to the common law definition of 

employer, rather than the definition in 

ERISA section 3(5), and that an AHP is, 

therefore, exempt if all the participating 

employer-members meet the definition 

of ‘‘small employers.’’ 

MHPAEA amended ERISA, the Code, 

and the PHS Act and is subject to joint 

interpretive jurisdiction by the 

Departments of Labor, the Treasury, and 

HHS (collectively, the Departments).61

For purposes of ERISA, the Department 

interprets the term ‘‘small employer,’’ as 

specified in ERISA section 712(c)(1)(B) 

to mean an ‘‘employer’’ of a certain size, 

using the ERISA definition of 

‘‘employer’’ in section 3(5). The 

Department has consulted with HHS, 

which has advised the Department that 

it uses the same interpretation for 

purposes of applying the MHPAEA 

small employer exemption in the PHS 

Act.62 Accordingly, for a bona fide 

group or association, the determination 

of whether MHPAEA applies under 

ERISA and the PHS Act depends on the 

size of the AHP, which generally would 


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63ERISA section 601. 

64See Code section 501(c)(9). An organization 

described in Code section 501(c)(9) is exempt from 

tax under Code section 501(a). 

be based on the number of employees 

employed in the aggregate during the 

preceding calendar year by the 

employer members of the bona fide 

group or association. This interpretation 

is consistent with the approach 

described earlier in this preamble of 

treating AHPs like large employers. 

COBRA provides for a temporary 

continuation of group health coverage 

that would otherwise be lost due to 

certain life events, but does not apply to 

a group health plan for any calendar 

year if ‘‘all employers maintaining such 

plan normally employed fewer than 20 

employees’’ on a typical business day 

during the preceding calendar year.’’ 63

Commenters asked for clarification on 

how the law would apply to those 

employers with fewer than 20 

employees that joined a bona fide group 

or association whose member 

employers, collectively, employ 20 or 

more employees. The coverage 

provisions of the COBRA continuation 

coverage requirements are within the 

interpretive jurisdiction of Treasury and 

the IRS. The Department will consult 

with Treasury and the IRS and 

anticipates future guidance on the 

application of COBRA to such plans. 

6. Application of Federal Laws Other 

Than ERISA to AHPs 

a. Application of Federal Healthcare 

Laws 

Numerous commenters requested that 

the Department provide clarifications 

with respect to the application of a wide 

variety of Federal laws and regulations 

that are not grounded in ERISA but may 

implicate or apply to AHPs. Examples 

include the employer shared 

responsibility provisions, premium tax 

credit eligibility rules, network 

adequacy standards, the Pregnancy 

Discrimination Act of 1978, other 

federal nondiscrimination laws, and 

Medicare secondary payer rules. 

The Department considers these 

comments to be beyond the scope of this 

rulemaking. In setting out additional 

criteria for determining whether an 

employer group or association can act as 

an employer within the meaning of 

ERISA section 3(5) for purposes of 

sponsoring a single group health plan 

for its employer-members, the intent of 

this final rule is to expand the number 

of organizations that are eligible to 

sponsor an AHP. However, many AHPs 

currently exist and therefore the 

interaction between AHPs and the 

various laws and regulations discussed 

by these commenters are not a 

consequence of this rule. Further, these 

laws and regulations are not within the 

Department’s interpretive jurisdiction 

and therefore any guidance provided 

would be outside the scope of its 

regulatory authority. 

b. Use of Voluntary Employees’ 

Beneficiary Associations (VEBAs) 

A VEBA is a type of tax-exempt 

organization that could be used by 

employee welfare benefit plans, 

including multiple employer welfare 

benefit plans, to hold plan assets.64 The 

VEBA rules are administered by the IRS 

and are outside the interpretive 

jurisdiction of the Department. Some 

commenters argued that conditions in 

the Proposed Rule conflict in several 

ways with IRS guidance regarding the 

use of VEBAs, and expressed concern 

that the differences could limit the 

expansion of AHPs. The commenters 

noted in particular that VEBA 

regulations may require that 

membership consist of individuals who 

are employees and who have an 

employment-related common bond, and 

the way for a fund covering employees 

who work for multiple employers to 

meet this requirement is for the 

employees participating in a VEBA to 

work for employers in the same line of 

business in the same geographic locale. 

This differs from the Proposed Rule, 

which allowed employer groups to be in 

the same industry or the same 

geographic locale. They also noted that 

an organization including working 

owners who did not have common law 

employees may not meet VEBA 

requirements under which no more than 

10% of the VEBA members can be sole 

proprietors and other working owners. 

The commenters requested that the 

Department work with the IRS on 

harmonizing the VEBA requirements 

with those of AHPs. Commenters also 

suggested that IRS issue guidance 

treating membership in a group or 

association sponsoring an AHP pursuant 

to the Department’s rule as similar to 

membership in a labor union by 

employees, and to regard employer 

participation in the group or association 

as having a sufficient employmentrelated common bond to use a VEBA 

trust in connection with the AHP. 

The Department acknowledges that 

applicable IRS guidance regarding the 

use of VEBAs sets out different criteria 

for employer groups and associations 

that seek to establish and use those 

arrangements than this final rule sets 

out for sponsorship of a group health 

plan under ERISA. Although VEBAs are 

often a convenient way for multiple 

employers to fund certain employee 

welfare benefits in a tax-advantaged 

environment, VEBAs are not the sole 

vehicle for funding of multiple 

employer plans. To the extent that an 

employer group or association that 

offers an AHP chooses to use a VEBA in 

connection with the AHP, the 

arrangement must comply with 

applicable VEBA requirements. For 

more information on the use of VEBAs 

and the process for obtaining an IRS 

determination on VEBA status under 

Code section 501(c)(9), see 26 CFR 

1.501(c)(9)–1 through –8, and Revenue 

Procedure 2018–5 (or latest update). 

c. AHPs and Joint Employer Status 

Under Federal Laws 

Commenters requested that the 

Department should include language to 

ensure that employers, including 

franchisors whose franchisees 

participate in an AHP, are not 

considered joint employers under 

ERISA or the Fair Labor Standards Act 

(FLSA). Similarly, commenters 

requested clarification that a person or 

entity who contracts with individuals as 

independent contractors does not, by 

participating in an AHP with 

independent contractors, facilitating 

formation or operation of an AHP by 

independent contractors, or promoting 

an AHP for those independent 

contractors, become the employer of the 

independent contractors. The 

commenters argued that the question of 

who is an ‘‘employer’’ or ‘‘joint 

employer’’ carries significant legal 

consequences because of the increasing 

prevalence of independent contractor 

and other third-party relationships in 

today’s workplace, such as those 

between a business and a contractor’s 

employees, or between a corporate 

parent and its franchisees’ workers. The 

commenters said that the legal test for 

employment or joint employment under 

the FLSA has become less clear, with 

many tests for employer or joint 

employer liability looking to a variety of 

factors. There may also be increased risk 

of joint liability under ERISA section 

510 for a franchisor. Commenters 

claimed that the potential increased risk 

for expanded employer or jointemployer liability could limit the 

expansion of AHPs. Some commenters 

requested, on similar grounds, that we 

clarify that franchisors assisting in the 

start-up and ongoing administration of 

an AHP involving their franchisees and 

entities providing similar assistance in 

connection with AHPs for independent 

contractors would not be grounds for 

finding joint employer status. 


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65One commenter recommended that the 

Department establish a federal oversight board to, 

among other things, review and approve benefit 

designs for AHPs and to establish caps on annual 

premium rate increases. According to this 

commenter, such a federal board also could provide 

notice to participants if there are material changes 

in benefit levels or coverage under the AHP. A 

different commenter recommended that the 

Department establish a high-risk pool or other 

reinsurance mechanism to provide support to the 

The employer group or association 

provision in ERISA section 3(5) merely 

authorizes separate employers to 

maintain a single plan to provide 

benefits to their separate employees. It 

does not impose any independent 

employer obligation upon businesses 

with respect to the employees of other 

employers that obtain benefits under the 

plan. Participation in an AHP does not 

involve any agreement between 

employers to share employee services, 

or any sharing of direct or indirect 

control of an employee or independent 

contractor or his or her employment. By 

participating in an AHP, the individual 

participating employers also are not 

acting directly or indirectly in the 

interest of the other individual 

employers in relation to an employee, or 

in the interest of any independent 

contractor who may participate in the 

AHP as a working owner. Although the 

group itself may be acting in the interest 

of the participating employers in 

sponsoring the AHP, that is not 

analogous to one individual employer 

acting in the interest of another 

individual employer with respect to an 

employee or in the interest of an 

independent contractor. The individual 

employers are not, by reason of 

participating in the AHP, involved in 

hiring, firing, disciplining, setting rates 

or methods of pay, maintaining records, 

controlling, or directing and supervising 

the work of the other participating 

employers’ employees or of 

independent contractors. Therefore, 

nothing in the final rule is intended to 

indicate that participating in an AHP 

sponsored by a bona fide group or 

association of employers gives rise to 

joint employer status under any federal 

or State law, rule, or regulation. The 

final rule also should not be read to 

indicate that a business that contracts 

with individuals as independent 

contractors becomes the employer of the 

independent contractors merely by 

participating in an AHP with those 

independent contractors, who would 

participate as working owners, if 

applicable, or promoting participation 

in an AHP to those independent 

contractors, as working owners. 

7. ERISA Preemption and State 

Regulation of AHPs 

The Department received many 

comments, including from State 

insurance regulators, expressing the 

view that it is very important that the 

final rule not undermine or impair the 

current ERISA preemption provisions 

that broadly permit States to regulate 

AHPs under State insurance laws and 

regulation. The commenters expressed 

concern about a history of abuses 

involving unlicensed entities that 

compete with State-licensed health 

insurance issuers, but are exempt from 

many of the solvency standards and 

consumer protections that apply to 

traditional issuers in the State-regulated 

individual and small-group markets. 

These commenters argued that AHPs 

operating in multiple States should be 

required to abide by the regulations of 

each of the States in which the plan is 

providing health care coverage, and not 

just the State in which the group or 

association or their AHP is deemed to be 

domiciled. 

Commenters expressed concerns 

about potential abuses that could arise 

if AHPs were exempt from consumer 

protections that apply to entities 

marketing and selling insurance in their 

States. The commenters cited cases of 

healthcare arrangements purporting to 

be AHPs that left State residents with 

unpaid claims for their healthcare when 

the purported AHP failed, or the 

operators of the arrangement left the 

State. Some commenters stated that the 

States have a relatively strong oversight 

record and existing mechanisms to 

protect against fraud. These commenters 

noted that State officials and the 

insurance agents they regulate serve as 

‘‘eyes on the ground’’ to detect and 

report fraudulent schemes in their local 

markets. Another commenter suggested 

that the final rule should distinguish 

self-insured AHPs, which have 

historically presented problems in the 

market, from fully-insured AHPs, which 

are backed by licensed health insurance 

issuers and subject to oversight by State 

insurance commissioners and HHS. A 

few commenters asked that the 

Department promulgate a rule under 

ERISA section 520 which authorizes the 

Department to make persons operating 

AHPs subject to otherwise preempted 

State insurance laws to prevent fraud 

and abuse, before we finalize the AHP 

regulation, in order to give the 

Department an additional oversight and 

enforcement tool. 

The main point of these commenters 

was that the Department should make it 

clear that the final rule in no way limits 

the ability of States under State 

insurance laws to regulate AHPs, health 

insurance issuers offering coverage 

through AHPs, and insurance producers 

marketing that coverage to employees. 

In particular, they requested that the 

Department make a clear and 

unequivocal statement that States retain 

full authority to set and enforce 

solvency standards for all AHPs, and 

comprehensive licensure requirements 

and oversight for non-fully-insured 

AHPs including benefit, rating and 

consumer protection standards, and 

laws specifying who is eligible to apply 

for licensure. 

The Department agrees that the final 

rule does not modify or otherwise limit 

existing State authority as established 

under section 514 of ERISA. If an AHP 

is fully insured, ERISA section 

514(b)(6)(A)(i) provides that State laws 

that regulate the maintenance of 

specified contribution and reserve levels 

(and that enforce those standards) may 

apply, and State insurance laws are 

generally saved from preemption when 

applied to health insurance issuers that 

sell policies to AHPs and when applied 

to insurance policies that AHPs 

purchase to provide benefits. In 

addition, in the case of fully-insured 

AHPs, it is the view of the Department 

that ERISA section 514(b)(6) clearly 

enables States to subject AHPs to 

licensing, registration, certification, 

financial reporting, examination, audit 

and any other requirement of State 

insurance law necessary to ensure 

compliance with the State insurance 

reserves, contributions and funding 

obligations. Furthermore, under this 

framework, if an AHP established 

pursuant to this final rule is not fully 

insured, then, under section 

514(b)(6)(A)(ii) of ERISA, any State law 

that regulates insurance may apply to 

the AHP to the extent that such State 

law is ‘‘not inconsistent’’ with ERISA. 

Some commenters oppose continued 

application of State insurance laws, 

stating that navigating the varying or 

contradictory standards of multiple 

States has made it difficult for AHPs to 

actually operate across State lines. For 

example, some expressed concern about 

State MEWA statutes that prohibit 

participation across different industries, 

prohibit self-employed individuals from 

being covered by MEWAs, and prohibit 

MEWAs from operating in the State if 

established solely for the purpose of 

obtaining or providing insurance. Some 

commenters noted that several States 

currently prohibit AHPs from selfinsuring. These commenters say that the 

varying State laws prevent AHPs from 

providing uniform insurance and 

healthcare coverage across State lines. 

Some of these commenters support 

broader Federal oversight and regulation 

of self-insured AHPs rather than joint 

Federal-State regulation.65 Others 


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individual and small group markets that would be 

affected by the final rule. The Department lacks the 

statutory authority to establish an oversight board 

of the type described by the commenters. It also 

lacks the statutory authority to establish a high-risk 

pool or other reinsurance mechanism. Further, even 

if such steps were within the Department’s 

authority, the suggested actions are beyond the 

scope of this rulemaking, and at least some of the 

concerns underlying the comments may be better 

addressed through application of existing State 

insurance laws or amendments of State insurance 

laws. 

66See e.g., CA Ins. Code, Art. 4.7; TX Ins. Code 

sec. 3.95–2; Rev. Code of WA sec 48.125.020. 

support applying only the laws of one 

State, such as the State in which the 

AHP is domiciled. 

Several commenters asserted that the 

Proposed Rule was unclear or in direct 

conflict with State law, such as group 

size calculations used to determine the 

applicability of pooling, loss ratio, 

community rating, and essential health 

benefit requirements. These commenters 

requested that the Department render an 

opinion, or opinions, as to whether such 

laws (such as benefit mandates, rating 

rules, and licensing and registration 

requirements, among others) would be 

superseded by or because of the final 

rule. 

The Department declines the 

invitation of the commenters to opine 

on specific State laws. The provisions in 

ERISA section 514 are clear and well 

established, and both the Department’s 

interpretations and federal court rulings 

generally have upheld such State laws 

when they have been challenged as 

preempted by ERISA. The final rule is 

not the appropriate vehicle to issue 

opinions on whether any specific State 

law or laws would be superseded 

because of the final rule. 

Several commenters recommended 

that the final rule establish competency 

standards for persons offering or 

operating AHPs, and minimum funding 

requirements for self-insured AHPs. A 

few commenters encouraged the 

Department to require a criminal 

background check of each fiduciary of 

any self-insured AHP, and a cap on 

broker compensation for self-insured 

AHPs. Other commenters suggested that 

the final rule require self-insured AHPs 

to meet risk-based capital requirements 

to ensure the group or association has 

the capital necessary to support overall 

business operations, and to engage an 

insurance underwriter. 

As noted above, some commenters 

called for an increased federal role in 

regulating AHPs as an alternative to 

state insurance regulation. One 

commenter stated that while the states 

should be responsible for enforcement 

of standards provided in the final rule, 

the Department should have the 

authority to intervene. Other 

commenters emphasized the need for 

increased coordination between the 

states and DOL to evaluate the financial 

resources of AHPs and protect 

consumers against fraud and abusive 

practices. Other commenters noted that 

DOL should take enforcement action 

against AHPs that fail to file timely and 

complete M–1 forms with the 

Department, and one commenter 

suggested that all self-insured AHPs 

should be required to register with the 

federal government. 

Among the commenters arguing for an 

increased federal role, some urged the 

Department to use its authority under 

section 514(b)(6)(B) of ERISA to exempt 

AHPs from aspects of State insurance 

law. Most of these commenters focused 

on the potential benefits of uniform 

standards, and the need for interstate 

AHPs to be free of potentially 

overlapping, cumbersome, different, or 

contradictory patchworks of regulations 

that, they asserted, could be so 

detrimental to the operation of multistate AHPs as to prevent them. Some 

commenters suggested that the 

Department could replace state 

protections by crafting an exemption 

with additional federal consumer 

protections that AHPs must comply 

with as a condition of the exemption. 

ERISA section 514(b)(6)(B) provides 

that the Department may prescribe 

regulations under which non-fullyinsured MEWAs that are employee 

benefit plans may be granted 

exemptions, individually or by class, 

from certain State insurance regulations. 

ERISA section 514(b)(6)(B) does not, 

however, give the Department unlimited 

exemption authority. Significantly, 

ERISA section 514(b)(6)(B) does not give 

the Department any authority to exempt 

any fully-insured AHP from any state 

insurance laws that can apply to a fullyinsured MEWA plan under ERISA 

section 514(b)(6)(A). Furthermore, 

section 514(b)(6)(B) does not allow the 

Department to exempt self-insured 

AHPs from state insurance laws that can 

be applied to fully-insured AHPs, i.e., 

laws related to reserve and contribution 

requirements that must be met in order 

for the fully-insured MEWA plan to be 

considered able to pay benefits in full 

when due, and provisions to enforce 

such standards. Notwithstanding these 

limitations, ERISA section 514(b)(6) 

provides a potential future mechanism 

for preempting state insurance laws that 

go too far in regulating non-fullyinsured AHPs in ways that interfere 

with the important policy goals 

advanced by this final rule. But, as 

noted in the Proposed Rule, doing so at 

this time lies outside the scope of this 

proceeding. 

While no state is required by Federal 

law to take legislative action in order to 

regulate AHPs, many states regulate 

AHPs and other MEWAs under their 

general insurance statutes while others 

have chosen to adopt MEWA-specific 

insurance laws. For example, under 

some state insurance laws, a selfinsured MEWA is subject to the state’s 

general insurance laws and regulations 

applicable to licensed health insurance 

issuers unless the state has adopted a 

specific MEWA licensing law. To guard 

against fraud and abuse, a number of 

States provide that self-insured MEWAs 

must be licensed, registered, have a 

minimum number of participating 

employers, obtain an actuarial opinion 

that the MEWA can meet promised 

benefits and require that the MEWA 

keep a minimum level of reserves.66

DOL anticipates close cooperation with 

State regulators to guard against fraud 

and abuse. 

8. ERISA Fiduciary Status and 

Responsibilities of AHP Sponsors 

Several commenters asked the 

Department to provide guidance on 

fiduciary liabilities and responsibilities 

of a bona fide group or association that 

sponsors an AHP and clarify that any 

individual charged with the operation 

or management of an AHP is considered 

a fiduciary under ERISA. They stressed 

that it is important for groups and 

associations that sponsor an AHP to 

understand that they are obligated to 

protect the interests of the participants 

of the plan, and may be held 

individually liable if they fail to do so. 

Some of the commenters also requested 

the Department to clarify who will be 

responsible for ensuring compliance 

with ERISA and other federal 

requirements, such as COBRA 

compliance, ERISA reporting and 

disclosure requirements, compliance 

with certain requirements under the 

Code, compliance with the 

nondiscrimination requirements under 

paragraph (d) of this final rule and all 

of the other responsibilities that come 

with the maintenance of a single large 

employer plan. 

An AHP offered by a bona fide group 

or association under the final rule is 

subject to all of the ERISA provisions 

applicable to group health plans, 

including the fiduciary responsibility 

and prohibited transaction provisions in 

Title I of ERISA. The Department notes 

that the bona fide group or association 

that sponsors the AHP assumes and 

retains responsibility for operating and 

administering the AHP, including 


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67Some commenters suggested that the final rule 

should set limits on compensation that may be 

received by plan fiduciaries and brokers. The 

Department declines this suggestion, and notes that 

the fiduciary responsibility provisions in Part 4 of 

ERISA already establish rules and requirements for 

service provider compensation and other expenses 

of administering a plan, including a requirement 

that service providers receive no more than 

reasonable compensation for their services. See 

ERISA section 408(b)(2) and 29 CFR 2550.408b–2. 

68See 29 CFR 2520.104b–2, 2520.104b–3(a), 

(d)(3). 

69 29 CFR 2520.102–3(j)(3). 

70Special rules for duplication apply. See 26 CFR 

54.9815–2715(a)(1)(iii); 29 CFR 2590.715– 

2715(a)(1)(iii), and 45 CFR 147.200(a)(1)(iii). 

71See, e.g., ERISA sections 104(b), 502(c), 503, 

712(a)(4) and 715; PHS Act sections; 2719; 2719A; 

29 CFR 2520.104b–1, 2560.503–1, 2590.712(d)(3) 

and 2590.715–2719. To assist with compliance, a 

summary of EBSA’s reporting and disclosure 

requirements for employee benefits plans may be 

found at www.dol.gov/sites/default/files/ebsa/ 

about-ebsa/our-activities/resource-center/ 

publications/reporting-and-disclosure-guide-foremployee-benefit-plans.pdf. 

72The Department intends to reexamine existing 

reporting requirements for AHPs/MEWAs, 

including the Form M–1 and possibly the Form 

5500, and may be asked to propose class or 

individual prohibited transaction exemptions for 

AHPs that want to use affiliates to serve as their 

administrative service providers or act as issuers 

providing benefits under the AHP. 

ensuring compliance with these 

requirements.67

Several commenters requested that 

the Department clarify that all notice 

requirements applicable to ERISA group 

health plans apply to AHPs, including 

the Summary of Benefits and Coverage 

(SBCs) and Summary Plan Description 

(SPDs), as well as notices under FLSA 

section 18B, which is imposed on the 

employer, rather than the plan. 

Commenters also requested that the 

Department require AHPs to disclose to 

employer groups and potential 

beneficiaries if they do not provide 

specific consumer protections or 

benefits the covered customers would 

have otherwise received in the 

traditional insurance market, including 

a comparison to EHBs, whether dollar 

limits apply to any benefit, whether the 

plan provides minimum value, and the 

right to receive coverage on the health 

insurance Exchanges. Other commenters 

requested that the Department 

coordinate with State regulators 

regarding the content of any notices to 

avoid confusion and excessive 

administrative costs. 

As group health plans, AHPs are 

subject to the disclosure requirements of 

Title I of ERISA. This includes the 

requirement to provide an SPD, 

Summary of Material Modifications 

(SMMs) and Summaries of Material 

Reductions in Covered Services or 

Benefits (SMRs).68 The AHP’s SPD must 

disclose, in a manner calculated to be 

understood by the average plan 

participant, the participants’ rights and 

obligations under the plan. The SPD 

must include, among other 

requirements, a description of the costsharing provisions, limits on benefits, 

and the extent to which preventive 

services, prescription drugs, and 

medical tests, devices and procedures 

must be covered under the plan.69 The 

AHP must also furnish a Summary of 

Benefits and Coverage and Uniform 

Glossary under PHS Act section 2715, as 

incorporated into ERISA by section 715. 

PHS Act section 2715 requires plans 

and issuers to provide to applicants, 

enrollees and policyholder or certificate 

holders a Summary of Benefits and 

Coverage (SBC) that describes the 

benefits and coverage under the plan. 

The current SBC template requires a 

plan to disclose whether it meets 

minimum value standards, how it 

covers benefits, including prescription 

drugs, maternity care, mental health and 

substance abuse services, and any 

limitations, exceptions and other 

important information (such as dollar 

limits). 

The AHP also must describe services 

that it does not cover or excludes. The 

SBC must be provided to participants 

and beneficiaries as part of any written 

application materials distributed to 

participants and beneficiaries, or (if no 

written application materials are 

distributed) no later than the first date 

a participant is eligible to enroll in 

coverage. This ensures that participants 

and beneficiaries have the opportunity 

to familiarize themselves with the terms 

of their coverage before they enroll. The 

SBC must also be provided by the first 

day of coverage if there are changes; 

upon special enrollment; upon renewal, 

reissuance or reenrollment (either when 

application materials are provided or no 

later than 30 days prior) and within 

seven business days upon request.70 The 

AHP is subject to a fine if it fails to 

provide the SBC as required by law. 26 

CFR 54.9815–2715(e); 29 CFR 2590.715– 

2715(e); and 45 CFR 147.200(e). 

Similarly, those employers who 

participate in an AHP and are subject to 

the FLSA must provide a notice at the 

time of hiring notifying an employee of 

the existence of an Exchange, the 

availability of premium tax credits if the 

employer plan fails to cover 60% of the 

total allowed costs and that if the 

employee purchases a qualified health 

plan through the Exchange, he or she 

may lose the employer contribution to 

any health benefit plan, which may be 

excludable from income. FLSA section 

18B. As ERISA-covered group health 

plans, AHPs are subject to numerous 

other disclosure requirements.71

In addition, AHPs are MEWAs and, as 

such, are subject to existing federal 

regulatory standards governing MEWAs. 

Sponsors of AHPs will need to exercise 

care to ensure compliance with those 

standards, including those established 

in the ACA. 

The ACA also expanded reporting and 

required registration for MEWAs with 

the Department. MEWA registration 

requirements require plan and non-plan 

MEWAs to file Form M–1s under ERISA 

section 101(g) and 29 CFR 2520.101–2. 

All AHPs under the final rule will be 

MEWAs and, as MEWAs, required to 

file the Form M–1 regardless of the plan 

size or type of funding. Further, all 

employee welfare benefit plans that are 

MEWAs subject to the Form M–1 

requirements, including AHPs under the 

final rule, will be required to file the 

Form 5500, regardless of the plan size 

or type of funding. In addition, the ACA 

added new criminal penalties under 

ERISA section 519 for any person who 

knowingly submits false statements or 

makes false representations of fact about 

the MEWA’s financial condition, the 

benefits it provides, or its regulatory 

status as a MEWA in the marketing of 

a MEWA. The ACA also amended 

ERISA section 501(b) to impose criminal 

penalties on any person who is 

convicted of violating the prohibition in 

ERISA section 519. 

Thus, as ERISA-covered plans and 

MEWAs, AHPs will be subject to 

comprehensive disclosure requirements. 

In light of these existing requirements, 

the Department does not believe adding 

new, and potentially redundant, 

disclosure requirements on AHPs of the 

sort suggested by some commentators is 

necessary or advisable at this time based 

on the record before the Department. 

Thus, the final rule does not include 

any special disclosure requirements on 

bona fide groups or associations of 

employers that sponsor AHPs or on 

AHPs established pursuant to the final 

rule. As noted elsewhere in this 

document, the Department intends to 

work with state insurance regulators on 

overall implementation of the final rule, 

including the interaction of any 

applicable state insurance law 

disclosure requirements with the 

disclosure requirements applicable to 

group health plans, such as AHPs, 

under Title I of ERISA.72

C. Economic Impact and Paperwork 

Burden 

1. Summary 

This final rule is intended to facilitate 

the creation and maintenance of AHPs 


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73For purposes of this document, ‘‘actuarially 

fair’’ generally means that coverage is priced so that 

the premium paid by an individual or business 

reflects the risks associated with insuring the 

particular individual or business covered by that 

policy. 

74This discussion of ‘‘economic impact and 

paperwork burden’’ addresses AHPs that enjoy 

sufficient participation to constitute large groups. 

Such large AHPs are expected to account for the 

overwhelming majority of AHP enrollment. Smaller 

AHPs’ impacts would be different and are not 

considered here. 

to offer more affordable health 

insurance to small businesses, including 

working owners. Millions of Americans 

are working owners of small businesses, 

employees of small businesses, or are 

family members of such working owners 

or employees. Too many have 

unaffordable options for health 

insurance or lack health insurance 

altogether. By revising the Department’s 

rules and promoting formation of AHPs 

for small businesses and working 

owners, this final rule will make 

affordable health insurance available to 

many of these people, including a 

substantial number who would 

otherwise be uninsured. 

Many employer groups or associations 

have a thorough knowledge of the 

economic challenges that their members 

face. Using this knowledge and the 

regulatory flexibility provided by this 

final rule, AHPs may tailor health 

coverage to better meet the needs of 

their members at lower and more 

actuarially fair prices 73 than plans 

currently available in the small group 

and individual health insurance markets 

under the ACA and state laws 

applicable to those markets. Thus, this 

final rule will increase the choice of 

affordable health coverage available to 

many small businesses, including 

working owners. Small businesses may 

use some of the economic gains that 

they will reap from affordable AHP 

health coverage to raise pay, hire more 

employees, and invest in new 

equipment, structures, and intellectual 

property, all of which contributes to 

economic growth. 

AHPs will pursue economies of scale 

by encouraging more small businesses 

and working owners to band together to 

(1) make health coverage design and 

purchasing decisions; and (2) provide 

administrative functions. Like large 

health insurance issuers, AHPs with 

large shares in local healthcare markets 

may exercise bargaining power with 

local healthcare providers and achieve 

economies of scale in purchasing 

healthcare services. AHPs sponsored by 

geographically-based, multi-industry 

organizations, which the final rule 

authorizes, are more likely than AHPs 

sponsored by industry-based 

organizations with widely scattered 

memberships, which the Department’s 

current pre-rule guidance allows (and 

this new regulation will continue to 

permit), to garner sufficient numbers of 

insured in local healthcare markets to 

achieve such economies of scale. 

There are many well-established, 

geographically-based organizations, 

such as local chambers of commerce, 

that lend themselves to sponsoring 

AHPs, but generally cannot under the 

Department’s pre-rule guidance. Such 

organizations can, and sometimes do, 

help their members purchase health 

insurance policies in the individual and 

small group markets. However, the ACA 

and state laws and regulations 

governing individual and small group 

markets limit both the propensities of 

such organizations to undertake group 

purchasing of health insurance and the 

economies of scale that such 

organizations can achieve from group 

purchasing. This final rule will enable 

such geographically-based organizations 

to sponsor AHPs that will provide or 

purchase health insurance for their 

small business members through the 

more lightly regulated large group 

market. Moreover, the final rule will 

also encourage newly formed employer 

organizations to sponsor AHPs, and will 

enable AHPs to extend membership to 

working owners. 

Fully-insured and self-insured AHPs 

established under this final rule 

generally will be subject to federal 

benefit mandates that apply to the large 

group insurance and self-insured 

ERISA-covered markets, respectively.74

AHPs established under this rule will 

also be subject to substantial 

nondiscrimination rules. State laws and 

regulations may, to a varying degree, 

impose additional benefit mandates and 

pricing restrictions. At the same time, 

however, AHPs formed under this rule 

will not be subject to federal mandates 

(e.g., the ACA’s ten categories of EHBs) 

and federal pricing rules (e.g., modified 

community rating rules) that apply 

exclusively to the individual and small 

group insurance markets. Placing AHPs 

in the same regulatory environment as 

large employers will help small 

employers to tailor their benefits 

packages resulting in plan designs that 

more accurately reflect the coverage and 

pricing that some small businesses and 

their employees may value. 

Relative to health insurance issuers in 

the individual and small group markets 

under ACA and state laws applicable to 

those markets, AHPs established under 

this final rule can use their regulatory 

flexibility to design more tailored, less 

comprehensive health coverage and set 

more actuarially fair prices that 

generally are lower for lower risk groups 

and higher for higher risk ones, 

provided the prices comply with 

applicable nondiscrimination standards. 

This regulatory flexibility in design and 

pricing will necessarily lead to some 

favorable risk selection toward AHPs 

and adverse selection against individual 

and small group markets. 

To the extent that small businesses 

that use AHPs avoid paying forced cross 

subsidies to the ACA-compliant 

individual and small group markets 

(and thereby reap economic gains), 

premiums in those ACA-compliant 

markets will increase. Individual policy 

holders with household incomes at or 

below 400 percent of the federal poverty 

level generally will be protected from 

these premium increases (i.e., by 

premium tax credits), but higher-income 

individuals and small businesses that 

lack attractive, affordable AHP options 

will not. Facing premium increases, 

small businesses and working owners 

that remain in the ACA-compliant 

individual and small group markets may 

drop insurance or be less able to invest, 

hire, and grow. 

In the past, some AHPs and other 

MEWAs suffered from mismanagement 

and abuse, leading to unpaid claims and 

loss of coverage. Congress, the 

Department, and states have made 

progress combatting MEWA abuse and 

will continue their efforts as AHPs 

become more prevalent in response to 

this rule. AHPs with tighter ties to, and 

that are more controlled by, employer 

members are likely to be more insulated 

from mismanagement and abuse. The 

final rule requires certain minimum 

such ties and control in order to reduce 

operational risks. Nonetheless, risks 

remain. 

The final rule in effect broadens the 

flexibility of states to tailor their laws 

and regulations to their local market 

conditions and policy preferences. The 

ACA has constrained this flexibility 

with respect to health insurance in the 

individual and small group markets. 

AHPs present an opportunity for states 

to make affordable health coverage 

options that the ACA has otherwise 

foreclosed available to small businesses, 

including working owners. States’ long 

experience regulating individual and 

small group markets and close-in 

knowledge of local market conditions 

position states to optimize AHPs’ role. 

Overall, and as discussed more fully 

below, the Department has concluded 

that this rule delivers social benefits 

that justify any attendant social costs. 


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75Population statistics are from DOL calculations 

based on the Abstract of Auxiliary Data for the 

March 2016 Annual Social and Economic 

Supplement to the Current Population Survey, U.S. 

Department of Labor. Employer statistics are from 

the Medical Expenditure Panel Survey, Insurance 

Component, available at https://meps.ahrq.gov/ 

data_stats/summ_tables/insr/national/series_1/ 

2016/tia2.pdf. 

76See PHS Act sections 2701, 2702, and 2707(a). 

2. Relevant Executive Orders 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects; distributive impacts; and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. 

Under Executive Order 12866 (58 FR 

51735), ‘‘significant’’ regulatory actions 

are subject to review by the Office of 

Management and Budget (OMB). 

Section 3(f) of the Executive Order 

defines a ‘‘significant regulatory action’’ 

as an action that is likely to result in a 

rule (1) having an annual effect on the 

economy of $100 million or more in any 

one year, or adversely and materially 

affecting a sector of the economy, 

productivity, competition, jobs, the 

environment, public health or safety, or 

State, local or tribal governments or 

communities (also referred to as 

‘‘economically significant’’); (2) creating 

a serious inconsistency or otherwise 

interfering with an action taken or 

planned by another agency; (3) 

materially altering the budgetary 

impacts of entitlement grants, user fees, 

or loan programs or the rights and 

obligations of recipients thereof; or (4) 

raising novel legal or policy issues 

arising out of legal mandates, the 

President’s priorities, or the principles 

set forth in the Executive Order. It has 

been determined that this final rule is 

economically significant within the 

meaning of section 3(f)(1) of the 

Executive Order. Therefore, OMB has 

reviewed the rule pursuant to the 

Executive Order. 

The background to the rule is 

discussed earlier in the preamble. This 

discussion assesses the rule’s expected 

impacts. 

3. Introduction and Need for Regulation 

Presently, U.S. households obtain 

health benefits from a number of 

different private and public sources. 

Essentially all individuals age 65 or 

older are covered by Medicare; many 

poor individuals under age 65 are 

covered by Medicaid; and 60 percent of 

individuals under age 65 have 

employer-sponsored coverage. Nearly 

all large employers offer health coverage 

to their employees, but only about onethird of employers with fewer than 50 

employees do. Thirty-seven percent of 

individuals under age 65 obtain 

coverage from private employers with 

50 or more employees, nine percent 

from smaller private employers and 13 

percent from governmental employers. 

Another nine percent purchase 

individual policies.75

Today, businesses generally purchase 

health insurance in one of three market 

segments, depending on their size. 

These segments are: (1) The individual 

market, which includes working owners 

if they are not covering employees and 

therefore cannot establish a group 

health plan, other individuals, and their 

families; (2) the small group market, for 

small employers; and (3) the large group 

market, which generally includes 

employers with more than 50 

employees. Many large employers selfinsure rather than purchase group 

insurance in the large group market. 

Relative to large employers, small 

businesses purchasing health insurance 

in the individual and small group 

markets generally face at least two 

inherent economic disadvantages. First, 

owing to their small size, working 

owners and other small businesses lack 

very large employers’ potential for 

administrative efficiencies and 

negotiating power. Second, unlike large 

businesses, individual small businesses 

do not constitute large, naturally 

cohesive risk pools. Any single small 

business’s claims can spike abruptly 

due to one serious illness. Relative to 

large employers, small businesses also 

face more rigorous regulatory 

requirements. The ACA imposes 

requirements in the individual and 

small group health insurance markets 

that do not apply in the large group 

market or to self-insured plans. For 

example, the ACA imposes adjusted 

community rating rules and mandates 

coverage of ten categories of EHBs.76

These requirements, which aimed to 

make comprehensive coverage 

affordable for individuals and small 

businesses with high expected or actual 

claims, generally have caused adverse 

selection by limiting choice and raising 

premiums for those who do not expect 

to have high medical needs. 

While some AHPs exist today, before 

the issuance of this final rule, their 

reach was limited by the Department’s 

prior interpretation of the conditions 

when an AHP constitutes an employersponsored plan under ERISA. Under the 

prior interpretation, eligible group or 

association members had to share a 

common interest (usually, in practice, 

operate in the same industry) and 

genuine organizational relationship, join 

together for purposes other than 

providing health coverage, exercise 

control over the AHP, and have one or 

more employees in addition to the 

business owner in order for the group or 

association to qualify as bona fide. 

Absent any one of these criteria, AHPs 

were treated not as single, large-group 

plans, but as issuers or distributers of 

separate individual, small-group, and/or 

large-group policies to participating 

members, based on the status or size of 

the member. The prior interpretation 

precluded an AHP’s potential advantage 

of allowing small businesses and 

working owners to tailor benefit 

packages under largely the same rules 

available to large employer plans. 

Instead, the prior interpretation forced 

AHPs not meeting the requirements of 

the prior interpretation to subject their 

members to different rules, depending 

on the members’ status as an individual 

working owner, or small or large 

employer, diminishing any potential for 

administrative cost savings. 

Accordingly, after consideration of 

public comments on the Proposed Rule, 

the Department is publishing this final 

rule, which broadens the conditions 

under which an AHP will be treated as 

a single large group plan. As a result, 

the number of small businesses eligible 

to participate in such AHPs will 

increase, and many Americans will have 

new, affordable employment-based 

health coverage options. 

The final rule generally does this in 

four important ways. First, it relaxes the 

requirement that group or association 

members share a common interest, as 

long as they operate in a common 

geographic area, in order for the group 

or association to qualify as bona fide. 

Second, it confirms that groups or 

associations whose members operate in 

the same trade, industry, line of 

business or profession can sponsor 

AHPs under the final rule, regardless of 

geographic distribution. Third, it 

clarifies the existing requirement that 

bona fide groups or associations 

sponsoring AHPs must have at least one 

substantial business purpose unrelated 

to the provision of benefits. Fourth, it 

permits AHPs that meet the final rule’s 

new requirements to enroll working 

owners without employees. 

Consequently, for example, the final 

rule would newly allow a local chamber 

of commerce that meets the other 

conditions in the rule to offer AHP 


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77The American Academy of Actuaries 

commented that ‘‘flexible benefit rules could allow 

AHPs to create plans more attractive to lower-cost 

groups, resulting in positive selection (and lower 

premiums) for AHPs and adverse election (and 

higher premiums) for ACA plans.’’ The comment 

pointed to potentially less comprehensive coverage 

of rehabilitative and habilitative services (including 

chiropractic, physical therapy, and other therapies) 

and behavioral health services, and to narrower 

drug formularies. (See comment letter from the 

American Academy of Actuaries, February 9, 2018, 

(Comment # 106 on EBSA web page last accessed 

at https://www.dol.gov/sites/default/files/ebsa/lawsand-regulations/rules-and-regulations/publiccomments/1210-AB85/00106.pdf).) According to 

another public comment, AHPs can be expected to 

behave like unregulated individual and small group 

issuers, in that they will ‘‘offer more limited 

coverage packages that appeal distinctively to 

particular demographics or health profiles.’’ (See 

comment letter from Mark A. Hall, Professor of Law 

and Public Health, Wake Forest University School 

of Law, Feb 16, 2018, (Comment # 146 on EBSA 

web page last accessed at https://www.dol.gov/ 

agencies/ebsa/laws-and-regulations/rules-andregulations/public-comments/1210-AB85).) Another 

commenter notes that ‘‘AHPs stand to gain from 

using [benefit design] to avoid very high-cost 

enrollees and attract people who cost less to cover.’’ 

(See comment letter from the Center on Budget and 

Policy Priorities, March 6, 2018 (Comment # 537 on 

EBSA web page last accessed at https://

www.dol.gov/sites/default/files/ebsa/laws-andregulations/rules-and-regulations/publiccomments/1210-AB85/00537.pdf).) According to 

another commenter, before the ACA required 

coverage of EHB, individual policies covered little 

or no maternity services, often excluded or limited 

mental health coverage, and often lacked pharmacy 

coverage. See comment letter from the Consumers 

Union, March 1, 2018 (Comment # 294 on EBSA 

web page last accessed at https://www.dol.gov/sites/ 

default/files/ebsa/laws-and-regulations/rules-andregulations/public-comments/1210-AB85/ 

00294.pdf). One existing AHP publicly markets its 

ability ‘‘to design plan and deductible options, and 

keep costs low since MEWAs are not subject to 

some of the Affordable Care Act’s (ACA) mandated 

benefits.’’ See MEWA FAQs question three from the 

Council of Smaller Enterprises available at: http:// 

www.cosemewa.com/∼/media/Files/PDF/COSE/ 

MEWA/2017/112116%20COSE%20Helath%20and

%20Wellness%20Trust%20FAQ%20V3%20Dec

%2014%20pdf.pdf?la=en. 

78For some discussions of the potential benefits 

of increased choice of health plans, see Bundorf, M. 

Kate, Jonathan Levin, and Neale Mahoney. 2012. 

‘‘Pricing and Welfare in Health Plan Choice.’’ 

American Economic Review, 102 (7): 3214–48. 

https://www.aeaweb.org/articles?id=10.1257/ 

aer.102.7.3214; and Dafny, Leemore, Kate Ho, and 

Mauricio Varela. 2013. ‘‘Let Them Have Choice: 

Gains from Shifting Away from EmployerSponsored Health Insurance and toward an 

Individual Exchange.’’ American Economic Journal: 

Economic Policy, 5 (1): 32–58. 

coverage to all of its members, including 

self-employed working owners, based 

on having their principal places of 

business within a single state or 

metropolitan area. This rule does not 

supplant the Department’s previously 

issued sub-regulatory guidance, which 

in effect generally permits an AHP to 

condition each employer member’s 

premiums on its employees’ collective 

health status factors, as long as such 

rating complies with the HIPAA 

nondiscrimination requirements, 

including the requirement that it does 

not single out one or more individuals 

based on their health. On the other 

hand, an AHP providing health coverage 

under this final rule must not treat the 

employees of an employer member as a 

distinct group of similarly-situated 

individuals based on the employees’ 

health factors. (Such an AHP may, 

however, treat employees of subsets of 

employer members as distinct groups of 

similarly situated individuals based on 

bona fide employment-based 

classification based on other, non-health 

factors, such as its industry or location, 

or its employees’ ages or genders, or 

occupations.) 

4. Increased Choice 

Under this final rule, AHPs will be 

able to offer many small businesses 

more attractive and affordable health 

coverage options than are currently 

available to them in the ACA-compliant 

individual and small group markets. 

These options will include tailored 

plans that omit certain benefits that 

some small businesses and their 

employees may prefer to forgo in return 

for reduced cost. Small businesses 

taking advantage of these tailored 

options may accrue economic 

advantages for themselves and their 

employees. 

Absent this final rule, many small 

businesses’ health coverage choices 

would be more limited. Under existing 

ACA federal and state rules, nongrandfathered individual and small 

group insurance policies generally must 

provide coverage for ten categories of 

EHB, and meet certain other benefit 

standards, for example with respect to 

actuarial value, and network adequacy. 

These limits, which are not applicable 

to large employer plans, hamper the 

ability of many small employers to offer 

benefits packages tailored to their needs. 

Under this final rule, AHPs generally 

will be subject to the same, more 

flexible rules to which large employer 

plans are subject, consistent with 

leveling the federal regulatory playing 

field between small and large 

employers. The Department notes, 

however, that AHPs and large 

employers differ with respect to their 

economic incentives, and the 

Department does not expect that their 

behavior will be the same. For instance, 

AHPs generally will have incentives to 

tailor benefits to appeal to lower-risk 

groups—an incentive that large 

employers generally do not share, as 

discussed below. 

AHPs established under this final rule 

will be able to match more closely the 

preferences of many small businesses 

and often of their employees for the 

design and price of health coverage than 

health insurance issuers can in ACAcompliant individual and small group 

markets. Such closer matches generally 

will improve the welfare of AHP 

members. For example, a working 

owner opting for less comprehensive 

coverage can devote the attendant 

savings to uses he or she values more, 

and will be less apt to overuse medical 

care (although possibly at more risk of 

forgoing beneficial care). The same can 

be said of small business employees 

whose employer switches from an ACAcompliant small group policy to more 

affordable AHP coverage that better 

matches employer and employee 

preferences on the optimal mix of wages 

and health benefits and the composition 

of health benefits. 

Some comments expressed concern 

that AHPs, by offering more tailored, 

less comprehensive coverage that 

appeals mostly to less costly groups, 

will raise the price of comprehensive 

policies for some small businesses that 

prefer them, and generally erode choice 

and affordability for consumers limited 

to the ACA-compliant individual and 

small group markets.77 Some comments 

additionally expressed concern that 

AHPs, by offering less comprehensive 

coverage and increasing the cost of more 

comprehensive coverage offered by 

others, will erode access to needed 

healthcare services. Some comments 

recommended that the Department 

address these concerns by requiring 

AHPs to cover EHB and satisfy other 

ACA and state benefit standards. Some 

comments expressed concern that AHPs 

would reduce choice for some small 

businesses by increasing premiums in 

individual and small group markets and 

possibly prompting some insurers to 

withdraw offers in those markets. Even 

some businesses joining AHPs may in 

fact have preferred offers that are no 

longer available because of AHPs. The 

Department believes that these concerns 

are justified by the economic advantages 

that will accrue to the small businesses 

to which AHPs will offer more attractive 

choices.78

The Department notes that AHPs 

operating under this final rule, like 

other large group plans, though not 

subject to the requirement to cover EHB 

and other requirements applicable only 

to issuers in the small group and 

individual markets, are in fact subject to 

some other significant benefit mandates. 

These include, for example, a ban on 

charging participants and beneficiaries 

higher premiums because they have a 

pre-existing health condition; a ban on 

denying coverage of an otherwise 

covered but pre-existing health 

condition; a requirement that if the plan 


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79ERISA does not mandate coverage of maternity 

benefits. However, Title VII of the Civil Rights Act 

(as amended by the Pregnancy Discrimination Act 

and administered by the EEOC) generally applies to 

employers with 15 or more employees and provides 

that pregnancy-related expenses for employees and 

their spouses must be reimbursed in the same 

manner as those incurred for other medical 

conditions. Historically many individual insurance 

policies and some policies for very small plans 

limited or excluded coverage for maternity care, in 

order to limit adverse selection. AHPs covering 

employers with 15 or more employers would need 

to ensure compliance with Title VII in connection 

with such coverage, and, though not required to do 

so, may, for administrative simplicity and other 

reasons, offer maternity benefits to all participants 

and beneficiaries regardless of a member employer’s 

size. Some AHPs covering only working owners and 

very small plans may exclude coverage of such 

services. For more information regarding Title VII, 

contact the EEOC. In addition, other State law 

provisions may apply. 

80One commenter acknowledged concerns that 

AHPs may offer less comprehensive benefits, but 

stated that legitimate membership organizations 

would not risk their goodwill and reputation with 

their members by offering substandard health plans. 

81See 40 P.S. sections 764g, 908–2, 764h, 3502, 

764c. (For a list of state benefit mandates, see 

generally http://www.ncsl.org/research/health/ 

state-ins-mandates-and-aca-essentialbenefits.aspx#State_EHB_2016). 

82For a discussion of market concentration and 

issuers’ market power see Sheffler, Richard M. and 

Daniel Arnold. ‘‘Insurer Market Power Lowers 

Prices in Numerous Concentrated Provider 

Markets.’’ Health Affairs 36, no. 9 (2017). 

offers dependent coverage it must do so 

for dependent children up to age 26; a 

ban on annual or lifetime dollar limits 

on EHB that the plan covers; for nongrandfathered plans, a requirement to 

cover certain preventive health services 

without cost-sharing; special enrollment 

rights (for example, upon marriage or 

birth of a child); for non-grandfathered 

plans, caps on out-of-pocket expenses 

for covered EHB; prohibitions on 

waiting periods for coverage that exceed 

90 days; for non-grandfathered plans, 

additional protections for selection of 

in-network primary care providers, 

pediatricians, and OB/GYNs without 

referral and without prior authorization; 

non-grandfathered plan protections for 

coverage of emergency room services; 

protections for coverage of post-breastcancer-surgery benefits; protections for 

the length of a hospital stay in 

connection with childbirth (if such stay 

is a covered benefit under the plan),79

and procedural protections governing 

appeals of denied health claims (for 

non-grandfathered health plans, this 

also includes external review). These 

mandates place significant constraints 

on AHP benefit designs, but leave ample 

room for AHPs to offer more tailored, 

less comprehensive, and more 

affordable health coverage than is 

available in ACA-compliant individual 

and small group markets.80

This final rule in effect broadens 

states’ flexibility to tailor their local 

market rules to their local market 

conditions and policy preferences. The 

ACA, in particular, had constrained that 

flexibility with respect to individual 

and small group insurance. Expanded 

AHPs under this rule present an 

opportunity for states to make available 

to their local small businesses affordable 

health coverage options that the ACA 

had otherwise foreclosed. States’ long 

experience regulating individual and 

small group markets and close-in 

knowledge of local market conditions 

position them to optimize AHPs’ role. 

Many AHPs will be subject to State 

benefit mandates. Pennsylvania, for 

example, requires policies issued in the 

large group market to cover in-patient 

and out-patient services for severe 

mental illness, inpatient and outpatient 

services for substance use disorders, 

autism services, childhood 

immunizations, and mammography.81

Where present and applicable, these 

types of State mandates will apply to 

fully insured AHPs through State 

regulation of the health insurance 

policies they purchase, or directly to 

self-insured AHPs as permitted under 

ERISA’s MEWA preemption provisions. 

Moreover, under this final rule, States 

retain the authority to adopt minimum 

benefit standards, including standards 

similar to those applicable to individual 

and small group insurance policies 

under the ACA, for all AHPs. To the 

extent that States adopt such standards, 

AHPs generally will have less 

opportunity to expand choices of more 

affordable coverage options for many 

small businesses. 

5. Economies of Scale 

Many AHPs will pursue advantages of 

economies of scale that small businesses 

do not currently enjoy. AHPs sponsored 

by pre-existing groups or associations 

that perform multiple functions for their 

members other than offering health 

coverage (such as chambers of 

commerce or trade associations) might 

have more potential to deliver 

administrative savings than those 

established for the principal purpose of 

offering health coverage. These existing 

organizations may already have 

extensive memberships and thus may 

have fewer setup, recruitment, and 

enrollment costs than organizations 

newly formed to offer insurance. These 

existing organizations that have been 

limited in their ability to offer AHPs to 

some or all of their existing members 

(for example, to working owners or 

workers outside of a common industry) 

by the Department’s prior 

interpretations could newly extend AHP 

eligibility to such members. 

As with traditional insurers of 

individuals and small groups, AHPs’ 

most promising potential for economies 

of scale may be an ability to negotiate 

discounts with healthcare providers. 

Such discounts may reflect a 

combination of (1) administrative 

efficiencies from economies of scale; (2) 

influence over providers’ utilization 

decisions and practices; (3) reduction of 

any excess provider profits; and (4) 

sometimes modest cost-shifting to other 

payers who have less negotiating 

leverage. 

Only large AHPs are likely to secure 

provider discounts similar to those that 

large health insurance issuers often can 

deliver to their individual and small 

group customers. Large issuers have the 

benefit of aggregating their purchasing 

power across all market segments in 

which they participate, potentially 

including private individual, small and 

large group insurance, large self-insured 

employer customers, Medicare 

Advantage, and Medicaid. These latter 

segments often account for a 

disproportionately large fraction of 

provider utilization volume. AHPs 

generally will have more potential to 

negotiate provider discounts if they opt 

to keep their provider networks narrow, 

so as to concentrate use and scale 

among available providers. 

Geographically-based AHPs, which this 

final rule allows for the first time, may 

be most likely to be able to secure 

provider discounts. On the other hand, 

AHPs’ entry sometimes could dilute 

other payers’ abilities to obtain 

discounts,82 thereby increasing costs for 

such payers’ enrollees. 

Accordingly, AHPs with large shares 

in local health markets will be best 

positioned to negotiate discounts with 

providers. Without the benefit of this 

final rule, AHP participation has been 

constricted to date—especially as 

common geography has not constituted 

an allowable basis to form an AHP—and 

as a result, prior AHPs generally have 

been unable to achieve large local 

participation. Among MEWAs operating 

as single large group health plans 

(hereafter, ‘‘plan MEWAs’’), total 

enrollment averaged just 3,437 in 2016. 

Twenty-eight had more than 10,000 

enrollees, and four had more than 

50,000, but many of these were 

dispersed across multiple States. 

This final rule, by enabling AHPs to 

be comprised of otherwise unrelated 

small employers and working owners 

who share a common geographic area, 

will open the door for more AHPs to 

claim large fractions of local markets 

and thereby pursue advantages of scale. 

There are many well established, 


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83 DOL calculations based on Form M1 Filings. 

84See comment letter from Mark A. Hall, 

Professor of Law and Public Health, Wake Forest 

University School of Law, Feb 16, 2018 (Comment 

# 146 on EBSA web page last accessed at https:// 

www.dol.gov/agencies/ebsa/laws-and-regulations/ 

rules-and-regulations/public-comments/1210- 

AB85). 

85Chollet, D., Mathematica Policy Research, 

‘‘Association Health Plans and Community-Rated 

Small Group Health Insurance in Washington StateFinal Report,’’ (September 30, 2011), http://

www.statecoverage.org/files/Mathematica_assoc_

healthplans_WA.pdf. 

86Washington State generally requires AHPs to be 

insured, rather than self-insured. 

87Self-insurance entails operational risk. Selfinsured AHPs sometimes may face more operational 

risk than self-insured large employers, for two 

reasons. First, for a given size, an AHP’s claims may 

be more volatile than a large employers’ insofar as 

the AHP is more exposed to unanticipated favorable 

or adverse selection. Second, while premiums 

generally represent the totality of an AHP’s 

available revenue, a large employer may be able to 

tap other revenue sources to cover claims volatility, 

as it would any other unexpected business expense. 

AHPs’ efforts to manage these operational risks will 

limit the savings available from self-insurance. 

geographically based organizations, 

such as local chambers of commerce, 

that lend themselves to sponsoring 

AHPs, but cannot under the 

Department’s pre-rule guidance. Under 

that guidance, such organizations could, 

and sometimes did, help their members 

purchase health insurance in the 

individual and small group markets. 

However, ACA and State laws and 

regulations governing individual and 

small group markets limit both the 

propensities of such organizations to 

undertake group purchasing of health 

insurance and the economies of scale 

that such organizations can achieve 

from group purchasing. This final rule 

will enable such geographically-based 

organizations to sponsor AHPs (plan 

MEWAs). 

The large group market’s regulatory 

flexibility is likely to encourage and 

enable more existing organizations to 

pursue more potential scale advantages 

for small business members. These 

might include some MEWAs that 

currently do not constitute single large 

group plans but instead encompass 

multiple plans, each sponsored 

separately by a participating employer 

(hereafter ‘‘non-plan MEWAs’’). In 2016, 

one non-plan MEWA covered more than 

50,000 enrollees in Connecticut. A 

second covered more than 100,000 

across 22 States and more than 20,000 

in Tennessee alone.83 These and other 

heretofore non-plan MEWAs might 

qualify to become AHPs with large local 

market shares under this final rule. The 

final rule will also encourage the 

establishment of new organizations to 

sponsor AHPs, and will enable both 

existing and new AHPs to extend 

membership to working owners. 

Under favorable conditions, AHPs 

may achieve other economies of scale. 

For example, small group and 

individual insurance sometimes can be 

beset by high distribution costs, 

reflecting for example commissions paid 

to agent and brokers who sell policies, 

possibly amplified by churning of small 

businesses into or out of the market or 

between issuers. AHPs, unlike large 

employer plans, must themselves incur 

some cost to distribute insurance to 

large numbers of small businesses. 

However, relative to traditional health 

insurance issuers and agents, some 

AHPs might reduce these costs, for 

example if they are able to take 

economic advantage of members’ 

existing ties to the sponsoring group or 

association and/or if they are more able 

or inclined than traditional issuers and 

agents to minimize churn. Little hard 

data exists on the degree to which such 

scale advantages might flow to future 

AHPs, due to a rapidly changing 

marketplace and the restrictive 

requirements imposed on AHPs before 

this rule. Several commenters argued 

that these advantages have been elusive 

in the past, and under this rule are 

likely to be small and available only 

under certain favorable conditions. One 

such public comment stated that where 

available, ‘‘administrative savings of 

more than 2–3 percent appear to be 

highly unlikely . . . .’’ 84

Administrative savings of 2–3 percent of 

total insurance premiums is nonetheless 

significant. 

A 2011 report 85 found that in 

Washington State, issuers’ 86 average 

loss ratio was a bit higher (and 

administrative costs therefore likely 

lower) for AHP-affiliated small groups 

than for community-rated small groups. 

However, the report notes that this 

difference is ‘‘consistent’’ with the 

larger average size of AHP-affiliated 

small groups. For similarly sized small 

groups, issuers’ loss ratios were similar 

for the AHP and community-rated 

segments. It is difficult to infer from this 

data point whether Washington State 

AHPs enjoy true administrative 

efficiencies relative to traditional 

individual and small group issuers. On 

one hand, the same report indicates that 

AHP premiums were substantially lower 

than the premiums that issuers charged 

small businesses outside of AHPs. If 

AHPs’ premiums are lower and loss 

ratios are the same, then all else equal, 

AHPs’ administrative costs are likely to 

be lower, if measured in dollars per 

member. Lower administrative costs 

might be evidence of greater 

administrative efficiency, but 

alternatively might be explained by the 

lighter regulatory load on AHPs, or by 

a difference in the administrative 

demands associated with insuring the 

AHPs’ population (which might use less 

healthcare) or providing AHP benefits 

(which might be less comprehensive). In 

addition, it is unclear whether these loss 

ratios take into account administrative 

costs that may reside with the group or 

association rather than with the issuer. 

Large AHPs sometimes may achieve 

savings by offering self-insured 

coverage. Because large group plans in 

and of themselves constitute large and 

potentially stable risk pools, it often is 

feasible for them to self-insure rather 

than to purchase fully-insured large 

group insurance policies from licensed 

health insurance issuers. Large risk 

pools’ claims experience generally 

varies only modestly from year to year, 

so well-run large group plans can set 

premiums and operate with little risk of 

financial shortfalls. By self-insuring, 

AHPs sometimes may avoid the 

transaction cost associated with buying 

large group insurance from an issuer 

and the cost associated with the issuer’s 

profit margin. They sometimes may 

avoid the potentially significant cost to 

comply with State rules that apply to 

large group issuers, including for 

example premium taxes, benefit 

mandates, market conduct rules, and 

solvency standards. Under this final 

rule, however, States retain authority to 

extend such rules to self-insured AHPs, 

and AHPs will be subject to ERISA 

requirements that demand sound 

financial management.87

While some AHPs may achieve 

significant administrative efficiencies 

for their small business members from 

economies of scale, the magnitude of 

such savings is likely to be smaller than 

the savings AHPs can deliver by offering 

more tailored, less comprehensive 

benefits, offering actuarially fair price 

discounts to low-risk groups, and 

assembling favorable risk pools. Some 

AHPs will successfully deliver 

economic value to their members even 

if these AHPs have relatively high 

administrative costs. Consequently, 

while some AHPs may deliver 

significant savings for their members 

from economies of scale, other AHPs 

may not deliver such savings or may 

even increase administrative costs. 

6. Risk Segmentation 

As noted above, AHPs established 

under this final rule will enjoy 

regulatory flexibility to design more 

tailored, less comprehensive health 


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88Chollet, D., Mathematica Policy Research, 

‘‘Association Health Plans and Community-Rated 

Small Group Health Insurance in Washington StateFinal Report,’’ (September 30, 2011), http://

www.statecoverage.org/files/Mathematica_assoc_

healthplans_WA.pdf. 

89See comment letter from the American 

Academy of Actuaries, February 9, 2018, (Comment 

#106 on EBSA web page last accessed at https://

www.dol.gov/sites/default/files/ebsa/laws-andregulations/rules-and-regulations/publiccomments/1210-AB85/00106.pdf). 

coverage and price it in a more 

actuarially fair manner than health 

insurance issuers can in the ACAcompliant individual and small group 

markets. Thus, AHPs will be able to 

offer lower premiums to many small 

businesses by offering actuarially fair 

price discounts to lower risk groups, 

consistent with applicable 

nondiscrimination provisions. 

AHPs’ exercise of their relative 

flexibility will lead to some degree of 

favorable risk selection toward AHPs 

and adverse selection against individual 

and small group markets. This risk 

segmentation will increase premiums 

somewhat in ACA-compliant individual 

and small group markets. The 

Department’s Proposed Rule identified 

these considerations, reviewed mixed 

evidence on the likelihood and extent of 

risk segmentation, and predicted that 

the proposal’s nondiscrimination rules 

together with AHPs’ potential to deliver 

savings from scale advantages would 

substantially limit, but not entirely 

eliminate, such risk segmentation. Some 

commenters, however, asserted that 

even with the benefit mandates that 

apply in the large group market and the 

nondiscrimination rules included in 

this final rule, many AHPs, by design 

and/or in response to market forces, 

unless prevented by State regulation, 

will assemble disproportionately 

favorable risk pools and thereby subject 

local individual and small group 

markets to adverse selection and 

premium increases. After evaluating 

these comments, the Department 

believes that AHPs’ scale advantages 

generally will be insufficient to limit 

risk segmentation. This final rule’s 

nondiscrimination provisions will 

reduce, but not eliminate, AHPs’ risksegmentation effects. 

Under this final rule, AHPs’ ability to 

segment risks will be limited by a 

number of forces. An AHP that forms 

under this final rule, and that may 

enroll otherwise unrelated small 

businesses and working owners, cannot 

adjust employer members’ premiums 

based on their respective employees’ 

health status. States may take additional 

steps to limit AHPs’ risk segmentation 

effects, which would limit the ability to 

set actuarially fair prices and might 

limit AHP formation. AHPs are 

controlled by their members and, 

therefore, in some cases, AHPs’ belief 

that their members are better off and 

their reputation is enhanced by offering 

broader benefit packages with more 

community-rated prices, may weigh 

against the competitive pressure to 

calibrate benefits and prices to avoid 

bad risks. Likewise, very large AHPs’ 

size sometimes may itself blunt this 

pressure. Finally, risk selection efforts 

are subject to increasing costs and 

diminishing returns. 

Nevertheless, AHPs established under 

the final rule will, within the general 

rules applying to large group plans and 

the specific nondiscrimination 

provisions in this final rule, by escaping 

some ACA pricing restrictions and 

forced cross-subsidies, will tend to 

segment risks. Relative to ACAcompliant issuers in the individual and 

small group markets, AHPs can offer 

more actuarially fair (and potentially 

much lower) prices to lower risk groups 

based, for example, on age, gender, or 

industry. Moreover, AHPs additionally 

can design health coverage to attract 

lower risk groups. At the same time, the 

Department finds that risk segmentation 

will be limited for reasons discussed 

above and further in this section. While 

under this final rule AHPs and large 

employer plans will have a similar 

federal regulatory environment, their 

economic incentives will be different. 

Large employers design and price health 

benefit offers to recruit and retain 

productive workers and to maximize 

those workers’ productivity. 

Consequently, large employers typically 

offer heavily subsidized comprehensive 

health coverage for employees and their 

families. In contrast, AHPs will design 

and price offers for their members in 

competition with more heavily 

regulated individual and small group 

issuers, and possibly with one another. 

This favors actuarial pricing that 

accurately reflects risk differences 

between, for example, genders, age 

groups, and industries, and more 

tailored, often less comprehensive 

benefits, insofar as such pricing and 

benefits will attract favorable risk pools 

and facilitate lower premiums. 

Some groups or associations may 

prefer to provide comprehensive 

benefits at community rates that do not 

discriminate among members by age or 

gender. Such groups or associations 

might be motivated by a sense of 

obligation toward or solidarity among 

members, such as workers with a 

common trade. Trade unions 

historically have negotiated 

comprehensive multiemployer benefit 

arrangements with large numbers of 

small and medium sized companies, 

with costs allocated based on hours 

worked rather than on actuarial factors. 

On the other hand, AHPs may be more 

vulnerable than union-negotiated 

arrangements to competition from other 

groups or associations more willing to 

use actuarial pricing and/or benefit 

limitations to provide potential savings 

for many of the same members. Such 

competitive pressure may force groups 

or associations to adopt actuarial pricing 

reflecting risk and limited benefits as 

defenses against adverse selection. 

Groups or associations that naturally 

comprise relatively favorable and 

homogenous risk pools may be best able 

to sustain nondiscrimination in rate 

setting, because they will enjoy savings 

that can be shared widely, and can 

spread thinly across young and healthy 

members the costs attributable to the 

few needing expensive care. Such 

AHPs, however, while refraining from 

discrimination internally, could 

increase adverse selection against local 

individual and small group markets. 

AHPs historically have utilized 

actuarial pricing. According to 

comments, existing AHPs often rate 

employer members based on health 

factors such as claims, and need 

flexibility to do so to ensure their 

success. Nearly all AHPs in Washington 

State experience rate.88 AHPs operating 

under this new rule may not adjust 

prices actuarially for health status, but 

only for non-health factors such as age, 

gender, and industry. AHPs that under 

this rule extend eligibility to working 

owners may face even greater 

competitive pressure to limit benefits, 

because individual markets generally 

are more susceptible than small group 

markets to adverse selection. 

One comment 89 provided a 

conceptual framework for assessing the 

implications of AHPs’ relative pricing 

flexibility and predicted that AHPs 

would segment risks under the 

Proposed Rule. The comment calls 

attention to certain factors related to 


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90With respect to rating, the comment identifies 

six factors: (1) Age, (2) industry/occupation, (3) 

geography, (4) gender, (5) group size, and (6) 

separateness of the risk pool. The comment 

indicates that relative to individual and small group 

issuers, AHPs ‘‘could offer lower premiums to 

younger adults and higher, less attractive premiums 

to older people,’’ but also might set premiums for 

newborns substantially higher than for older 

children (the ACA requires all children under 14 to 

be rated together). The comment continues that 

AHPs’ unique ability to vary rates by industry or 

occupation will advantage them over issuers. 

Geographically, health insurance issuers must all 

rate evenly within the same state-specified zones, 

but AHPs could use different zones and might, for 

example, split a state zone into smaller segments to 

reflect cost differences. AHPs might additionally set 

higher rates for smaller groups (of say, fewer than 

10), and for women of child-bearing age. 

91With respect to plan design, the comment notes 

that AHPs might limit covered services, network 

size or composition, or impose higher cost sharing 

(which, if the plan is not grandfathered, would still 

be subject to the limitations on out-of-pocket costs 

imposed by PHS Act 2707), all of which could 

contribute to favorable risk selection. 

92The comment emphasizes that AHPs’ success 

and effects could vary widely depending on the 

local regulatory environment, and on the AHP’s 

ability to compete with local issuers on dimensions 

including reputation, provider networks (and 

associated provider discounts), care management, 

and administration. 

93See comment letter from BlueCross BlueShield, 

March 6, 2018 (Comment #549 on EBSA web page 

last accessed at https://www.dol.gov/sites/default/ 

files/ebsa/laws-and-regulations/rules-andregulations/public-comments/1210-AB85/ 

00549.pdf). According to the comment, all else 

equal, AHPs may rate the engineering services 

industry 9 percent lower than issuers operating 

under individual and small group market rules, and 

may rate the taxicab industry 15 percent higher. 

AHPs may rate men in their 20s more than 40 

percent lower than would be consistent with 

individual and small group market rules, and may 

rate women in their late 20s and 30s more than 30 

percent higher. This suggests, for example, that 

AHPs are likely to enroll more male than female 

working owners, disproportionately leaving women 

(and their maternity-related costs) in local 

individual markets. 

94See comment letter from Mark A. Hall, 

Professor of Law and Public Health, Wake Forest 

University School of Law, Feb 16, 2018, (Comment 

#146 on EBSA web page last accessed at https://

www.dol.gov/agencies/ebsa/laws-and-regulations/ 

rules-and-regulations/public-comments/1210- 

AB85). According to the comment, Kentucky 

implemented market reforms but exempted AHPs 

from these reforms, including rating reforms. This 

resulted in healthy people seeking coverage through 

associations, which were not community rated. 

This left unhealthy people to seek coverage in the 

regulated markets. Carriers began canceling health 

insurance policies and fleeing the state, leaving a 

decimated market. The same commenter expressed 

concerns that AHPs cannot duplicate large 

employers’ advantages with respect to the 

composition and stability of risk pools, because 

each small business will select insurance options 

based on its own anticipated medical needs and 

premium offers. 

95Avalere Health, Association Health Plans: 

Projecting the Impact of the Proposed Rule at 3, 5– 

7 (Feb. 28, 2018), available at http://go.avalere.com/ 

acton/attachment/12909/f-052f/1/-/-/-/-/ 

Association%20Health%20Plans%20

White%20Paper.pdf. 

96U.S. Congressional Budget Office, ‘‘Federal 

Subsidies for Health Insurance Coverage for People 

Under Age 65: 2018 to 2028.’’ https://www.cbo.gov/ 

system/files/115th-congress-2017-2018/reports/ 

53826-healthinsurancecoverage.pdf. The 

Department did not rely on the information 

contained in the CBO report, which was released 

after the comment period had closed, to reach its 

conclusions regarding the effects of the final rule on 

premiums, but notes that the CBO’s findings are 

consistent with other evidence available to the 

Department. 

97See letter from Oliver Wyman to Mila Kofman, 

February 21, 2018 regarding ‘‘the potential impact 

of association health plans in the District of 

Columbia.’’ The Department notes that the DC 

market is unusual and might not be an appropriate 

reference to understand national implications. The 

DC Exchange covers approximately 17,000 people 

of whom 80 percent of are unsubsidized (almost the 

opposite of the rest of the country). Consequently 

AHPs’ effects may be less acute on a national level 

than in DC. 

98See comment letter from the Massachusetts 

Division of Insurance and Massachusetts’s StateBased Marketplace, March 6, 2018 (Comment #600 

on EBSA web page last accessed at: https://

www.dol.gov/sites/default/files/ebsa/laws-andregulations/rules-and-regulations/publiccomments/1210-AB85/00600.pdf. 

99These estimates use the Avalere Health report 

for estimates of the 2022 changes in premiums, and 

the number of individuals leaving the individual 

and small group markets to join an AHP. The 

Department estimates that there are about 25 

million individuals with coverage in the individual 

market and 25 million individuals in the small 

group markets. The CBO estimates that by 2022 

there will be 5 million fewer individuals in the 

individual market and 2 million few individuals in 

the employer-based market due to the repeal of the 

individual mandate. As not all individuals leaving 

the employer market place are in the small group 

market an estimate of one million is used for the 

number of individuals no longer being covered in 

the small group market due to the repeal of the 

individual mandate. The following calculations 

where used to obtain the estimates. For the 

individual market: Low estimate, 

(25,000,000¥5,000,000¥710,000) * ($14,900 * 

(1¥(1/1.027))); high estimate, 

(25,000,000¥5,000,000¥1,110,000)* ($15,000 * 

(1¥(1/1.04))). For the small group market: low 

estimate, (25,000,000¥1,000,000¥1,650,000,000) * 

($8,100 * (1¥(1/1.001))); high estimate, 

(25,000,000¥1,000,000¥3,200,000) * ($8,300 * 

(1¥(1/1.019))). 

100 Karen Bender and Beth Fritchen, ‘‘Impact of 

Association Health Plan Legislation on Premiums 

and Coverage for Small Employers,’’ Mercer Risk, 

Finance and Insurance report prepared for the 

National Small Business Association, 2003. 

101 James R. Baumgardner and Stuart A Hagen, 

‘‘Predicting Response to Regulatory Change in the 

Small Group Health Insurance Market: The Case of 

Association Health Plans and Healthmarts,’’ Inquiry 

2001/2002, 38(4), 351–364. 

102 Georgetown University Health Policy Institute, 

Center on Health Insurance Reforms,’’ State Options 

to Protect Consumers and Stabilize the Market: 

Responding to President Trump’s Executive Order 

on Association Health Plans,’’ December 2017. 

rating,90 plan design,91 and other 

considerations.92 One comment points 

out that the flexibility AHPs will have 

to, for example, cover certain trade 

groups, will result in the ability to offer 

more affordable care to those groups 

than individual and small group issuers. 

AHPs also may offer substantially lower 

premiums to younger men and 

substantially higher premiums for 

younger women.93 One comment points 

to market experience as evidence that 

AHPs could threaten risk pools. The 

comment argues that AHPs’ scale 

advantages will be insufficient to offset 

their large incentives to avoid worse 

health risks. The comment cites a 

market collapse in Kentucky in the 

1990s to illustrate concerns about 

market dynamics and regulation.94

A publicly available report estimated 

that under the Department’s proposal, 

nationwide by 2022 AHPs would 

increase overall premiums in individual 

markets by between 2.7 percent and 4.0 

percent, and in small group markets by 

between 0.1 percent and 1.9 percent.95

(A more recent report estimated that 

AHPs, together with the separate 

proposal to expand short-term, limited 

duration insurance policies, would 

increase premiums in individual and 

small group markets by from 2 percent 

to 3 percent.96) A separate estimate 

predicted that AHPs available to all 

Washington, DC employers would 

increase premiums in the local 

individual market by 5 percent and 

small group market by 10 percent, or 

possibly by more if high cost employers 

do not consider joining AHPs.97 Yet 

another predicts that premiums in 

Massachusetts’ combined individual 

and small group markets could increase 

by more than 10 percent in the first 

year.98 If the first of these sets of 

estimates is correct, individuals 

remaining in the individual and small 

group markets could see a combined 

premium increase of between $7.7 

billion and $14.1 billion, due to the 

reduction in cross subsidization. This 

would also be the amount of the crosssubsidization those leaving to join an 

AHP were providing in those markets 

and they will now be able to retain.99

Some analysts examining federal AHP 

legislation considered in the early 2000s 

likewise pointed to the potential for risk 

segmentation, but disagreed over the 

likely magnitude. One report concluded 

that premiums for firms in Stateregulated markets would increase by 23 

percent.100 A different study of separate 

but largely similar legislation predicted 

that these premiums would increase by 

just 2 percent.101 It is unclear whether 

the disagreement is attributable to 

differences in AHPs’ expected size or 

expected degree of favorable selection, 

or other factors. However, the relevance 

of the reports is diminished by the fact 

that they were written well before the 

passage of legislation such as the ACA 

and the substantial changes to the 

health markets that have occurred in the 

interim. 

A more recent report 102 discussing 

the impact of AHPs on the individual 


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103 Kevin Lucia, Sandy Ahn, and Sabrina Corlette, 

‘‘Federal and State Policy Toward Association 

Health Plans in Oregon,’’ Robert Wood Johnson 

Foundation and Urban Institute, October 2014. 

104See comment letter from Aetna, March 6, 2018 

(Comment # 472 on EBSA web page last accessed 

at https://www.dol.gov/sites/default/files/ebsa/lawsand-regulations/rules-and-regulations/publiccomments/1210-AB85/00472.pdf). 

105The Department notes that, of course, AHPs 

must provide special enrollment periods under 

certain circumstances. For example, current 

employees and their dependents that have 

experienced a loss of coverage must have an 

opportunity to enroll in the plan under a special 

enrollment period if they are otherwise eligible to 

enroll and the coverage was previously offered at 

a time when the employee had other health 

coverage. Additionally, special enrollment periods 

must be provided for certain dependent 

beneficiaries who experience a qualifying life event 

such as marriage, birth, or adoption. See ERISA 

section 701(f) and 29 CFR 2590.701–6. In addition, 

a group health plan, and health insurance issuer 

offering group health insurance coverage, must not 

apply any waiting period that exceeds 90 days. See 

PHS Act section 2708 and ERISA section 715. See 

also 29 CFR 2590.715–2708. 

106See comment letter from State of Washington, 

Office of Insurance Commissioner, March 6, 2018 

(Comment # 531 on EBSA web page last accessed 

at https://www.dol.gov/sites/default/files/ebsa/lawsand-regulations/rules-and-regulations/publiccomments/1210-AB85/00531.pdf; See also comment 

letter from Forterra Inc., on behalf of its parent 

company, the Association of Washington Business, 

March 6, 2018 (Comment #577 on EBSA web page 

last accessed at https://www.dol.gov/sites/default/ 

files/ebsa/laws-and-regulations/rules-andregulations/public-comments/1210-AB85/ 

00577.pdf; See also Chollet, D,. Mathematica Policy 

Research, ‘‘Association Health Plans and 

Community-Rated Small Group Health Insurance in 

Washington State-Final Report,’’ at p. 20 

(September 30, 2011), http://

www.statecoverage.org/files/Mathematica_assoc_

healthplans_WA.pdf; See also comment letter from 

the Robert Wood Johnson Foundation, March 3, 

2018 (Comment #334 on EBSA web page last 

accessed at https://www.dol.gov/sites/default/files/ 

ebsa/laws-and-regulations/rules-and-regulations/ 

public-comments/1210-AB85/00334.pdf; See also 

Kevin Lucia, Sandy Ahn, and Sabrina Corlette, 

‘‘Federal and State Policy Toward Association 

Health Plans in Oregon,’’ Robert Wood Johnson 

Foundation and Urban Institute, October 2014. 

107 Kevin Lucia, Sandy Ahn, and Sabrina Corlette, 

‘‘Federal and State Policy Toward Association 

Health Plans in Oregon,’’ Robert Wood Johnson 

Foundation and Urban Institute, October 2014. 

108Chollet, D., Mathematica Policy Research, 

‘‘Association Health Plans and Community-Rated 

Small Group Health Insurance in Washington StateFinal Report,’’ (September 30, 2011), http://

www.statecoverage.org/files/Mathematica_assoc_

healthplans_WA.pdf. 

109Under that guidance, AHPs sponsored by 

associations formed for the purpose of providing 

health coverage generally did not constitute single, 

large group plans under ERISA. Instead under 

ERISA such arrangements generally constituted 

MEWA encompassing multiple separate plans 

sponsored by the MEWAs participating employers. 

Prior to the implementation of the ACA, this status 

under ERISA did not prevent states from 

recognizing such AHPs as large groups under state 

law or otherwise excepting them from state rules 

that governed small group insurers. 

and small group market notes that States 

may require AHPs to comply with ‘‘key 

insurance market standards and 

practices’’ that limit risk segmentation, 

such as State individual and small 

group market rules. The report notes 

that such steps could protect local 

markets from adverse selection, but 

would also diminish AHPs’ ability to 

deliver choice and savings for their local 

members. 

While some comments and other 

evidence support the conclusion that 

AHPs’ flexibility under this rule will 

lead to risk segmentation, the comments 

do not allow the Department to predict 

its extent. Furthermore, many comments 

also affirm that this rule’s application of 

nondiscrimination rules to AHPs 

established under this final rule will 

reduce its degree. Experience in Oregon 

under the ACA suggests that AHPs 

operating under the Department’s prerule guidance have taken advantage of 

available flexibility to vary individual 

small businesses’ premiums to reflect 

their respective expected costs more 

widely and based on more factors than 

permitted in individual and small group 

markets.103 However, AHPs that gain 

large group status only under this final 

rule will not retain flexibility to adjust 

individual member employers’ rates 

based on health status. 

AHPs’ potential to attract a favorable 

risk pool is limited by a number of 

factors, and AHPs themselves 

sometimes may suffer some degree of 

adverse selection. The 

nondiscrimination provisions of this 

final rule limit AHPs’ ability to set 

actuarially appropriate prices. In 

addition, AHPs’ efforts to select 

favorable risks generally would yield 

diminishing returns; that is, there is a 

point beyond which additional selection 

efforts would themselves cost more than 

could be justified by any savings from 

attendant selection results. AHPs under 

this final rule generally may not 

condition employer members’ 

eligibility, benefits, or premiums on 

their employees’ health factors. AHPs 

generally can condition these things on 

many other factors, including for 

example age, gender, industry, 

occupation, and geographic location. 

These factors do not fully correlate with 

health status, however, and there may 

be declining returns and/or increasing 

administrative costs associated with 

more aggressive and granular use of 

these factors to select risk. A similar 

argument may apply with respect to 

AHPs’ use of benefit design or tailored 

marketing to select risks. 

AHPs that are barred from adjusting 

employer members’ rates based on 

health status (namely, those that qualify 

as large group plans under this final rule 

but not under the Department’s pre-rule 

guidance) are likely to face some 

potential for adverse selection, 

particularly where competing with other 

AHPs and/or other non ACA-compliant 

plans for some of the same enrollees. At 

least one comment notes that AHPs, 

while vulnerable to adverse selection, 

would be without applicable ‘‘offsetting 

stabilization mechanisms’’ such as the 

‘‘subsidies, risk adjustment, 

reinsurance, open enrollment 

provisions, and coverage mandate’’ that 

the ACA provided in individual and 

small group markets.104 To limit AHPs’ 

vulnerability to adverse selection, this 

final rule allows them to exclude 

working owners and to limit annual 

open enrollment opportunities 105 as 

suggested by some commenters. AHPs 

also may pursue a strategy of limiting 

benefits in order to protect against 

adverse selection. 

Comments also demonstrate that 

successful AHPs can coexist with stable 

and viable individual and small group 

markets, even if those AHPs operate 

under looser rules, are able to set more 

actuarially fair prices, and realize some 

degree of favorable selection relative to 

local small group markets. Comments 

and other public evidence suggest that 

such conditions now prevail in some 

form in Oregon and Washington State, 

for example.106

A 2014 report examines Oregon’s 

AHP market.107 Before the ACA, Oregon 

exempted AHP coverage from 

individual and small group market 

rules. Oregon later eliminated this 

exemption, but AHPs that qualify as 

single, large group plans under ERISA 

remained outside the relevant rules, and 

many Oregon AHPs claimed this status, 

the report says. These AHPs tended to 

rate employer members on health status 

or claims experience, and other factors 

not allowed in individual or small 

group markets, and such pricing 

flexibility gave AHPs ‘‘a competitive 

edge . . . particularly with healthy 

small groups.’’ The report predicted that 

AHPs would grow. 

A 2011 report 108 documented AHPs’ 

‘‘robust’’ role in Washington’s markets 

in the years leading up to the passage of 

the federal ACA. Washington, unlike 

many other States (and notwithstanding 

the Department’s contrary past guidance 

with respect to MEWA’s status under 

ERISA 109), historically had recognized 

AHPs sponsored by associations formed 

for the purpose of providing insurance. 

It required AHPs to be insured (rather 

than self-insured), but exempted issuer 

sales through AHPs from small group 

rating rules, allowing them to rate on 

claims experience, health status, gender, 

non-standard age factors, and other 


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110This may affect premiums in two ways. First, 

per-member administrative costs may decrease with 

(small) group size. Second, very small groups 

generally subject insurers to more adverse selection 

than somewhat larger groups. 

111From 2005 to 2008, enrollment in AHPs 

increased 11 percent, while enrollment in the large 

group and community rated small group market 

decreased nearly 12 percent resulting in an overall 

decline in group coverage during this period. As a 

result, 87,000 fewer workers and dependents (-5.2 

percent) were enrolled in any insured group 

coverage in 2008 than in 2005. Source: Chollet, D., 

Mathematica Policy Research, ‘‘Association Health 

Plans and Community-Rated Small Group Health 

Insurance in Washington State-Final Report,’’ 

(September 30, 2011), http://

www.statecoverage.org/files/Mathematica_assoc_

healthplans_WA.pdf. For reference, at the same 

time nationally, the number of private employees 

enrolled in their employers’ insurance plans grew 

from 61 million to 63 million. See Medical 

Expenditure Panel Survey, Insurance Component, 

2016 Chartbook, U.S. Agency for Healthcare Quality 

and Research, September 2017, https://

meps.ahrq.gov/data_files/publications/cb21/ 

cb21.pdf. 

112Under the rule, working owners must earn 

wages or self-employment income from the trade or 

business for providing personal services to the trade 

or business and either (1) work at least 20 hours per 

week or at least 80 hours per month providing 

personal services to the trade or business, or (2) 

earn income from the trade or business that at least 

equals the working owner’s cost of coverage for the 

working owner and any covered beneficiaries in the 

group health plan sponsored by the group or 

association in which the individual is participating. 

113Agency for Healthcare Research and Quality, 

Center for Financing, Access and Cost Trends. 

Medical Expenditure Panel Survey-Insurance 

Component, 2012–2016. Medical Expenditure Panel 

Survey Private Sector Insurance Component, Table 

II.A.2. In 2016, among employees of firms with 

fewer than 50 employees, just one in four were 

enrolled in insurance on the job. Nearly one-half 

worked at firms that did not offer insurance. 

Agency for Healthcare Research and Quality 

(AHRQ), 2016 Medical Expenditure Panel Survey 

Insurance Component (MEPS–IC) Tables. 

Nonetheless, just 18 percent of small firm 

employees were uninsured. Many obtained 

insurance from a spouse’s or parent’s employer. The 

Department’s calculations are based on the Abstract 

of Auxiliary Data for the March 2016 Annual Social 

and Economic Supplement to the Current 

Population Survey, U.S. Department of Labor. 

114These estimates were derived from the 

Abstract of Auxiliary Data for the March 2016 

Annual Social and Economic Supplement to the 

Current Population Survey, U.S. Department of 

Labor. The Department revised its methodology in 

estimating the universe of potential individuals 

affected by the regulation between the proposed 

and final rule. The initial estimates did not restrict 

the definition of working owners to those working 

at least 20 hours per week, and so this restriction 

was added, which reduced the number of working 

owners and their dependents from 20 million in the 

proposal to 15 million in the final. Additionally, in 

the Proposed Rule, current source of insurance for 

dependents of working owners and employees at 

small firms not offered insurance were only 

Continued 

variables that were prohibited in the 

community-rated small group market. 

AHPs operated both within and across 

industries, and covered both large and 

small employers. In 2008 AHPs claimed 

approximately one-half of Washington’s 

small group market and more than onethird of its combined small and large 

group market. For small groups, the 

report found that AHP premiums ($246 

per member per month) were lower than 

community rated premiums ($316 per 

member per month). This difference 

‘‘likely’’ is attributable mostly to risk 

segmentation favoring AHPs over 

community-rated small group markets 

and ‘‘the larger size of AHP small 

groups relative to community rated 

small groups,’’ 110 and partly to less 

comprehensive benefits, the report says. 

The medical loss ratio was a bit higher 

(and administrative costs therefore 

likely lower) for AHP small groups than 

for community rated small groups, but 

the report notes that this difference is 

‘‘consistent’’ with (and so might be 

attributable to) the larger average size of 

AHP small groups. This suggests that 

AHPs enjoyed either no or little 

administrative cost advantage over 

unaffiliated small groups. AHPs tended 

to rate based on health status (60 

percent of enrollees) and/or claims 

experience (87 percent of enrollees). 

AHP growth in Washington was more 

than offset by contraction of other group 

coverage.111 AHPs’ historically 

substantial market share in Washington 

State stands as evidence that they 

delivered economic advantage to many 

small businesses there relative to 

choices available in community rated 

small group markets. However, it is 

likely that some or much of this 

advantage came at the expense of other 

small businesses that paid higher prices 

in community-rated markets, or went 

without insurance. 

Washington AHPs’ experience may 

differ from new AHPs’ experience under 

this final rule, for many reasons. For 

example, Washington’s experience 

generally is limited to the small group 

market, while new AHPs can offer 

coverage to working owners who may 

now be purchasing in individual 

markets, where the potential both for 

savings for AHP enrollees and adverse 

selection against other risk pools will be 

different and possibly greater. In 

addition, while Washington AHPs have 

rated members based on health status, 

AHPs operating under this final rule 

cannot, so such AHPs’ potential to offer 

targeted savings and select risk relative 

to small group markets are more limited. 

The impact of this final rule on State 

individual and small group risk pools is 

highly dependent on State regulatory 

practices. States under this final rule 

retain broad authority to pursue steps to 

optimize AHPs’ role in their local 

markets. 

In response to requests in comments 

on the Proposed Rule, this final rule 

makes clear that AHPs can attach 

rewards and penalties to individual 

enrollees’ participation in wellness 

programs. These rewards and penalties 

are separate from (and may add to or 

offset) pricing differences based on risk 

factors such as age, gender or industry. 

Under federal rules, financial rewards or 

penalties can be as much as 30 percent 

of an enrollee’s total premium, or 50 

percent where the additional 20 

percentage points are associated with 

tobacco use. Wellness programs must be 

designed to promote health, and not to 

penalize or screen out individuals in 

poor health. Their rewards must be 

reasonably available to all. In practice, 

however, some permissible program 

designs and practices nonetheless may 

tend to deliver fewer rewards or more 

penalties to less healthy individuals, 

who, relative to healthier individuals, 

may on average find participation to be 

more costly or less appealing. 

Consequently, while AHPs operating 

under this new rule may not condition 

premiums on health status, some AHPs’ 

wellness programs in practice may have 

a disparate negative impact on those in 

poorer health. Such wellness programs 

sometimes could yield additional 

favorable selection toward AHPs. 

The Department believes that the 

provisions of this rule and States’ broad 

authority to adjust local rules, combined 

with the attendant benefits of extending 

insurance to small businesses and 

working owners, strike the right balance 

to both limit and justify consequent 

adverse selection against local markets. 

7. Individual and Small Group Markets 

The Department separately 

considered AHPs’ potential impacts on 

both the individual and small group 

markets. With respect to individual 

markets, many of those insured there 

now might become eligible for AHPs.112

AHPs operating under this final rule 

could enroll both working owners and 

the employees of small businesses that 

do not currently offer insurance but 

elect to join AHPs and begin offering 

insurance. The latter group has grown as 

small firms’ propensity to offer health 

coverage for employees has declined 

substantially from 47 percent of 

establishments in 2000 to 29 percent in 

2016.113 Of the 25 million U.S. 

individuals under age 65 who were 

insured in individual markets in 2015, 

approximately 3 million were working 

owners or dependents thereof, and an 

additional 12 million were employees of 

small businesses or dependents thereof. 

With respect to small group markets, 

essentially all insured businesses might 

become eligible for AHPs. In 2015, firms 

with fewer than 50 employees insured 

25 million workers and dependents.114


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counted if they were the same as family member 

identified as having potential AHP access. For the 

final rule, dependents’ source of insurance is 

counted whether or not their insurance matches. 

115For example, Iowa recently enacted legislation 

lowering barriers for certain AHPs. See Iowa 

SF2349—An Act Relating to Health Plans 

Established by Associations of Employers or 

Sponsored by Certain Agricultural Organizations, 

enacted on April 2, 2018. 

116For example, Massachusetts historically has 

limited AHPs flexibility. See comment letter from 

the Massachusetts Division of Insurance and 

Massachusetts’s State-Based Marketplace, March 6, 

2018 (Comment # 600 on EBSA web page last 

accessed at: https://www.dol.gov/sites/default/files/ 

ebsa/laws-and-regulations/rules-and-regulations/ 

public-comments/1210-AB85/00600.pdf. 

117 DOL calculations based on the Abstract of 

Auxiliary Data for the March 2016 Annual Social 

and Economic Supplement to the Current 

Population Survey, U.S. Department of Labor. 

118The report estimates that the Proposed Rule 

will result in a projected to shift of between 710,000 

and 1.1 million individuals out of the individual 

market, and 1.7 million to 3.2 million out of the 

small group market by 2022. It estimates that 2.4 

million individuals would move from the 

individual and small group markets combined and 

enroll in AHPs under a low enrollment scenario, 

while 4.3 million would move to AHPs under a 

high enrollment scenario. See Avalere Health, 

Association Health Plans: Projecting the Impact of 

the Proposed Rule at 3, 5–7 (Feb. 28, 2018), 

available at http://go.avalere.com/acton/

attachment/12909/f-052f/1/-/-/-/-/Association

%20Health%20Plans%20White%20Paper.pdf. 

These figures do not appear to include otherwise 

uninsured individuals but are estimates of 

movement to AHPs from both the individual and 

small group markets. 

While all of these individuals could 

become eligible for AHPs under this 

final rule, some are more likely than 

others to become eligible, and among 

those who do become eligible, some are 

more likely than others to enroll. 

The Proposed Rule described some 

relevant features of individual and small 

group markets under the ACA and 

existing State rules. Here the 

Department presents considerations 

raised by subsequent developments, 

comments on the Proposed Rule, and 

other newly identified information. 

Importantly, it considers the role of 

individual market subsidies, the 

reduction of the individual shared 

responsibility payment to $0 for those 

who do not have minimum essential 

coverage and do not have an exemption 

beginning in 2019, and the role of other 

(non-AHP) non ACA-compliant plans in 

individual and small group markets. 

AHPs’ impact on local individual 

markets is likely to differ based on 

market sub-segments and the effect of 

State regulation. To the extent not 

prevented by State rules, AHPs are 

likely to result in some adverse 

selection and associated premium 

increases in the individual and small 

group markets. States’ approaches are 

likely to vary widely and to range from 

steps that maximize AHPs’ flexibility 115

and impacts to those that minimize 

them.116

With respect to individual markets, as 

discussed earlier, consequent to this 

final rule premiums are likely to 

increase modestly on average. The 

increases might vary widely across local 

markets. As noted above, in 2015, 

approximately 3 million individual 

market enrollees were working owners 

or their dependents. It is likely that 

under this final rule AHPs will offer 

insurance to many of these individuals. 

AHP coverage offers generally are likely 

to be most affordable and attractive to 

categories of individuals with lower 

expected claims, such as young single 

men, and for the 1 million of the 3 

million working owners with incomes 

too high to qualify for subsidies on the 

Exchanges (more than four times the 

poverty threshold). 

Also as noted above, about 12 million 

people insured in individual markets 

were employees of small private 

businesses or dependents thereof. 

Among those, some strong candidates 

for AHP enrollment are those with 

incomes too high to qualify for premium 

tax credit subsidies whose small 

employers already offer them insurance, 

who number 800,000. Another 1.4 

million have offers from small 

employers but lower incomes. To the 

extent that their offers are affordable 

and provide minimum value, such 

individuals are ineligible for ACA 

subsidies on Exchanges and therefore 

likely to be strong candidates for AHP 

enrollment. The remaining 9 million are 

currently without offers from their small 

employers, and consequently would 

gain AHP eligibility if their small 

employers join an AHP to begin offering 

health coverage to these employees. 

However, a majority of these 9 million 

are eligible for subsidies on 

exchanges.117 Small employers 

generally are less likely to begin offering 

coverage to employees whose demand 

for such an offer is weak because they 

currently have access to subsidized 

comprehensive coverage. Because of 

this, AHPs will likely enroll only a 

portion of all current individual market 

enrollees with connections to small 

businesses. Notwithstanding these 

limitations, in light of the very large 

numbers of Americans who work for 

small employers, who are working 

owners, or who are dependents of 

employees of small employers or 

working owners, the Department 

expects AHPs to deliver health 

insurance to millions of people. 

Recent economic research shows that 

small businesses with 49 or fewer 

employees have a high after-tax price 

elasticity for offering employersponsored health insurance to their 

employees. For small businesses, a one 

percent reduction in the after-tax price 

would cause a 0.82 percent increase in 

the likelihood of offering employersponsored health insurance, the 

research found. For medium-sized 

business with 50 to 499 employees, a 

one percent reduction in the after-tax 

price would cause a 0.35 percent 

increase in the likelihood of offering 

employer-sponsored health insurance. 

For large businesses with 500 or more 

employees, however, the after-tax price 

elasticity for offering employersponsored health coverage is not 

statistically different from zero. The 

high after-tax price elasticity for small 

businesses cannot be directly applied to 

project a potential net increase in offers 

under the final rule, for two reasons. 

First, AHP coverage is likely to differ 

from ACA-compliant small group 

coverage not only with respect to price 

but also with respect to benefit design 

and comprehensiveness. Second, AHPs 

will set different premiums for different 

members conditional on cost related 

factors such as age, gender, and 

industry, so it is unclear whether the 

employers most inclined to respond to 

price decreases will see large or small 

decreases, or no decreases. Nonetheless, 

this research does corroborate the 

proposition that lower premiums from 

the expansion of AHP plans under the 

final rule will cause some small 

businesses that do not currently offer 

employer-sponsored health coverage 

through the ACA-compliant small-group 

market to begin offering employersponsored health coverage to their 

employees through AHPs. The 

Department did not rely on this research 

to reach any conclusions regarding the 

effects of the final rule on the likelihood 

that small businesses would begin 

offering health coverage through AHPs. 

Instead, the Department includes this 

information as a supplement to 

corroborate its findings. 

A publicly available report estimated 

that between 2.4 million and 4.3 million 

individuals would move from the 

individual and small group markets 

combined, and enroll in AHPs by 2022 

under a moderate enrollment scenario, 

between 710,000 and 1.1 million of 

which would move from the individual 

market.118 This estimate also projected 

significant premium decreases by 

moving to AHPs (between $1,900 to 

$4,100 lower than the yearly premiums 

in the small group market and $8,700 to 

$10,800 lower than the yearly premiums 

in the individual market by 2022, 


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119 It is likely that many (but not all) of these, 

especially working owners with low expected 

claims, will gain access to affordable, attractive 

offers from AHPs. 

120The reduction to $0 of the individual shared 

responsibility payment in 2019 is projected to 

decrease individual market insurance coverage by 

3 million in 2019 and 5 million by 2027. See 

Congressional Budget Office, ‘‘Repealing the 

Individual Health Insurance Mandate: An Updated 

Estimate’’ (November 2017), www.cbo.gov/ 

publication/53300. 

121Avalere Health, Association Health Plans: 

Projecting the Impact of the Proposed Rule at 3, 5– 

7 (Feb. 28, 2018), available at http://go.avalere.com/ 

acton/attachment/12909/f-052f/1/-/-/-/-/ 

Association%20Health%20Plans%20White

%20Paper.pdf. 

122See Sabrina Corlette, Jack Hoadley, Kevin 

Lucia, and Dania Palanker, ‘‘Small Business Health 

Insurance and the ACA: Views from the Market 

2017,’’ Robert Wood Johnson Foundation and 

Urban Institute, July 2017. For additional 

perspectives on small group markets under the ACA 

see Amy B. Monahan and Daniel Schwarcz, ‘‘Saving 

Small Employer Health Insurance,’’ Iowa Law 

Review Vol. 98:1935, 2013; and Deborah Chollet, 

‘‘Self-Insurance and Stop Loss for Small 

Employers,’’ Mathematica Policy Research, June 30, 

2012. 

123 Issuers and small employers in many locations 

so far have been allowed to retain plans that, under 

certain circumstances, under a transitional policy, 

are not considered to be out of compliance with 

certain ACA market reforms, whose prices are lower 

for low-risk groups than would be the case for plans 

that comply with those ACA market reforms. 

depending on the generosity of AHP 

coverage offered). This translates into 

aggregate premium decreases of between 

$9.3 billion and $25.1 billion, with the 

former corresponding to more generous 

AHP benefits. The Department does not 

have sufficient data to assess the 

accuracy of these estimates. 

A large majority of individuals 

insured on Exchanges will have some 

insulation from any premium increases 

resulting from the exit of individuals to 

AHPs, because the ACA provides a tax 

credit that in effect caps the premiums 

that those eligible taxpayers with 

household incomes at or below 400 

percent of the federal poverty level must 

pay on Exchanges for coverage in a 

benchmark ‘‘silver’’ plan with an 

actuarial value of approximately 70 

percent. That cap rises with income, to 

about $9,400 for a family of 4 at 400 

percent of the federal poverty level. 

Consequently such a family enrolling in 

the benchmark plan and facing a 

potential premium increase from a base 

of $9,400 or more would be largely 

insulated from that increase. 

Not all exchange participants will be 

fully insulated from increases in 

individual market premiums. This 

includes individuals with household 

incomes above 400 percent of the 

federal poverty level (for a family of 

four, with an annual household income 

of approximately $100,000 or more), 

individuals whose current premiums 

are below the applicable cap (they are 

exposed to premium increases up to the 

cap), and individuals who elect plans 

that cost more than the benchmark plan. 

Further, those insured in the small 

group and individual markets outside 

the Exchanges might also have premium 

increases. The Department estimates 

that 6 million individuals insured in 

individual markets in 2015 have 

household incomes above 400 percent 

of the federal poverty level and either 

have no connection to a small business 

or work for a small employer that does 

not offer them insurance. These 

individuals could be exposed to 

premium increases as a result of the 

implementation of AHPs, and generally 

are unlikely to qualify for AHP 

enrollment. The Department estimates 

that an additional 2 million insured in 

individual markets in 2015 have 

household incomes above 400 percent 

of the federal poverty level and either 

connection to working ownership or 

offers from small employers. These 

individuals are relatively likely to 

qualify for AHP enrollment but could be 

exposed to premium increases if they 

remain in the individual market.119

Some individuals facing premium 

increases may elect to go without 

insurance. This is especially true 

because Public Law 115–97, enacted 

December 22, 2017, will reduce to 0 

percent the individual shared 

responsibility payment for failure to 

maintain minimum essential coverage 

or have an exemption effective 

beginning in 2019.120 AHPs under this 

rule are likely to extend coverage to 

some individuals who otherwise would 

have dropped coverage in response to 

the reduction of the individual shared 

responsibility payment. On the other 

hand, some individuals who face 

premium increases as a result of this 

final rule and who might have retained 

coverage to avoid the individual shared 

responsibility payment might instead 

drop coverage. At the same time, the 

reduction of the individual shared 

responsibility payment to $0 might 

prompt some individuals who would 

have joined AHPs to remain uninsured 

instead. 

With respect to small group markets, 

as with individual markets, this rule can 

be expected to increase premiums 

modestly on average, and those 

increases will vary across local markets. 

One estimate finds that between 1.7 

million and 3.2 million enrollees will 

migrate from small group markets to 

AHPs by 2022.121

A recent report examined small group 

market experience under the ACA.122

The report identified movement 

between the small group and individual 

markets, as small employers begin to 

offer or stop offering insurance to their 

employees in response to changing 

government policies and local 

individual and small group market 

conditions. Overall offer rates have 

declined, but less than stakeholders 

predicted. Premium increases on 

average (3.1 percent annually between 

2011 and 2015) have been moderate and 

in-line with large employer markets and 

Medicare. Relative to individual 

markets, where the ACA compressed 

rates substantially, forcibly reducing 

premiums for many high-risk families 

and thereby increasing premiums for 

many lower-risk ones, rates in small 

group markets changed little, for several 

reasons. First, risk itself generally varies 

less among small groups (or at least 

among larger small groups) than among 

individuals and families. Second, the 

report asserts that in many places the 

ACA’s small group rules have not been 

fully implemented as scheduled. Issuers 

and small employers in many locations 

so far have been allowed and have opted 

to retain non ACA-compliant, so-called 

‘‘grandmothered’’ policies 123 whose 

prices are lower for low-risk groups than 

would be the case in the ACA-regulated 

small group market. Third, even under 

the ACA and other laws, small 

employers have more access than 

individuals to options outside of ACA 

regulated markets, and some have 

pursued these options. The options 

include ‘‘level funded’’ arrangements 

where the plan or employer self-insures 

expected claims but purchases stop-loss 

insurance for most large claims; 

qualified small employer health 

reimbursement arrangements, which 

may provide reimbursement for any 

qualified medical expense, including 

premiums for individual market 

coverage, so long as certain 

requirements are met; purchase of 

insurance that constitutes excepted 

benefits such as indemnity coverage; 

and sometimes AHPs that qualified 

under the Department’s pre-rule 

guidance as single, large group plans. 

For these reasons, in many small group 

markets, AHPs under this rule may be 

unlikely to increase significantly the 

degree of risk segmentation and 

premium dispersion that currently 

exists—though they may preserve 

segmentation that otherwise would have 

waned as ACA implementation 

continued. AHPs’ effects might be larger 

where States more tightly regulate small 


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124U.S. Congressional Budget Office, ‘‘Federal 

Subsidies for Health Insurance Coverage for People 

Under Age 65: 2018 to 2028.’’ https://www.cbo.gov/ 

system/files/115th-congress-2017-2018/reports/ 

53826-healthinsurancecoverage.pdf Estimates 

include the impacts of both the proposed AHP rule 

and the proposed Short-term, limited duration rule. 

125 DOL calculations based on the Abstract of 

Auxiliary Data for the March 2016 Annual Social 

and Economic Supplement to the Current 

Population Survey, U.S. Department of Labor. 

126 DOL calculations based on the Abstract of 

Auxiliary Data for the March 2016 Annual Social 

and Economic Supplement to the Current 

Population Survey, U.S. Department of Labor. 

127 DOL calculations based on the Abstract of 

Auxiliary Data for the March 2016 Annual Social 

and Economic Supplement to the Current 

Population Survey, U.S. Department of Labor. 

128Congressional Budget Office, ‘‘Repealing the 

Individual Health Insurance Mandate: An Updated 

Estimate’’ (November 2017), www.cbo.gov/ 

publication/53300. 

129See Avalere Health, ‘‘Association Health 

Plans: Projecting the Impact of the Proposed Rule’’ 

at 3, 5–7 (Feb. 28, 2018), available at: http://

go.avalere.com/acton/attachment/12909/f-052f/1/-/ 

-/-/-/Association%20Health%20Plans%20White

%20Paper.pdf. 

130See Linda J. Blumberg, Matthew Buettgens, 

and Robin Wang, ‘‘Updated: The Potential Impact 

of Short-Term Limited-Duration Policies on 

Insurance Coverage, Premiums, and Federal 

Spending,’’ Urban Institute, March 2018, available 

at https://www.urban.org/sites/default/files/

publication/96781/2001727_updated_finalized.pdf. 

131The regulatory impact analysis of the 

Proposed Rule cites evidence to this effect. 

group markets (unless such States also 

tightly regulate AHPs). 

On May 23, 2018 after the comment 

period for the proposed rule had closed, 

the U.S. Congressional Budget Office 

(CBO) issued a report titled ‘‘Federal 

Subsidies for Health Insurance Coverage 

for People under Age 65: 2018 to 

2028.’’ 124 In this report, the CBO 

analyzed the effects of the proposed rule 

for Association Health Plans issued on 

January 5, 2018 and the proposed rule 

for Short-Term, Limited Duration 

Insurance issued on February 21, 2018. 

The report states that ‘‘[i]n 2023 and 

later years, about 90 percent of the 4 

million people purchasing AHPs and 65 

percent of the 2 million people 

purchasing STLDI plans would have 

been insured in the absence of the 

proposed rules, CBO and JCT estimate. 

Because the people newly enrolled in 

AHPs or STLDI plans are projected to be 

healthier than those enrolled in smallgroup or nongroup plans that comply 

with the current regulations governing 

those markets, their departure would 

increase average premiums for those 

remaining in other small-group or 

nongroup plans. As a result, premiums 

are projected to be 2 percent to 3 

percent higher in most years.’’ The 

Department did not rely on the 

information contained in the CBO report 

to reach its conclusions regarding the 

effects of the final rule on the insured 

persons, but notes that the CBO’s 

findings are consistent with the 

Department’s own findings. 

8. Medicaid 

Under the ACA, Medicaid eligibility 

was expanded in many States. Some 

Medicaid-eligible workers may become 

eligible to enroll in AHPs under this 

final rule. Among 42 million 

individuals under age 65 enrolled in 

Medicaid or CHIP in 2015, 2 million 

were working owners or dependents 

thereof, and 13 million were employees 

of small businesses or dependents 

thereof.125 It is unclear how many 

Medicaid enrollees will gain AHP 

eligibility, or how many of those that do 

might elect to enroll in AHPs. Many will 

face strong economic incentives to 

continue relying exclusively on 

Medicaid, which generally charges no 

premium, imposes little or no cost 

sharing, and is comprehensive. 

9. The Uninsured 

Twenty-eight million individuals in 

the U.S. lacked health insurance 

coverage in 2015.126 Of the 28 million 

uninsured, approximately 3 million are 

working owners or dependents thereof 

and an additional 12 million are 

employees of small businesses or 

dependents thereof.127 The reduction to 

$0 beginning in 2019 of the individual 

shared responsibility payment is 

projected to increase the uninsured 

population by 4 million in 2019 and 13 

million by 2027.128 Because AHPs often 

can offer more affordable alternatives to 

individual and small group insurance 

policies, this rule is expected to extend 

insurance coverage to some otherwise 

uninsured individual families and small 

groups. On the other hand, some who 

face premium increases as a result of 

this final rule might choose to drop 

insurance coverage altogether. 

The Department lacks data to quantify 

the effect of the final rule on the 

uninsured population. Publicly 

available estimates shed only limited 

light on the question. By one publicly 

available estimate, AHPs under the 

Proposed Rule by 2022 on net would 

add 130,000 individuals to the 

uninsured population.129 However, it 

appears that this estimate may have 

neglected AHPs’ potential to enroll 

individuals who would otherwise have 

been uninsured, focusing only on those 

who might drop insurance because of 

individual or small group market 

premium increases stemming from risk 

segmentation. Moreover, it is unclear 

whether this estimate took full account 

of the interactions among the proposed 

AHP rule, the ACA’s continuing 

premium tax credit subsidies, and the 

reduction to $0 of the ACA’s individual 

shared responsibility payment in 2019. 

If the estimate did not fully account for 

these interactions, it is likely to be too 

pessimistic. Some individuals and small 

businesses whose premiums will 

increase because of AHPs’ risk 

segmentation effects might drop 

insurance, but ACA subsidies could 

limit this potential. Likewise, AHPs are 

likely to enroll many individuals who 

otherwise would have dropped 

insurance in response to the reduction 

to $0 of the individual shared 

responsibility payment in 2019. By 

another publicly available estimate, non 

ACA-compliant policies that resemble 

AHPs in some relevant respects might 

reduce the number of uninsured by 1.7 

million.130 This facially more optimistic 

estimate may more fully reflect the 

interactions between expanded 

availability of AHP-like policies on the 

one hand, and subsidies and the 

individual shared responsibility 

payment reduction on the other. On the 

other hand, because this estimate 

pertains not to AHPs but to certain other 

non ACA-compliant policies, it is 

unclear whether or how it can be 

compared with the first estimate. In 

light of these uncertainties, the 

Department is unable to predict with 

confidence whether this final rule on 

net will reduce or increase the number 

of Americans without any health 

coverage. 

AHPs are likely to influence the 

composition of the uninsured 

population such that it includes, for 

example, proportionately fewer working 

owners and individuals from low-risk 

demographics, and proportionately 

more individuals from high-risk 

demographics, than would otherwise be 

the case. Individuals who themselves 

expect to incur high health costs would 

be less likely to drop insurance, 

however. Moreover, states may pursue 

steps to more generously subsidize high 

risk individuals. 

Various studies of past federal and 

State reforms that tightened or loosened 

individual and small group market rules 

confronted a substantially different 

health insurance marketplace and hence 

are of only modest value in predicting 

the final rule’s effects. The studies show 

that the changes may have changed the 

prices paid and policies selected by 

different businesses, somewhat 

improved access for targeted groups 

(potentially at others’ expense), and/or 

prompted some individuals or small 

businesses to acquire or drop insurance, 

but had little net effect on coverage.131


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132ACA Medicaid expansions and subsidies 

extended coverage to many more low income 

individuals. See Michael E. Martinez, Emily P. 

Zammitti, and Robin A. Cohen, ‘‘Health Insurance 

Coverage: Early Release of Estimates From the 

National Health Interview Survey, January– 

September 2017,’’ U.S. Department of Health and 

Human Services, Centers for Disease Control and 

Prevention, National Center for Health Statistics, 

February 2018, https://www.cdc.gov/nchs/data/

nhis/earlyrelease/insur201802.pdf; and Sara R. 

Collins, Munira Z. Gunja, Michelle M. Doty and 

Herman K. Bhupal, ‘‘First Look at Health Insurance 

Coverage in 2018 Finds ACA Gains Beginning to 

Reverse: Findings from the Commonwealth Fund 

Affordable Care Act Tracking Survey, February– 

March 2018,’’ May 1 2018, http://

www.commonwealthfund.org/publications/blog/

2018/apr/health-coverage-erosion?omnicid=

EALERT1395236&mid=ainserro@ajmc.com. 

133See for example comment 680 from Marc I. 

Machiz, available at https://www.dol.gov/sites/ 

default/files/ebsa/laws-and-regulations/rules-andregulations/public-comments/1210-AB85/ 

00680.pdf. 134For discussions of this history, see: (1) U.S. 

Gov’t Accountability Office, GAO–92–40, ‘‘State 

Need Labor’s Help Regulating Multiple Employer 

Welfare Arrangements.’’, March 1992, available at 

http://www.gao.gov/assets/220/215647.pdf; (2) U.S. 

Gov’t Accountability Office, GAO–04–312, 

‘‘Employers and Individuals Are Vulnerable to 

Unauthorized or Bogus Entities Selling Coverage.’’ 

February 2004, available at http://www.gao.gov/ 

new.items/d04312.pdf; and (3) Mila Kofman and 

Jennifer Libster, ‘‘Turbulent Past, Uncertain Future: 

Is It Time to Re-evaluate Regulation of Self-Insured 

Multiple Employer Arrangements?’’, Journal of 

Insurance Regulation, 2005, Vol. 23, Issue 3, 

p. 17–33. 

135ERISA requires any plan MEWA/AHP 

(a MEWA that is also an ERISA plan) to file an 

additional report annually with the Department. 

This is the same annual report filed by all ERISA 

plans that include 100 or more participants or hold 

plan assets, filed using Form 5500. The Department 

has verified receipt of the required Form 5500 from 

approximately two-thirds of plan MEWAs filing 

Forms M–1. While more than 90 percent of 2012 

Form M–1 filers reported that they were plan 

MEWAs, only a bit more than one-half of these 

entities also filed Form 5500 for that year. Among 

those that did, frequently some of the information 

reported across the two forms was inconsistent. 

These reporting inconsistencies raise questions 

about the reliability of MEWAs’ compliance with 

Continued 

AHPs’ potential to expand coverage may 

be greater than this experience suggests, 

however. The final rule differs markedly 

from previous policy reforms that past 

studies examined. Furthermore, market 

conditions and the size and composition 

of the uninsured population are 

different today and may continue to be 

different. Generally it is likely that 

relative to past decades, fewer lowerincome individuals are uninsured.132

Also as noted earlier, small firms’ 

propensity to offer insurance to their 

employees has fallen, suggesting 

potential opportunities for AHPs to 

expand coverage. 

As previously noted, CBO recently 

analyzed the effects for the proposed 

rule for Association Health Plans issued 

on January 5, 2018 and the proposed 

rule for Short-Term, Limited Duration 

Insurance (STLDI) issued on February 

21, 2018. CBO stated that ‘‘[i]n 2023 and 

later years, about 90 percent of the 4 

million people purchasing AHPs and 65 

percent of the 2 million people 

purchasing STLDI plans would have 

insured in the absence of the proposed 

rules, CBO and JCT estimate.’’ Thus, 

about 400,000, or 10 percent of the 4 

million people purchasing AHPs, would 

come from the ranks of the uninsured. 

(It is unclear whether this latter estimate 

would have been higher or lower in the 

absence of the STLDI proposal, which is 

not part of this final rule but remains 

under consideration. Absent STLDI, 

some otherwise uninsured individuals 

who would have gained STLDI coverage 

might gain AHP coverage instead. On 

the other hand, some individuals facing 

premium increases or losing small 

employer offers consequent to AHPs 

who would have signed up for STLDI 

policies, absent such policies might 

drop insurance and become uninsured.) 

The Department did not rely on the 

information contained in the CBO report 

to reach its conclusions regarding the 

effects of the final rule on uninsured 

persons, but notes that the CBO’s 

findings are consistent with the 

Department’s own findings. 

10. Operational Risks 

A number of comments on the 

Proposed Rule expressed concern that 

AHPs will be vulnerable to the same 

sorts of mismanagement and abuse that 

historically afflicted a large number of 

MEWAs.133 They argued that the 

Proposed Rule, by relaxing the criteria 

for groups or associations to sponsor 

plan MEWAs/AHPs, would contribute 

to such vulnerability, and questioned 

whether the Department and the States 

could sufficiently police AHPs. They 

questioned, for example, whether 

employer members can be expected to 

meaningfully control AHPs in cases 

where MEWA promoters pursuing profit 

launch new associations and, as 

founding association members, assume 

initial control of new AHPs. They 

contended that insurance markets that 

offer few affordable options for small 

businesses are fertile ground for 

problem MEWAs. They called on the 

Department to more closely examine its 

own experience policing MEWAs, and 

to factor that experience into its 

assessment of AHPs’ potential impacts 

and into its deliberations about a 

possible final rule. Accordingly, this 

final rule reflects additional 

examination of the Department’s 

experience policing MEWAs, and 

includes revised provisions that address 

many of the commenters’ concerns. 

ERISA generally classifies AHPs as 

MEWAs. Historically, some MEWAs 

have suffered from financial 

mismanagement or abuse, leaving 

participants and providers with unpaid 

benefits and bills.134 Both the 

Department and State insurance 

regulators have devoted substantial 

resources to detecting and correcting 

these problems, and in some cases, 

prosecuting wrongdoers. Some of these 

entities attempt to evade oversight and 

enforcement actions by claiming to be 

something other than MEWAs, such as 

collectively-bargained multiemployer 

ERISA plans. To address this continuing 

risk, the ACA gave the Department 

expanded authority to monitor MEWAs 

and intervene when MEWAs are at 

financial or operational risk, and both 

the Department’s and the States’ 

enforcement efforts are ongoing. 

The Department stresses that AHPs 

are also subject to existing federal 

regulatory standards governing MEWAs, 

and sponsors of AHPs would need to 

exercise care to ensure compliance with 

those standards. The ACA’s additional 

enforcement tools and improvements in 

the MEWA registration and reporting 

requirements were designed to reduce 

MEWA fraud and abuse. Under ERISA 

section 521, the Secretary may issue an 

ex parte cease and desist order if it 

appears to the Secretary that the alleged 

conduct of a MEWA is fraudulent, or 

creates an immediate danger to the 

public safety or welfare, or is causing or 

can be reasonably expected to cause 

significant, imminent, and irreparable 

public injury. As an example, a MEWA 

can be found to create an immediate 

danger ‘‘for failure to establish and 

implement a policy or method to 

determine that the MEWA is actuarially 

sound with appropriate reserves and 

adequate underwriting.’’ 29 CFR 

2560.521–1(b)(3). Section 521(e) of 

ERISA authorizes the Secretary to issue 

a summary seizure order if it appears 

that a MEWA is in a financially 

hazardous condition. Generally, any 

conduct by a fiduciary that meets the 

requirements for the issuance of a cease 

and desist or summary seizure is a 

violation of his fiduciary duties. 

The ACA also expanded reporting and 

required registration for MEWAs with 

the Department. MEWA registration 

requirements require plan and non-plan 

MEWAs to file Form M–1 under ERISA 

section 101(g) and 29 CFR 2520.101–2 

prior to operating in a State. Further, all 

employee welfare benefit plans that are 

MEWAs subject to the Form M–1 

requirements are required to file the 

Form 5500, regardless of the plan size 

or type of funding.135 In addition, the 


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ERISA’s reporting requirements and the reliability 

of the information recounted here. 

136Since 1985 EBSA’s case information database 

system has experienced various upgrades and 

enhancements, impacting the collection of data on 

MEWA cases. Due to these changes over the more 

than 30 years, the reported number of MEWA cases 

may be slightly under or over estimated. 

ACA added new criminal penalties 

under ERISA section 519 for any person 

who knowingly submits false statements 

or makes false representations of fact 

about the MEWA’s financial condition, 

the benefits it provides, or its regulatory 

status as a MEWA in the marketing of 

a MEWA. The ACA also amended 

ERISA section 501(b) to impose criminal 

penalties on any person who is 

convicted of violating the prohibition in 

ERISA section 519. 

The Department recently examined 

the universe of these reports for MEWAs 

(including AHPs) operating in each year 

from 2012 through 2016. According to 

this examination, in 2016, 536 MEWAs 

covered approximately 1.9 million 

employees. The vast majority of these 

MEWAs reported themselves as ERISA 

plans that covered employees of two or 

more employers. Nearly all of these 

covered more than 50 employees and 

therefore constituted large-group 

employer plans for purposes of the 

ACA. A small fraction reported as socalled ‘‘non-plan’’ MEWAs, that 

provided or purchased health or other 

welfare benefits for two or more ERISA 

plans sponsored by individual 

employers (most of which probably 

were small group plans for ACA 

purposes). Some of these might qualify 

to begin operating as ‘‘plan-MEWAs’’ (or 

AHPs) under this final rule, which is 

intended to facilitate the establishment 

of more new plan-MEWAs/AHPs, all of 

which would be required to report 

annually to the Department. 

A little more than one-half of 

reporting MEWAs operate in just one 

State, while a handful operate in all 50 

States. In 2016, 58 MEWAs reported 

expanding operations into one or more 

new States. States with the most planMEWAs/AHPs in 2016 included 

California (122), Texas (98), Washington 

(95), New York (94), and Ohio (91). 

Only one had fewer than 20 (Hawaii had 

17). Self-insured MEWAs generally are 

more vulnerable to financial 

mismanagement and abuse than fullyinsured ones. MEWAs were most likely 

to be entirely or partly self-insured in 

certain western States including North 

Dakota (42 percent), Wyoming (41 

percent), and Montana (37 percent). 

About one-fourth of reporting MEWAs 

are entirely or partly self-insured in all 

the States in which they operate, and 

another 4 percent are entirely or partly 

self-insured in some States. The 

remaining majority does not self-insure 

and instead is fully insured by issuers 

in all States in which they operate. 

Nearly all reporting MEWAs offered 

health coverage, and many offered other 

additional welfare benefits (such as 

dental, vision, life insurance, and/or 

disability insurance). 

While plan MEWAs generally are 

required to file both Form M–1 and 

Form 5500, many fail to file both or 

report potentially inconsistent 

information across the two forms. 

Among plan MEWAs filing Form M–1 

for 2015, approximately two-thirds can 

be linked readily with a corresponding 

Form 5500, suggesting that many either 

fail to file one or both forms, or file 

inconsistent identifying information 

that inhibits linking the two. Among 

those that can be linked, information 

provided sometimes is not consistent 

across the two forms. In addition, 

among self-insured MEWAs, 41 percent 

indicated that they had not obtained 

actuarial opinions about their financial 

stability. MEWAs must indicate on 

Form M–1 whether they are in 

compliance with a number of ERISA’s 

minimum health plan standards and 

with ERISA’s general requirement that 

plans hold assets in trust. As of 2016 

nearly none reported lack of compliance 

with the former, but 14 percent reported 

that they did not comply with the trust 

requirement. These apparent reporting 

and operational deficiencies underscore 

the need for the Department and States 

to allocate resources to effectively 

oversee AHP operations and prevent 

mismanagement and abuse. 

Since 1985, the Department’s records 

indicate that it has pursued a total of 

968 civil enforcement cases involving 

MEWAs, affecting more than 3 million 

participants. Among these cases, 338 

involved allegations of fiduciary 

violations, 215 involved allegations of 

prohibited transactions (generally 

involving financial conflicts of interest), 

and 301 yielded monetary restitution of 

more than $235 million from the 

violations. (Many of these and other 

related cases involved other types of 

violations such as failure to follow plan 

terms or healthcare laws, provide plan 

benefits, or reporting and disclosure 

deficiencies.) The Department’s 

enforcement efforts often were too late 

to prevent or fully recover major 

financial losses. The Department 

generally does not consistently measure 

or record those associated unpaid 

claims or their financial impacts on 

patients and healthcare providers. The 

Department additionally has pursued 

317 criminal MEWA-related cases, 

resulting in 118 convictions and guilty 

pleas, and $173 million in ordered 

restitution.136

This rule includes provisions 

intended to protect AHPs against 

mismanagement and abuse. It requires 

the group or association to have a formal 

organizational structure with a 

governing body and by-laws or other 

similar indications of formality 

appropriate for the legal form in which 

the group or association is operated. 

This requirement is intended to ensure 

that the organizations are bona fide 

organizations with the organizational 

structure necessary to act ‘‘in the 

interests’’ of participating employers 

with respect to employee benefit plans 

as ERISA requires. The rule also 

requires employer members to control 

the functions and activities of the group 

or association and the employer 

members that participate in the plan to 

control the plan. This requirement is 

necessary both to satisfy ERISA’s 

requirement that the group or 

association must act directly or 

indirectly in the interest of employers in 

relation to the employee benefit plan to 

meet the definition of employer, and to 

prevent formation of commercial 

enterprises that claim to be AHPs but 

that operate like traditional issuers 

selling insurance in the employer 

marketplace and that may be vulnerable 

to abuse. In addition, the final rule 

allows only employer members to 

participate in the AHP, and health 

coverage must only be available to or in 

connection with a member of the group 

or association, in order for the group or 

association to qualify as bona fide. 

Together, these criteria are intended to 

ensure that groups or associations 

sponsoring AHPs are bona fide 

employment-based groups or 

associations and more likely to be 

resistant to abuse. 

An AHP sponsored by a bona fide 

group or association under this final 

rule is a group health plan under ERISA. 

Accordingly, AHPs are subject to all of 

the provisions of Title I of ERISA 

applicable to group health plans. 

Therefore, participants and beneficiaries 

receiving their health coverage through 

AHPs are entitled to the same 

protections under ERISA that are 

available to participants in single 

employer group health plans. For 

example, AHPs may not exclude 

coverage for preexisting conditions, 

impose lifetime and annual dollar limits 

on essential health benefits, or 

discriminate based on health factors. 

AHPs that provide dependent coverage 

must permit dependents to remain 


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137 Georgetown University Health Policy Institute, 

Center on Health Insurance Reforms, ‘‘State Options 

to Protect Consumers and Stabilize the Market: 

Responding to President Trump’s Executive Order 

on Association Health Plans,’’ December 2017. 

138CBO cost estimate, H.R. 525 Small Business 

Health Fairness Act of 2005. April 8, 2005. https:// 

www.cbo.gov/sites/default/files/109th-congress2005-2006/costestimate/hr52500.pdf. 

139U.S. Congressional Budget Office, ‘‘Federal 

Subsidies for Health Insurance Coverage for People 

Under Age 65: 2017 to 2027,’’ September 2017. 

140See comment letter from BlueCross 

BlueShield, March 6, 2018 (Comment #549 on 

EBSA web page last accessed at https://

www.dol.gov/sites/default/files/ebsa/laws-andregulations/rules-and-regulations/publiccomments/1210-AB85/00549.pdf). 

enrolled until they reach the age of 26. 

AHPs may not rescind a participant’s or 

beneficiary’s coverage except in the 

event of fraud or intentional 

misrepresentation of a material fact. 

Nevertheless, the Department 

anticipates that the increased flexibility 

afforded AHPs under this rule will 

introduce increased opportunities for 

mismanagement or abuse, in turn 

increasing oversight demands on the 

Department and State regulators. A 

report responding to Executive Order 

13813 notes that States can require selfinsured AHPs to meet the same 

solvency and governance standards as 

issuers and to participate in guaranty 

funds that protect policyholders when 

issuers fail. States also can clarify or 

enact laws allowing their insurance 

departments to place AHPs into 

receivership if needed.137 In this regard, 

the Department affirms above in this 

preamble that the final rule does not 

modify or otherwise limit existing State 

authority as established under section 

514 of ERISA. Section 514(b)(6) of 

ERISA gives the Department and State 

insurance regulators joint authority over 

MEWAs, including AHPs (which are a 

type of MEWA), to ensure appropriate 

consumer protections for employers and 

employees relying on an AHP for 

healthcare coverage. Nothing in the final 

rule changes this joint structure, or is 

meant to reduce the historically broad 

role of the States when it comes to 

regulating MEWAs. 

11. Federal Budget Impacts 

The rule is likely to have both 

positive and negative effects on the 

budget, with some increasing and others 

reducing the deficit. On balance, the 

final rule’s net impact on the federal 

budget is likely to be negative, 

increasing the deficit. 

In 2005, the Congressional Budget 

Office (CBO) estimated the potential 

budget impacts of a 2005 legislative 

proposal to expand AHPs. As noted 

earlier, that legislative proposal 

predated the ACA and differed from this 

final rule, and the impacts of that 

proposal likely would differ from the 

impacts of this final rule in the market 

in 2018 and 2019. Under the 2005 

legislation and contemporaneous law, 

many individuals joining AHPs 

previously would have been uninsured 

or purchased individual policies 

without the benefit of any subsidies; by 

joining AHPs they stood to gain 

potentially large subsidies in the form of 

tax exclusions. CBO predicted that the 

legislation, by increasing spending on 

employer-provided insurance, would 

reduce federal tax revenue by $261 

million over 10 years, including a $76 

million reduction in Social Security 

payroll taxes. CBO also predicted that 

AHPs would displace some Medicaid 

coverage and thereby reduce federal 

spending by $80 million over 10 years. 

Finally, according to CBO, the 

legislation would have required the 

Department to hire 150 additional 

employees and spend an additional 

$136 million over 10 years to properly 

oversee AHPs.138 Together these budget 

impacts would have increased the 

federal deficit by $317 million over 10 

years. 

Today, many individuals who might 

have been uninsured in 2005 instead are 

enrolled in Medicaid or insured and 

receiving subsidies on Exchanges. When 

joining AHPs, these individuals in effect 

would trade existing subsidies for tax 

exclusions. Market forces generally 

favor individuals capturing the larger 

available subsidy, so it is more likely 

that higher income individuals will 

have an incentive to enroll in AHPs. To 

the extent that AHPs may increase 

premiums in Exchanges, subsidies paid 

there may also increase. This arguably 

could improve equity, insofar as 

transfers from taxpayers are likely to be 

more progressive than the crosssubsidies from low-risk individuals 

such transfers would replace. In 2017 

approximately 8 million individuals 

insured on Exchanges received $34 

billion in tax credit subsidies.139 If, 

however, AHPs enroll some Medicaid 

enrollees or some individuals otherwise 

receiving large subsidies on individual 

Exchanges, savings from these impacts 

might offset a portion of these deficit 

increases. 

12. Applicability Date 

As discussed later in the preamble, 

the final rule includes a phased or 

staged applicability date that provides 

prompt expansion of AHP availability 

while addressing certain concerns 

raised by commenters. The final rule 

allows fully insured plans to begin 

operating under the new rule on 

September 1, 2018. Existing self-insured 

AHPs can begin operating under the 

new rule on January 1, 2019, and new 

self-insured AHPs can begin on April 1, 

2019. This phased approach will 

provide prompt relief to individuals 

seeking affordable health coverage 

through AHPs while allotting some 

additional time for the Department and 

State authorities to address concerns 

about self-insured AHPs’ vulnerability 

to financial mismanagement and abuse. 

Some comments urge quick action to 

make AHPs available. Many express 

impatience for more affordable 

alternatives to ACA-compliant small 

group and especially individual 

policies. These comments appear to be 

motivated by both the sharp premium 

increases and scarcity of choices that 

characterize certain local markets. 

Absent more affordable alternatives, 

many small businesses have opted to go 

without insurance. It is likely that, 

absent alternatives, more would drop 

insurance in 2019 as premiums 

continue to increase and the individual 

shared responsibility payment is 

reduced to $0. Many of those who did 

not drop insurance would be forced to 

make other economic sacrifices to 

maintain coverage. 

Other comments call for delay. Some 

comments say delay is needed to 

accommodate the annual cycle for 

insurance policy premium approvals by 

State insurance regulators. The cycle for 

calendar year 2019 in many States is 

already underway (March through May, 

according to one comment),140 and the 

uncertain impact of the final rule on the 

individual market and small group 

market may or may not be factored into 

individual and small group ACAcompliant issuers’ 2019 premiums for 

those markets. If AHPs enter markets in 

2019 and ACA compliant issuers’ rates 

for the individual and small group 

markets fail to account for associated 

adverse selection, those rates may be 

insufficient to cover the issuers’ 

expenses. Some comments accordingly 

call for applicability of the final rule to 

be delayed until at least 2020. 

Some comments urge delay to reduce 

risks of mismanagement and abuse. 

Effective AHPs need time to establish 

robust governance structures, financial 

arrangements, and businesses practices. 

Comments claim that any AHP that 

rushes to begin or expand operations in 

2019 could pose risks. The Department 

and State authorities both need time to 

build and implement adequate 

supervision and possible infrastructure 

to prevent fraud and abuse and possibly 


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141As noted above, the Department intends to 

reexamine existing reporting requirements for 

AHPs/MEWAs, including the Form M–1 and 

possibly the Form 5500, and may be asked to 

propose class or individual prohibited transaction 

exemptions for AHPs that want to use affiliates to 

serve as their administrative service providers or act 

as issuers providing benefits under the AHP. 

142Some self-insured AHPs historically have 

subjected consumers to fraud, mismanagement, and 

abuse. Six in ten MEWAs that self-insure in all or 

some States in which they operated in 2016 

reported obtaining opinions about their financial 

stability from independent actuaries. 

to revise other relevant rules to optimize 

AHPs’ role in local markets.141

Commenters pointed out that State 

insurance regulators actively provide 

oversight and enforcement in the 

MEWA area to, among other things, 

prevent fraud, abuse, incompetence and 

mismanagement, and avoid unpaid 

health claims. Many States say they will 

need time for new AHP specific 

legislation and/or modification of 

existing regulations and expanded 

funding for enforcement programs. 

Commenters also said time will be 

needed for State regulators to coordinate 

with the Department on the scope of 

State authority to regulate, especially 

with respect to inter-state AHP 

operations. 

Commenters also called for the 

Department to increase its enforcement 

activities. This increase would require 

Congress to appropriate additional 

funding for the Department’s oversight 

of expanded AHPs and for the 

Department to expand staff and related 

enforcement support resources to meet 

that broader enforcement/oversight 

mission. 

This final rule’s phased applicability 

dates aim to balance the prompt 

promotion of more affordable health 

coverage options with caution about 

market and operational risks. Expanded 

AHP operations beginning on or after 

September 1, 2018 will be limited to 

fully insured AHPs because these AHPs 

are best positioned to take advantage of 

this earliest opportunity to offer 

coverage to individuals and small 

business and likely to be less 

susceptible to problems and more 

prepared to deliver reliable coverage in 

an orderly fashion. First, such AHPs 

must be fully insured and therefore 

protected by already established State 

oversight of large group issuers’ 

financial stability and market conduct. 

Second, it is likely that many or most of 

the earliest AHP growth will build upon 

existing AHP or group and association 

operations. This might include for 

example: (1) An existing plan MEWA/ 

AHP expanding availability to more 

industries and/or to working owners; (2) 

an existing non-plan MEWA that 

currently distributes small group 

policies to small businesses in multiple 

industries converting itself into a plan 

MEWA/AHP that offers large group 

polices covering the same and possibly 

additional businesses; and (3) an 

existing local group or association, such 

as a local chamber of commerce, that 

currently does not offer members health 

insurance partnering with a local largegroup issuer to establish an AHP for its 

members. 

Additional expanded AHP operations 

under this final rule will be limited to 

currently existing self-insured AHPs 

beginning on or after January 1, 2019. 

Starting then, such AHPs could, for 

example, expand availability to 

additional industries within a 

geographic location and/or to working 

owners without employees, subject to 

the provisions of this final rule. Existing 

self-insured AHPs already have been 

subject to ERISA’s fiduciary standards 

of loyalty and care, and barred from 

engaging in financial conflicts of 

interest (except where permitted under 

an applicable prohibited transaction 

exemption). Moreover, this final rule 

leaves intact States’ broad authority to 

oversee these AHPs. Therefore, selfinsured AHPs that expand operations 

pursuant to this final rule’s January 1, 

2019 applicability date will be the same 

entities, overseen by the same federal 

and State authorities, as in the recent 

past. Extending these entities’ ability to 

offer more affordable health insurance 

to additional small businesses and 

working owners justifies any attendant 

extension of their operational risks.142

The last expansion of AHP operations 

under this final rule applies to new selfinsured AHPs’ operations beginning on 

or after April 1, 2019. This modest delay 

of the applicability date for such AHPs 

is intended to enable and encourage 

them to fully prepare for sound 

operations and provide sufficient time 

for the Department and the States to 

implement a robust supervisory 

infrastructure and program. The 

Department intends to immediately 

increase its focus on compliance 

guidance and enforcement in 

collaboration with the States. 

As noted later in this preamble, this 

final rule’s prompt but phased 

applicability dates aim to balance quick 

access to affordable insurance with due 

caution about adverse market impacts 

and operational risks. Market forces may 

favor AHPs that grow fastest in areas 

where needs are greatest, but such needs 

magnify AHPs’ potential to do both 

good and harm. The sequencing of 

applicability dates—fully insured AHPs 

first, existing self-insured AHPs second, 

new self-insured AHPs last—responds 

to this tension by opening the door 

soonest for earlier growth by lower risk 

arrangements. Early availability of more 

affordable insurance for small 

businesses, especially for those who 

otherwise would forgo coverage, 

justifies any possible disruption to 

individual and small group issuers who 

have already begun setting 2019 rates 

and the markets in which they operate. 

Further, consistent with EBSA’s 

longstanding commitment to providing 

compliance assistance to employers, 

plan sponsors, plan fiduciaries, other 

employee benefit plan officials and 

service providers in understanding and 

complying with the requirements of 

ERISA, the Department intends to 

provide affected parties with significant 

assistance and support during the 

transition period and thereafter with the 

aim of helping to ensure the important 

benefits of the final rule are 

implemented in an efficient and 

effective manner. 

AHPs’ growth and impacts are likely 

to be more gradual than the phased 

applicability dates alone would allow. 

Some comments suggest that many of 

the most substantial and fully insured 

AHPs are expected to choose to delay 

modifying their programs to reflect the 

new AHP rule and new enrollment 

activity until calendar year 2020 (the 

next rating cycle), when the rate 

environment is more settled and certain. 

13. Regulatory Alternatives 

As required by E.O. 12866, the 

Department considered various 

alternative approaches in developing 

this final rule that are discussed below. 

Retain the Department’s existing AHP 

sub-regulatory guidance. As discussed 

above, in response to the Proposed Rule, 

several commenters requested the 

Department allow entities meeting the 

Department’s previous sub-regulatory 

guidance defining the term ‘‘bona fide 

group or association of employers’’ to 

continue to rely on such guidance 

without meeting the criteria set forth in 

the new rule. They argued that existing 

AHPs that relied on the Department’s 

pre-rule guidance on ‘‘bona fide group 

or association of employers’’ did not 

design their operations with the new 

requirements in mind. As a 

consequence, they may not be able to 

comply with the new conditions 

without reducing existing options for 

affordable healthcare. A primary 

rationale for the commenters was that 

some type of grandfathering would 

accommodate AHPs that have used 

experience-rating for each employer 

member in the past to prevent undue 

disruption and burdens associated with 


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coming into compliance with new rules 

that are inconsistent with long-standing 

business practices. 

Other commenters asserted that 

allowing new entities to satisfy the 

Department’s prior guidance under a 

grandfathering approach potentially 

would result in more choice for small 

businesses by allowing them to choose 

from providing coverage in plans in the 

traditional health insurance market, the 

grandfathered AHP market, and the 

newly expanded AHP market under the 

final rule. 

On the other hand, some commenters 

were opposed to the Department adding 

a grandfathering provision, because 

exempting groups or associations from 

the nondiscrimination requirements and 

allowing them to experience rate 

member employers would result in 

some entities offering coverage in ways 

that are inconsistent with the final rule 

and put new AHPs at a competitive 

disadvantage compared to grandfathered 

AHPs. 

After considering these comments, the 

Department has determined that the 

requirements of the final rule do not 

supplant the Department’s previously 

issued guidance. As stated above, the 

final rule expands the opportunities for 

employer groups or associations to form 

AHPs by establishing an alternative 

mechanism for meeting the ‘‘employer’’ 

requirements specifically by relaxing 

the commonality requirement, allowing 

the employer group or association to 

exist for a principal purpose of offering 

health coverage, and providing coverage 

to working owners without employees. 

The Department intends for the 

criteria set forth in this final rule to 

provide an alternative basis for groups 

or associations to meet the definition of 

an ‘‘employer’’ under ERISA section 

3(5). Accordingly, the final rule does not 

require employer groups and 

associations meeting the criteria under 

the Department’s prior AHP guidance to 

comply with the nondiscrimination 

provision of the final rule (although, of 

course, the HIPAA health 

nondiscrimination rules continue to 

apply to the AHP, as a group health 

plan). Therefore, such AHPs may treat 

each employer-member as a distinct 

group of similarly situated individuals 

to the extent permissible under current 

HIPAA health nondiscrimination rules 

based on the facts and circumstances of 

the particular situation. Allowing new 

AHPs to operate pursuant to either this 

new rule or the Department’s pre-rule 

guidance, rather than simply 

grandfathering existing AHPs to 

continue operating as before, ensures 

that new AHPs can compete with 

existing ones on equal footing. 

Modifying the control requirement. 

The proposal generally required that 

groups or association members control 

the AHP’s functions and activities, 

including the establishment and 

maintenance of the group health plan in 

order for the group or association to 

qualify as bona fide. Such control under 

the proposal could be direct or indirect 

through the regular election of directors, 

officers, or other similar representatives 

that control the group or association and 

the establishment and maintenance of 

the plan. 

A number of commenters supporting 

the Proposed Rule acknowledged that a 

control test is necessary to ensure that 

groups or associations act ‘‘in the 

interest’’ of participating employers in 

relation to the group health plan, as 

required by section 3(5) of ERISA. A 

number of commenters who generally 

opposed the proposal were skeptical 

that the proposed control test could 

adequately protect against fraudulent 

MEWAs and other entities that may not 

act in the best interest of the employer 

members. A few commenters opposed 

the proposed control test entirely. These 

commenters generally expressed 

apprehension about the logistics of 

requiring participating employer 

members to control the functions and 

activities of a large group or association. 

After careful consideration of these 

comments, the Department has 

determined that the control test is 

necessary to satisfy the statutory 

requirement in ERISA section 3(5) that 

the group or association must act ‘‘in the 

interest of’’ the employer members in 

relation to the employee benefit plan in 

order to qualify as an employer. The 

control test is also necessary to prevent 

formation of commercial enterprises 

that claim to be AHPs but, in reality, 

merely operate similar to traditional 

insurers selling insurance in the group 

market. 

The Department, however, slightly 

modified the language in the final rule 

to better align the control test with the 

Department’s existing sub-regulatory 

guidance. Specifically, as revised, the 

control test provides that the functions 

and activities of the group or association 

must be controlled by its employer 

members in order for it to qualify as 

bona fide. The control test also requires 

the group or association’s employer 

members that participate in the group 

health plan to control the plan. Control 

must be present both in form and in 

substance. The determination of 

whether control exists is based on a 

facts and circumstances test. 

Subjecting AHPs to ACA individual 

and small group market rules. A 

number of public comments raised the 

risk that AHPs would exercise their 

flexibility in ways that harm local 

individual and small group markets. 

Some advocated a level playing field 

where AHPs compete with issuers 

under the same rules. However, AHPs’ 

flexibility to offer products and 

premiums that more closely align with 

their members’ preferences is a 

significant benefit for those members. 

That flexibility also frees AHPs from 

some regulatory overhead, and may 

enable some AHPs to achieve the scale 

necessary for administrative efficiency 

and market power. States retain 

discretion to regulate AHPs. For these 

reasons, this final rule does not subject 

AHPs to the ACA’s individual and small 

group market rules. 

Allowing new AHPs to exist for the 

sole purpose of providing insurance. 

The Proposed Rule stated that a bona 

fide group or association of employers 

may act as an employer sponsoring a 

group health plan if it exists for the 

purpose, in whole or in part, of 

sponsoring a group health plan that it 

offers to its employer members. This 

represents a departure from previously 

issued sub-regulatory guidance, which 

required a group or association to exist 

for purposes other than providing health 

benefits in order to act as an employer 

for purposes of sponsoring a group 

health plan. 

As discussed earlier in this preamble, 

many commenters, including some who 

were otherwise supportive of the 

Proposed Rule, objected to this 

provision. Several commenters believed 

that, because most small businesses 

already have the opportunity to belong 

to a chamber of commerce or other 

professional group or association, 

allowing a group or association to be 

formed solely for the purpose of 

sponsoring a group health plan is 

unnecessary to achieve the 

Department’s goals. Commenters 

believed that a proliferation of 

associations established for the 

exclusive purpose of sponsoring an AHP 

could diminish the value of existing 

trade and professional groups. 

Similarly, a proliferation of groups or 

associations could also diminish the 

market power of existing AHPs and 

those that may be formed by groups and 

associations that exist for other 

purposes. In particular, a proliferation 

of groups or associations could limit 

these entities’ opportunities to achieve 

the economies of scale that make AHPs 

an attractive vehicle for providing 

affordable coverage in the first place. 

Commenters also argued that allowing 

groups and associations formed for the 

sole purpose of offering an AHP could 

invite unscrupulous promoters to enter 


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the market with mismanaged and thinly 

funded AHPs that could engage in 

fraudulent and abusive practices. 

Commenters offered numerous 

suggestions for alternative criteria 

determining a bona fide group or 

association of employers for purposes of 

the new rule with the aim that those 

eligible be limited to legitimate, wellmanaged, and well-intended 

organizations with the ability to 

properly operate an AHP. Some 

commenters supported retaining the 

requirement in the Department’s prior 

guidance that the group or association 

exist for other purposes unrelated to the 

provision of benefits in order for the 

group or association to qualify as bona 

fide. Some suggested requiring a group 

or association to exist for a specified 

minimum length of time before it could 

sponsor an AHP. Others suggested 

requiring the group or association to 

meet certain criteria for tax-exempt 

organizations, have minimum revenues 

unrelated to AHP operations, or 

demonstrate by other means the 

capacity to oversee the administrative 

requirements associated with managing 

the complexities of an AHP. 

After consideration of the public 

comments, the Department determined 

that some modification of this provision 

is appropriate, because the intent of this 

final rule is to expand access to AHP 

coverage options, while protecting plan 

participants and beneficiaries from 

imprudent, abusive, or fraudulent 

arrangements. Removing undue 

restrictions for existing groups and 

associations as well as for newly-formed 

groups and associations of employers 

and working owners is critical to 

achieving the Department’s goal of 

expanding choice in health coverage 

options. But the Department shares 

concerns regarding operational risks 

such as fraud and insolvency that 

commenters believed would be more 

likely with respect to AHPs offered by 

newly-formed groups and associations 

that exist solely for the purpose of 

sponsoring an AHP. In addition, the 

Department’s revisions of the final rule 

are responsive to concerns that, in the 

absence of some purpose other than 

providing health benefits, there may be 

insufficient basis for treating the group 

or association as the sort of 

employment-based group or association 

contemplated by ERISA section 3(5). 

Accordingly, the Department is 

modifying this provision in the final 

rule to establish a general legal standard 

requiring a group or association of 

employers to have at least one 

substantial business purpose unrelated 

to offering and providing health care 

coverage or other employee benefits to 

its employer members and their 

employees, even if the primary purpose 

of the group or association is to offer 

such coverage to its members. Although 

the final rule does not define the term 

‘‘substantial business purpose,’’ the rule 

contains an explicit safe harbor under 

which a substantial business purpose is 

considered to exist in cases where the 

group or association can establish that it 

would be a viable entity even in the 

absence of sponsoring an employee 

benefit plan and states that a business 

purposes does not require a for-profit 

purpose. The Department believes these 

modifications assist substantially in 

drawing a clean line between entities 

that might exist only to underwrite and 

sell insurance, on the one hand, and 

those that qualify as an ‘‘employer’’ 

under section 3(5) of ERISA, on the 

other, because of their other substantial 

business purpose. 

Determining Effective and 

Applicability Date. As discussed above, 

the Proposed Rule did not include a 

discussion of the effective and 

applicability date for the rule and 

exemptions. Nevertheless, the 

Department received a significant 

number of comments regarding the 

importance of properly timing 

implementation of the final rule. Some 

commenters suggested that the effective 

date of the final rule should be no less 

than a year after it is published in the 

Federal Register. Others suggested an 

effective date of January 1st of the first 

full calendar year to fall at least 12 

months from the date of publication of 

the final rule. Still others urged an 

effective date of January 1, 2020, or 

later. Still others argued that the 

effective date should be no less than 

three years after publication of the final 

rule for self-insured AHPs with a 

grandfathering exemption date of 

December 31, 2017 that will allow 

existing bona fide AHPs to remain 

operational. 

After careful consideration of the 

public comments, the Department has 

determined that it is important for the 

final rule to become effective on the 

earliest possible date to provide plans, 

plan fiduciaries, plan participants and 

beneficiaries, and other stakeholders 

with certainty that will allow them to 

allocate capital and other resources and 

make decisions to prepare to implement 

AHPs pursuant to the final rule. 

The Department considered providing 

the same applicability date for fully 

insured and self-insured AHPs, but 

instead chose the following trifurcated 

applicability dates: September 1, 2018 

for new fully insured arrangements; 

January 1, 2019, for existing self-insured 

plan MEWAs that meet the employer 

definition by satisfying the 

Department’s existing sub-regulatory 

guidance and want to comply with the 

final rule; and April 1, 2019 for new 

self-insured AHPs. The Department 

believes that this approach will allow 

AHPs in each category to become 

operational as soon as possible while 

providing adequate time for plans and 

their affected service providers to adjust 

to the final rule. The Department has 

concluded that a phased or staged 

compliance date would address the 

concerns raised in the comments while 

also facilitating an immediate expansion 

of AHP availability in the marketplace. 

Omitting Working Owners from AHP 

Eligibility. The Department considered 

whether to omit from AHP eligibility 

working owners with no employees. 

Some commenters questioned whether 

their inclusion was consistent with 

ERISA’s application to employers only. 

Some saw their inclusion as likely to 

produce too much adverse selection 

against local individual markets. Other 

commenters, however, argued that 

working owners currently are 

particularly disadvantaged by the 

limited choices and high prices that 

afflict many local individual markets, 

and consequently can gain much from 

AHP eligibility. 

Under this final rule, AHPs can 

extend eligibility to both employers and 

working owners without employees. 

The Department separately considered 

eligibility for each, together with the 

respective separate implications for 

local small group and individual 

markets, and concluded that each was 

separately justified. The expansion of 

AHP opportunities for small employers 

under this rule will make more 

affordable choices available to many, 

including choices provided by 

geographically-based AHPs that benefit 

from large local market shares. This 

justifies any attendant adverse selection 

against local small group markets. 

Likewise, the extension of AHP 

eligibility and choices to working 

owners will make more affordable 

choices available to many, including 

some who otherwise would have 

dropped insurance altogether. Relative 

to small employers, the stakes for many 

working owners are likely to be higher. 

Working owners without employees 

currently are confined to local 

individual markets, many of which are 

beset by very limited choices and/or 

very high or rapidly increasing 

premiums. AHPs can offer many such 

working owners far more affordable 

alternatives. Relative to small group 

markets, such affected individual 

markets may be both more fragile and 

more susceptible to adverse selection, 


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143 29 CFR 2590.702(d)(3). See also 29 CFR 

2590.702(d)(4) Example 5. 

144See discussion in section B.2.g. of the 

preamble, above, under the heading 

Nondiscrimination. 

but the attendant risks for most 

individuals insured there are limited by 

the availability of subsidies for most 

individuals who purchase coverage on 

Exchanges. The availability of more 

affordable options for working owners 

justifies consequent cost increases for 

taxpayers and for affected individuals. 

The final rule does not disturb states’ 

authority to regulate AHPs in order to 

optimize their benefits for working 

owners and/or ameliorate any attendant 

negative consequences for local ACAcompliant individual markets. 

Expanding or Omitting the Proposed 

Rule’s Paragraph (d)(4) 

Nondiscrimination Provision. As stated 

earlier in this preamble, the Proposed 

Rule included certain 

nondiscrimination requirements that 

built on the existing health 

nondiscrimination provisions 

applicable to group health plans under 

HIPAA, as amended by the ACA, 

referred to as the HIPAA health 

nondiscrimination rules.143 The 

proposal prohibited the group or 

association from treating member 

employers as distinct groups of 

similarly-situated individuals when 

applying the HIPAA health 

nondiscrimination rules for defining 

similarly-situated individuals if the 

group or association wishes to qualify as 

bona fide. Therefore, groups or 

associations that conditioned individual 

employer members’ eligibility for 

benefits or premiums on their respective 

employees’ health status could not 

qualify as bona fide. 

The Department considered 

expanding or omitting this provision 

from the final rule. Some commenters 

criticized this provision as an undue 

obstacle to AHPs’ proliferation and 

growth. Some expressed concern that 

the provision would expose AHPs to 

adverse selection, while some noted that 

some existing AHPs currently do 

condition employer members’ eligibility 

for benefits and/or premiums on their 

employees’ health status. Other 

commenters praised the provision as a 

necessary and justified check against 

AHPs’ ability to segment good risks 

from ACA-compliant individual and 

small group markets. Some generally 

criticized discrimination based on 

health status as contrary to fairness and 

an obstacle to access and affordability to 

individuals with health problems who 

need insurance most. Some argued that 

this provision alone was inadequate to 

protect ACA-compliant markets from 

adverse selection and to preserve 

fairness, access, and affordability for 

people with health problems, and that 

AHPs additionally should be subject to 

some or all of the ACA and state rules 

applicable to the individual and small 

group markets in which they operate. 

After careful consideration of the 

comments, the Department agrees that it 

is unnecessary and would be 

counterproductive to outlaw currently 

existing lawful and successful AHP 

practices. Therefore, AHPs established 

under pre-rule guidance will retain the 

same flexibility as in the past to 

condition individual employer 

members’ premiums on their respective 

employees’ health status, to the extent 

permissible under the current HIPAA 

nondiscrimination rules based on the 

facts and circumstances of the particular 

situation.144

The Department notes that this final 

rule’s nondiscrimination provisions will 

limit AHPs’ flexibility to set actuarially 

fair prices, and will reduce risk 

segmentation that favors AHPs over 

individual and small group markets. 

This final rule newly authorizes multiindustry, geographically-based AHPs, 

and AHPs that include working owners. 

In combination, the flexibility to 

condition employer members’ 

premiums on health status and the 

ability to claim a large local market 

share would pose a greater potential for 

adverse selection against ACAcompliant markets than that presented 

by existing AHPs. The Department 

further notes that this final rule’s 

nondiscrimination provision will 

increase AHPs’ exposure to adverse 

selection, and with it their propensity to 

defend against adverse selection by 

limiting some benefits. 

However, after careful consideration 

of the comments, the Department 

decided the nondiscrimination 

provision in paragraph (d)(4) should be 

retained. As discussed in section B.2.g. 

of the preamble, above, under the 

heading Nondiscrimination, because the 

final rule relaxes the Department’s prerule guidance on the groups or 

associations that may sponsor a single 

ERISA-covered group health plan, it is 

especially important to maintain 

paragraph (d)(4) as proposed. In the 

context of these new, broader 

arrangements, paragraph (d)(4) helps 

ensure that the group or association is 

distinguishable from commercialinsurance-type arrangements. 

14. Conclusion 

The expansion of AHPs under this 

final rule will provide small businesses, 

including working owners, with 

additional and more affordable health 

insurance options that will more closely 

match their preferences. Many 

employees of small businesses will 

appreciate the more affordable health 

insurance provided through AHPs. 

Relative to ACA-regulated health 

insurance issuers in individual and 

small group markets, AHPs will be able 

to offer more affordable options by 

pursuing economies of scale and 

offering more tailored, often less 

comprehensive benefit packages that are 

priced in a more actuarially fair manner. 

Increased regulatory flexibility will 

necessarily result in some segmentation 

of risk that favors AHPs over individual 

and small group markets. However, 

practical considerations and federal 

nondiscrimination rules will limit such 

segmentation. States may further limit 

risk segmentation. Favorable selection 

toward AHPs will help reduce 

premiums for many small businesses, 

but will increase premiums somewhat 

for individuals and other small business 

remaining in the ACA-compliant 

individual and small group markets. 

Subsidy-eligible taxpayers with 

household incomes at or below 400 

percent of poverty purchasing coverage 

on Exchanges generally will be 

protected from these premium 

increases. 

Operational risks demand increased 

federal and state oversight. Overall, this 

rule delivers social benefits that justify 

any attendant social costs. 

15. Paperwork Reduction Act 

The final rule is not subject to the 

requirements of the Paperwork 

Reduction Act of 1995 (PRA 95) (44 

U.S.C. 3501, et seq.), because it does not 

contain a collection of information as 

defined in 44 U.S.C. 3502(3). 

16. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601, et seq.) (RFA) imposes 

certain requirements with respect to 

federal rules that are subject to the 

notice and comment requirements of 

section 553(b) of the Administrative 

Procedure Act (5 U.S.C. 551, et seq.) and 

which are likely to have a significant 

economic impact on a substantial 

number of small entities. Unless an 

agency certifies that a final rule is not 

likely to have a significant economic 

impact on a substantial number of small 

entities, section 604 of the RFA requires 

the agency to present a final regulatory 

flexibility analysis (FRFA) of the final 

rule. The Department has determined 

that this final rule, which would 

broaden the criteria for determining 

when employers may join together in a 


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145SBA Office of Advocacy Frequently Asked 

Questions. https://www.sba.gov/sites/default/files/ 

FAQ_Sept_2012.pdf. 

146 DOL calculations based on the Abstract of 

Auxiliary Data for the March 2016 Annual Social 

and Economic Supplement to the Current 

Population Survey, U.S. Department of Labor. 

147 DOL calculations based on the Abstract of 

Auxiliary Data for the March 2016 Annual Social 

and Economic Supplement to the Current 

Population Survey, U.S. Department of Labor. 

148 DOL calculations based on the Agency for 

Healthcare Research and Quality, Center for 

Financing, Access and Cost Trends. Medical 

Expenditure Panel Survey-Insurance Component, 

2016. Medical Expenditure Panel Survey Private 

Sector Insurance Component, Table I.A.1 and Table 

I.A.2. 

group or association to sponsor a group 

health plan under ERISA, is likely to 

have a significant impact on a 

substantial number of small entities. 

Therefore, the Department provides its 

FRFA of the final rule, below. 

Need for and Objectives of the Rule 

This final rule is intended and 

expected to deliver benefits primarily to 

the employees of many small businesses 

and their families including many 

working owners, as well as many small 

businesses themselves. As discussed in 

more detail in section 2 of the RIA, this 

final rule would encourage the 

establishment and growth of AHPs. 

AHPs may offer many small businesses 

and working owners additional and 

more affordable health benefit options 

than otherwise are available to them in 

the individual and small group markets. 

Affected Small Entities 

The Small Business Administration 

estimates that 99.7 percent of employer 

firms meet its definition of a small 

business.145 The applicability of these 

final rules does not depend on the size 

of the firm as defined by the Small 

Business Administration. Small 

businesses, including sole proprietors 

can join AHPs as long as they are 

eligible to do so and the AHP sponsor 

meets the requirements of the final rule. 

The Department believes that the 

smallest firms, those with less than 50 

employees, are most likely to benefit 

from the savings and increased choice 

derived from AHP coverage under the 

final rule and include some subset of: 

• The 25 million individuals under 

age 65 who currently are covered in 

individual markets, including 

approximately three million who are 

sole proprietors or dependents thereof, 

and an additional 12 million who are 

employees of small businesses or 

dependents thereof; 146

• The 28 million individuals under 

age 65 who currently lack insurance, 

including three million who are sole 

proprietors or dependents thereof, and 

an additional 12 million who are 

employees of small businesses or 

dependents thereof; 147 and 

• The 1.6 million private, small-firm 

establishments (those with fewer than 

50 employees) that currently offer 

insurance and the four million that do 

not.148

Impact of the Rule 

As stated above, by expanding AHPs, 

this final rule would provide additional 

and more affordable health coverage 

options for many small businesses, 

thereby potentially yielding economic 

benefits for participating small 

businesses and their employees. The 

rule may impact individual and small 

group issuers whose enrollees might 

switch to AHPs; many of these issuers 

would likely be small entities. Some 

small businesses obtaining coverage in 

the small group health insurance market 

will experience an increase in 

premiums. Some of those will not 

receive attractive alternative offers from 

AHPs. Some of those may see decreased 

choice and may even stop offering 

insurance to their employees due to the 

premium increases or to issuers 

withdrawing some offers. The final rule 

allows states to continue to regulate 

AHPs, which can serve to mitigate any 

adverse impacts on small businesses 

due to the expansion of AHPs. 

The RIA and preamble to the final 

rule includes a discussion of the 

changes to the Proposed Rule in 

response to comments. These changes 

include applying phased applicability 

dates, modifying the ‘‘control’’ 

requirement, allowing continued 

reliance on previous AHP rules so 

existing AHPs can continue to operate 

as they do today and new AHPs can 

form under the Department’s previously 

issued guidance, lowering the hours 

worked threshold for working owners 

without employees to 20 hours per 

week, and requiring AHPs to be 

established and maintained for at least 

one substantial business purpose that is 

not sponsoring a group health plan. The 

‘‘Regulatory Alternatives’’ section of the 

RIA above discusses significant 

regulatory alternatives considered by 

the Department. 

Duplication, Overlap, and Conflict With 

Other Rules and Regulations 

The final rule would not conflict with 

any relevant federal rules. As discussed 

above, the final rule would merely 

broaden the conditions under which a 

group or association can act as an 

‘‘employer’’ under ERISA for purposes 

of offering a group health plan and 

would not change AHPs’ status as large 

group plans and MEWAs, under ERISA, 

the ACA, and state law. In the final rule, 

the Department affirms that the rule 

does not modify existing State authority 

as established under ERISA section 

514(b)(6), which gives the Department 

and state insurance regulators joint 

authority over MEWAs, including 

AHPs, to ensure appropriate consumer 

protections for employers and 

employees relying on an AHP for health 

coverage. Nothing in the final rule 

changes this joint structure, or is meant 

to reduce the historically broad role of 

the States when it comes to regulating 

MEWAs. 

17. Congressional Review Act 

The final rule is subject to the 

Congressional Review Act (CRA) 

provisions of the Small Business 

Regulatory Enforcement Fairness Act of 

1996 (5 U.S.C. 801, et seq.) and will be 

transmitted to Congress and the 

Comptroller General for review. 

The final rule is a ‘‘major rule’’ as that 

term is defined in 5 U.S.C 804, because 

it is likely to result in an annual effect 

on the economy of $100 million or 

more. 

18. Unfunded Mandates Reform Act 

Title II of the Unfunded Mandates 

Reform Act of 1995 (Pub. L. 104–4) 

requires each federal agency to prepare 

a written statement assessing the effects 

of any federal mandate in a final agency 

rule that may result in an expenditure 

of $100 million or more (adjusted 

annually for inflation with the base year 

1995) in any one year by state, local, 

and tribal governments, in the aggregate, 

or by the private sector. For purposes of 

the Unfunded Mandates Reform Act, as 

well as Executive Order 12875, this rule 

does not include any federal mandate 

that the Department expects would 

result in such expenditures by state, 

local, or tribal governments, or the 

private sector. The rule merely broadens 

the conditions under which AHPs will 

be treated as large group health benefit 

plans under ERISA, the ACA and state 

law. 

19. Federalism Statement 

Executive Order 13132 outlines 

fundamental principles of federalism, 

and requires the adherence to specific 

criteria by federal agencies in the 

process of their formulation and 

implementation of policies that have 

‘‘substantial direct effects’’ on the 

States, the relationship between the 

national government and States, or on 

the distribution of power and 

responsibilities among the various 

levels of government. Federal agencies 

promulgating regulations that have 


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federalism implications must consult 

with state and local officials and 

describe the extent of their consultation 

and the nature of the concerns of state 

and local officials in the preamble to the 

final rule. 

In the Department’s view, this final 

rule would have federalism implications 

because they would have direct effects 

on the States, the relationship between 

the national government and the States, 

and on the distribution of power and 

responsibilities among various levels of 

government. The Department believes 

these effects are limited, insofar as the 

final rule would not change AHPs’ 

status as large group plans and MEWAs, 

under ERISA, the ACA, and state law. 

As discussed above in this preamble, 

because ERISA classifies AHPs as 

MEWAs, they generally are subject to 

state insurance regulation. Specifically, 

if an AHP is not fully insured, then 

under ERISA section 514(b)(6)(A)(ii) any 

state insurance law that regulates 

insurance may apply to the AHP to the 

extent that such state law is not 

inconsistent with ERISA. If, on the other 

hand, an AHP is fully insured, ERISA 

section 514(b)(6)(A)(i) provides that 

only those state insurance laws that 

regulate the maintenance of specified 

contribution and reserve levels may 

apply to the AHP, although the States, 

of course, retain regulatory authority 

over the insurance company itself and 

any policies it issues. The Department 

notes that state rules vary widely in 

practice, and many States regulate AHPs 

less stringently than individual or small 

group insurance. 

In the course of developing this final 

rule, the Department consulted directly 

with a number of state officials, 

including state insurance department 

representatives and state-based 

Exchange representatives, as well as 

with the National Association of 

Insurance Commissioners. 

The Department received many 

comments, including from several state 

insurance regulators, asserting that it is 

very important for the Department not 

to draft or implement the final rule in 

a manner that undermines or impairs 

the current ERISA preemption 

provisions that broadly permit states to 

regulate AHPs. They maintained that if 

the final rule prevents states from 

applying their insurance laws to AHPs, 

market fragmentation could result, 

because AHPs could be established in a 

state with less restrictive issuer and 

rating rules relative to other states. 

These commenters argued that AHPs 

operating in multiple states should be 

required to abide by the regulations of 

each of the states in which the plan 

operates, and not just the state in which 

the group or association or their AHP is 

deemed to be domiciled. Another 

commenter suggested that the final rule 

should distinguish self-insured AHPs, 

which have historically presented 

problems in the market, from fullyinsured AHPs, which are backed by 

licensed insurance companies and 

subject to oversight by state insurance 

commissioners and HHS. A few 

commenters asked that DOL promulgate 

a rule under ERISA section 520 which 

authorizes the Department to make 

persons operating AHPs subject to 

otherwise preempted state insurance 

laws to prevent fraud and abuse. 

The main point of these commenters 

is that the Department should make a 

clear and unequivocal statement in the 

final rule that States retain full authority 

to set and enforce solvency standards 

for all AHPs, and comprehensive 

licensure requirements and oversight for 

non-fully-insured AHPs including 

benefit, rating and consumer protection 

standards, and laws specifying who is 

eligible to apply for licensure. The 

Department agrees that the final rule 

does not modify existing state authority. 

ERISA section 514(b)(6) gives the 

Department and state insurance 

regulators joint authority over MEWAs, 

including AHPs (which are a type of 

MEWA), to ensure appropriate 

regulatory and consumer protections for 

employers and employees relying on an 

AHP for healthcare coverage. The 

Department therefore states in this final 

rule that nothing in the rule changes 

this joint structure, or is meant to 

reduce the historically broad role of the 

States when it comes to regulating 

MEWAs, including AHPs. 

Thus, under this framework, if an 

AHP established pursuant to this final 

rule is not fully insured, any state law 

that regulates insurance may apply to 

the MEWA to the extent that such state 

law is ‘‘not inconsistent’’ with ERISA. If 

an AHP is fully insured, state laws that 

regulate the maintenance of specified 

contribution and reserve levels (and that 

enforce those standards) may apply to 

the MEWA, and state insurance laws are 

generally saved from preemption when 

applied to insurance companies that sell 

policies to AHPs and to insurance 

policies that AHPs purchase to provide 

benefits. In addition, with respect to 

fully-insured AHPs, the Department’s 

view is that ERISA section 514(b)(6) 

clearly enables states to subject such 

AHPs to licensing, registration, 

certification, financial reporting, 

examination, audit and any other 

requirement of State insurance law 

necessary to ensure compliance with the 

State insurance reserves, contributions 

and funding requirements. 

20. Executive Order 13771 Reducing 

Regulation and Controlling Regulatory 

Costs 

Executive Order 13771, titled 

Reducing Regulation and Controlling 

Regulatory Costs, was issued on January 

30, 2017. This rule is expected to be an 

E.O. 13771 deregulatory action, because 

it will expand small businesses’ access 

to more lightly regulated and more 

affordable health insurance options, by 

removing certain restrictions on the 

establishment and maintenance of AHPs 

under ERISA. 

D. Effective Date, Applicability Dates 

and Severability 

Although the Proposed Rule did not 

contain a separate discussion of an 

effective date or applicability date for 

the final rule, the Department received 

a significant number of comments 

regarding the importance of properly 

timing implementation of the final rule. 

The comments supporting delay pointed 

to a number of challenges in moving 

forward with new AHPs on an 

expedited schedule. For example, some 

asserted that early applicability dates 

would be poor matches for state 

timelines for setting premium rates. 

According to some commenters, the 

annual cycle for insurance policy 

premium approvals supports an 

applicability date after January 1, 2019. 

According to one commenter, in many 

states, the critical period for 2019 

pricing is March through May of 2018. 

As a result, the impact of this rule may 

or may not be factored into 2019 

premiums. Similarly, some commenters 

suggested that many fully-insured AHPs 

and the largest self-insured AHPs are 

expected to choose to delay modifying 

their programs until calendar year 2020, 

when the implications of the rule and 

the rate environment is more settled and 

certain. Commenters supporting delay 

also argued that the effect of an 

immediate effective date may be to 

encourage the establishment of AHPs 

that enter the market (both self- and 

fully-insured arrangements) prematurely 

without the proper administrative 

processes necessary to avoid consumer 

harm (e.g., adequate reserves and 

appropriate premium structures). They 

expressed concern that this could result 

in an initial AHP implementation 

marked by a higher concentration of 

riskier, or even fraudulent, structures 

capturing the market. 

Many commenters also noted that 

regulators, as well as AHPs, need time 

to prepare for change. For example, 

there will be a need to modify existing 

reporting requirements for AHPs and 

other MEWAs, including at least the 


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Form M–1 and possibly the Form 5500. 

That will require APA rulemaking and/ 

or Paperwork Reduction Act notice and 

comment processes that optimally 

would need to be completed in advance 

of the applicability date of the new AHP 

rule. Similarly, there may be a need for 

class or individual prohibited 

transaction exemptions in the case of 

AHPs that want to use affiliates to be 

administrative service providers to the 

AHP or to act as issuers providing 

benefits under the AHP. ERISA requires 

a notice and comment process for 

issuance of prohibited transaction 

exemptions, which necessarily takes 

time. Similarly, the final rule 

importantly depends on state insurance 

regulators for oversight and enforcement 

to, among other things, prevent fraud, 

abuse, incompetence and 

mismanagement, and avoid unpaid 

health claims. Some states say they will 

need time for new AHP-specific 

legislation and/or modification of 

existing regulations and enforcement 

programs. 

The comments also included specific 

suggestions. For example, some said the 

applicability date of the new rule needs 

to be delayed for no less than a year 

after it is published in the Federal 

Register. Others suggested an 

applicability date of January 1 of the 

first full calendar year to fall at least 12 

months from the date of publication of 

the final rule. Still others urged an 

applicability date of January 1, 2020, or 

later. Others argued that the 

applicability date should be delayed no 

fewer than three years for self-insured 

AHPs with a grandfathering exemption 

date of December 31, 2017 that will 

allow existing bona fide AHPs to remain 

operational. Some said the final rule 

should not become applicable until 

Congress has appropriated funding for 

DOL oversight of an expanded universe 

of AHPs. Some commenters expressed 

skepticism about the Department’s 

ability to effectively police AHPs for 

abuse at current resource levels and 

stressed the need for increased 

resources and coordination between the 

States and the Department. 

The Department has determined that 

a prolonged delay in applicability of the 

final rule is not in the public interest. 

As noted above, the Department 

received many comments from 

individuals in immediate distress due to 

the unavailability of affordable 

healthcare coverage and expressing the 

challenges they have faced since the 

enactment of the ACA. A significant 

number of commenters expressed 

serious concerns regarding the rising 

cost of health insurance. Many of them 

were small business owners that 

currently do not offer health insurance 

to their employees and who cited everincreasing costs as the primary reason 

for their inability to provide their 

employees and their families with 

affordable health coverage. Even 

business owners that do provide health 

coverage stressed that the premiums are 

exceedingly costly, and the increases in 

premiums are frequent and 

unsustainable. Many self-employed 

individuals, for example real estate 

agents, stated that they are forced to 

purchase insurance in a volatile 

individual insurance market, which 

tends to offer fewer choices at much 

higher costs. These business owners 

said they wanted access to AHPs at the 

earliest possible date to obtain more 

affordable healthcare coverage for 

themselves and their employees. 

These concerns were also important 

in the Department’s consideration of the 

request for a public hearing by some 

commenters who opposed the proposal. 

The Department was not persuaded that 

a public hearing is necessary or 

appropriate in connection with this 

rulemaking. A substantial and 

comprehensive public record has 

already been established through the 

comment process, which generated over 

900 comment letters, many of which 

included substantial attachments and 

citations to reports and other data. The 

Department does not believe that a 

public hearing would meaningfully add 

data and information germane to the 

examination of the merits of the 

proposal or would provide substantive 

factual information that would assist the 

Department in improving the rule in 

material ways. Furthermore, the 

Department believes that it has made 

changes to the rule and included 

clarifications in this preamble that 

address the important issues raised by 

parties who requested a hearing. The 

Department believes that the scope and 

depth of the public record that has been 

developed also belies arguments by 

some that a 60 day comment period was 

not a sufficient period of time to provide 

the data needed to support their 

arguments against the proposal. 

After careful consideration of the 

public comments, the Department has 

determined that it is important for the 

final rule to become effective on the 

earliest possible date to provide 

certainty regarding the Department’s 

interpretation for affected entities, with 

a staged series of applicability dates for 

pre-existing and new AHPs to respond 

to implementation issues. Accordingly, 

the final rule is effective August 20, 

2018, however see below for a 

discussion of the staggered applicability 

dates. 

The Department acknowledges the 

issues raised about insurance rate 

setting processes, state regulator and 

DOL preparedness for oversight roles, 

and steps other stakeholders may need 

to take to revise governing structures, 

memberships, and benefit offerings. At 

the same time, the Department needs to 

balance these concerns against the 

immediate need for improved options 

for healthcare coverage. The Department 

believes that a staged applicability 

process is an appropriate way to 

respond to those concerns in light of the 

public demand for help. Specifically, 

September 1, 2018 is the applicability 

date for fully-insured AHPs; January 1, 

2019 is the applicability date for 

existing self-insured AHPs that are in 

compliance with the Department’s 

previous sub-regulatory guidance on 

bona fide groups or associations, and 

that choose to expand the group or 

association and its plan pursuant to the 

terms of the final rule (e.g., in order to 

expand to a broader group of 

individuals, such as working owners 

without employees); and April 1, 2019 

is the applicability date for new selfinsured AHPs formed pursuant to the 

final rule. 

The Department expects fewer 

oversight and operational issues for 

fully-insured AHPs. This is, in part, 

because many fully-insured AHPs 

already exist. Issuers have already 

developed products and services 

tailored to those plans. Application of 

state insurance regulations presents 

fewer issues because of the existing state 

rules that govern insurance companies 

and the policies they sell to 

employment-based group health plans. 

And fully-insured AHPs have 

traditionally been least likely to 

experience fraud. Allowing existing selfinsured AHPs formed under the 

Department’s pre-rule guidance next to 

expand consistent with the final rule 

similarly involves employment-based 

group health plans that currently exist 

and with respect to which state 

insurance regulators have had 

regulatory authority for many years. The 

Department does not believe that 

changes to those existing and already 

regulated AHPs should present 

immediate or acute new challenges for 

state regulators. Delaying the 

applicability of the final rule for new 

self-insured AHPs until nearly a year 

after publication of the final rule in the 

Federal Register is consistent with and 

adequate to the objective of managing 

implementation of the final rule in a 

way that allows stakeholders, including 

states and state insurance regulators, an 

appropriate amount of time to tailor 


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149ERISA Advisory Opinion Procedure 76–1, 

Section 10. (available at FR Doc. 76–25168 and 

www.dol.gov/agencies/ebsa/employers-andadvisers/guidance/advisory-opinions/filingrequests-for-erisa-aos). 150 Id. 

their groups or associations, plans, and 

regulations. This is true especially 

because self-insured AHPs, while 

offering very important benefits when 

properly managed, have historically 

been at greater risk of fraud, and are also 

less common than fully-insured AHPs at 

this time. Thus, State regulators may 

benefit from extra time to strengthen 

their enforcement programs where selfinsured AHPs are concerned. 

Furthermore, a special applicability date 

is not needed for existing AHPs 

operating as multiple employer plans 

pursuant to pre-rule advisory opinions 

issued by the Department because this 

rule is an alternative to, and does not 

preclude employer groups or 

associations from relying on, the 

Department’s pre-rule advisory opinions 

either before or after the effective date 

of this final rule. This final rule also 

does not incorporate the Department’s 

pre-rule advisory opinions into this 

regulation, and, accordingly, does not 

change the legal force of any advisory 

opinions issued by the Department 

under ERISA.149 The Department has 

procedures to answer inquiries from 

individuals or organizations regarding 

other circumstances in which the 

Department will view a person as an 

employer under ERISA section 3(5) that 

is able to sponsor a group health plan. 

We invite individuals who seek 

clarification regarding whether a group 

or association is an employer under 

previously-issued subregulatory 

guidance (e.g., whether there is a 

sufficiently close nexus between the 

employers to maintain a multiple 

employer plan) to seek informal 

compliance assistance or request a 

formal advisory opinion.150

The Department has a longstanding 

practice of providing compliance 

assistance to employers, plan sponsors, 

plan fiduciaries, other employee benefit 

plan officials and service providers to 

foster understanding and compliance 

with the requirements of ERISA. 

Consistent with that practice, the 

Department intends to provide affected 

parties with significant assistance and 

support to promote the efficient and 

effective implementation of the final 

rule. The Department also intends to 

examine the current Form M–1 for 

appropriate changes to address 

reporting and disclosure issues and 

other general improvements in 

information collection related to AHPs 

under the final rule. As discussed 

earlier in this preamble, MEWA 

registration requirements require plan 

and non-plan MEWAs to file the Form 

M–1 under ERISA section 101(g) and 29 

CFR 2520.101–2. All AHPs under the 

final rule will be required to file the 

Form M–1 regardless of the plan size or 

type of funding. The Department will 

also be working with other federal and 

state regulators to prepare for the new 

plan structures. Groups or associations 

should also seek qualified legal counsel 

to determine whether any proposed 

structure or operations may create 

potential prohibited transactions. In that 

case, the group or association may apply 

to the Department under ERISA section 

408(a) for an exemption from the 

prohibited transaction provisions to 

avoid ERISA personal liability for the 

prohibited transaction and civil penalty 

assessments. 

The Department acknowledges 

commenters’ concerns about whether it 

has the tools and capacity to adequately 

oversee an expanded AHP marketplace 

and protect the public from harms that 

have materialized in the past from 

fraudulent and poorly operated 

MEWAs, including many that were not 

AHPs and some that were or claimed to 

be AHPs. However, the Department has 

a long history of regulating ERISAcovered group health plans, including 

plan-MEWAs, and AHPs under the final 

rule will be in that category. 

Significantly, recent changes in federal 

law equipped the Department with new 

‘‘cease and desist’’ authority to quickly 

intervene in cases when MEWAs 

(including AHPs) pose a risk the public. 

This new authority augments the 

criminal penalties for healthcare fraud 

enacted as part of HIPAA. Further, as 

noted elsewhere in this preamble, the 

States’ traditional oversight and police 

authority over MEWAs (and AHPs) is 

not diminished by or because of this 

final rule. This decision was deliberate, 

in recognition by the Department of the 

vast expertise of the States in combating 

MEWA fraud and mismanagement, and 

is supported by the majority of public 

commenters. Even more so than in the 

past, the Department intends to 

coordinate and work with the States in 

exercising the joint oversight 

responsibilities conferred by section 514 

of ERISA. The Department presently has 

written agreements in place with 34 

States to foster cooperative enforcement 

efforts. The Department will review 

these agreements to make sure they 

continue to serve their purpose under 

the final rule. Further, as necessary and 

feasible, more agreements with other 

States will be put into place in concert 

with the delayed applicability dates in 

the final rule. In addition, the 

Department intends to review existing 

reporting requirements for AHPs to 

enhance the oversight capability of 

federal and State regulators. New 

reporting requirements would focus on 

capturing data to minimize the risk of 

unpaid claims. In concert with any new 

reporting requirements, the Department, 

if necessary, will consider imposing 

AHP-specific audit requirements with 

conditions that are designed to identify 

and minimize potential risks for AHP’s 

failing to pay health claims when due. 

Finally, the final rule includes a 

severability provision that provides that 

if any of the provisions in the final rule 

are found to be invalid or stayed 

pending further agency action, the 

remaining portions of the rule would 

remain operative and available for 

qualifying employer groups or 

associations. For example, a ruling by a 

federal court that the ‘‘working owners’’ 

provision in section 2510.3–5(e) is void 

will not impact the ability of an 

employer group or association to meet 

the ‘‘commonality of interest’’ 

requirement in section 2510.3–5(c) by 

being located in the same geographic 

locale. 

List of Subjects in 29 CFR Part 2510 

Employee benefit plans, Pensions. 

For the reasons stated in the 

preamble, the Department of Labor 

amends 29 CFR part 2510 as follows: 

PART 2510—DEFINITIONS OF TERMS 

USED IN SUBCHAPTERS C, D, E, F, G, 

AND L OF THIS CHAPTER 

■ 1. The authority citation for part 2510 

is revised to read as follows: 

Authority: 29 U.S.C. 1002(2), 1002(5), 

1002(21), 1002(37), 1002(38), 1002(40), 1031, 

and 1135; Secretary of Labor’s Order No. 1– 

2011, 77 FR 1088 (Jan. 9, 2012); Sec. 2510.3– 

101 also issued under sec. 102 of 

Reorganization Plan No. 4 of 1978, 43 FR 

47713 (Oct. 17, 1978), E.O. 12108, 44 FR 

1065 (Jan. 3, 1979) and 29 U.S.C. 1135 note. 

Sec. 2510.3–38 is also issued under sec. 1, 

Pub. L. 105–72, 111 Stat. 1457 (1997). 

■ 2. Section 2510.3–3 is amended by 

revising paragraph (c) introductory text 

to read as follows: 

§ 2510.3–3 Employee benefit plan. 

* * * * * 

(c) Employees. For purposes of this 

section and except as provided in 

§ 2510.3–5(e): 

* * * * * 

■ 3. Section 2510.3–5 is added to read 

as follows: 

§ 2510.3–5 Employer. 

(a) In general. The purpose of this 

section is to clarify which persons may 


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act as an ‘‘employer’’ within the 

meaning of section 3(5) of the Act in 

sponsoring a multiple employer group 

health plan. Section 733(a)(1) defines 

the term ‘‘group health plan,’’ in 

relevant part, as an employee welfare 

benefit plan to the extent that the plan 

provides medical care to employees or 

their dependents through insurance, 

reimbursement, or otherwise. The Act 

defines an ‘‘employee welfare benefit 

plan’’ in section 3(1), in relevant part, as 

any plan, fund, or program established 

or maintained by an employer, 

employee organization, or by both an 

employer and an employee 

organization, for the purpose of 

providing certain listed welfare benefits 

to participants or their beneficiaries. For 

purposes of being able to establish and 

maintain a welfare benefit plan, an 

‘‘employer’’ under section 3(5) of the 

Act includes any person acting directly 

as an employer, or any person acting 

indirectly in the interest of an employer 

in relation to an employee benefit plan. 

A group or association of employers is 

specifically identified in section 3(5) of 

the Act as a person able to act directly 

or indirectly in the interest of an 

employer, including for purposes of 

establishing or maintaining an employee 

welfare benefit plan. A bona fide group 

or association shall be deemed to be 

able to act in the interest of an employer 

within the meaning of section 3(5) of the 

Act by satisfying the criteria set forth in 

paragraphs (b) through (e) of this 

section. This section does not invalidate 

any existing advisory opinions, or 

preclude future advisory opinions, from 

the Department under section 3(5) of the 

Act that address other circumstances in 

which the Department will view a 

person as able to act directly or 

indirectly in the interest of direct 

employers in sponsoring an employee 

welfare benefit plan that is a group 

health plan. 

(b) Bona fide group or association of 

employers. For purposes of Title I of the 

Act and this chapter, a bona fide group 

or association of employers capable of 

establishing a group health plan that is 

an employee welfare benefit plan shall 

include a group or association of 

employers that meets the following 

requirements: 

(1) The primary purpose of the group 

or association may be to offer and 

provide health coverage to its employer 

members and their employees; however, 

the group or association also must 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. For purposes of 

satisfying the standard of this paragraph 

(b)(1), as a safe harbor, a substantial 

business purpose is considered to exist 

if the group or association would be a 

viable entity in the absence of 

sponsoring an employee benefit plan. 

For purposes of this paragraph (b)(1), a 

business purpose includes promoting 

common business interests of its 

members or the common economic 

interests in a given trade or employer 

community, and is not required to be a 

for-profit activity; 

(2) Each employer member of the 

group or association participating in the 

group health plan is a person acting 

directly as an employer of at least one 

employee who is a participant covered 

under the plan, 

(3) The group or association has a 

formal organizational structure with a 

governing body and has by-laws or other 

similar indications of formality, 

(4) The functions and activities of the 

group or association are controlled by 

its employer members, and the group’s 

or association’s employer members that 

participate in the group health plan 

control the plan. Control must be 

present both in form and in substance, 

(5) The employer members have a 

commonality of interest as described in 

paragraph (c) of this section, 

(6)(i) The group or association does 

not make health coverage through the 

group’s or association’s group health 

plan available other than to: 

(A) An employee of a current 

employer member of the group or 

association; 

(B) A former employee of a current 

employer member of the group or 

association who became eligible for 

coverage under the group health plan 

when the former employee was an 

employee of the employer; and 

(C) A beneficiary of an individual 

described in paragraph (b)(6)(i)(A) or 

(b)(6)(i)(B) of this section (e.g., spouses 

and dependent children). 

(ii) Notwithstanding paragraph 

(b)(6)(i)(B) of this section, coverage may 

not be made available to any individual 

(or beneficiaries of the individual) for 

any plan year following the plan year in 

which the plan determines pursuant to 

reasonable monitoring procedures that 

the individual ceases to meet the 

conditions in paragraph (e)(2) of this 

section (unless the individual again 

meets those conditions), except as may 

be required by section 601 of the Act. 

(7) The group or association and 

health coverage offered by the group or 

association complies with the 

nondiscrimination provisions of 

paragraph (d) of this section. 

(8) The group or association is not a 

health insurance issuer described in 

section 733(b)(2) of the Act, or owned or 

controlled by such a health insurance 

issuer or by a subsidiary or affiliate of 

such a health insurance issuer, other 

than to the extent such entities 

participate in the group or association in 

their capacity as employer members of 

the group or association. 

(c) Commonality of interest—(1) 

Employer members of a group or 

association will be treated as having a 

commonality of interest if the standards 

of either paragraph (c)(1)(i) or (c)(1)(ii) 

of this section are met, provided these 

standards are not implemented in a 

manner that is subterfuge for 

discrimination as is prohibited under 

paragraph (d) of this section: 

(i) The employers are in the same 

trade, industry, line of business or 

profession; or 

(ii) Each employer has a principal 

place of business in the same region that 

does not exceed the boundaries of a 

single State or a metropolitan area (even 

if the metropolitan area includes more 

than one State). 

(2) In the case of a group or 

association that is sponsoring a group 

health plan under this section and that 

is itself an employer member of the 

group or association, the group or 

association will be deemed for purposes 

of paragraph (c)(1)(i) of this section to be 

in the same trade, industry, line of 

business, or profession, as applicable, as 

the other employer members of the 

group or association. 

(d) Nondiscrimination. A bona fide 

group or association, and any health 

coverage offered by the bona fide group 

or association, must comply with the 

nondiscrimination provisions of this 

paragraph (d). 

(1) The group or association must not 

condition employer membership in the 

group or association on any health 

factor, as defined in § 2590.702(a) of this 

chapter, of any individual who is or 

may become eligible to participate in 

the group health plan sponsored by the 

group or association. 

(2) The group health plan sponsored 

by the group or association must comply 

with the rules of § 2590.702(b) of this 

chapter with respect to 

nondiscrimination in rules for eligibility 

for benefits, subject to paragraph (d)(4) 

of this section. 

(3) The group health plan sponsored 

by the group or association must comply 

with the rules of § 2590.702(c) of this 

chapter with respect to 

nondiscrimination in premiums or 

contributions required by any 

participant or beneficiary for coverage 

under the plan, subject to paragraph 

(d)(4) of this section. 

(4) In applying the nondiscrimination 

provisions of paragraphs (d)(2) and (3) 


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of this section, the group or association 

may not treat the employees of different 

employer members of the group or 

association as distinct groups of 

similarly-situated individuals based on 

a health factor of one or more 

individuals, as defined in § 2590.702(a) 

of this chapter. 

(5) The rules of this paragraph (d) are 

illustrated by the following examples: 

Example 1. (i) Facts. Association A offers 

group health coverage to all members. 

According to the bylaws of Association A, 

membership is subject to the following 

criteria: All members must be restaurants 

located in a specified area. Restaurant B, 

which is located within the specified area, 

has several employees with large health 

claims. Restaurant B applies for membership 

in Association A, and is denied membership 

based on the claims experience of its 

employees. 

(ii) Conclusion. In this Example 1, 

Association A’s exclusion of Restaurant B 

from Association A discriminates on the 

basis of claims history, which is a health 

factor under § 2590.702(a)(1) of this chapter. 

Accordingly, Association A does not satisfy 

the requirement in paragraph (d)(1) of this 

section, and, therefore would not meet the 

definition of a bona fide group or association 

of employers under paragraph (b) of this 

section. 

Example 2. (i) Facts. Association C offers 

group health coverage to all members. 

According to the bylaws of Association C, 

membership is subject to the following 

criteria: All members must have a principal 

place of business in a specified metropolitan 

area. Individual D is a sole proprietor whose 

principal place of business is within the 

specified area. As part of the membership 

application process, Individual D provides 

certain health information to Association C. 

After learning that Individual D has diabetes, 

based on D’s diabetes, Association C denies 

Individual D’s membership application. 

(ii) Conclusion. In this Example 2, 

Association C’s exclusion of Individual D 

because D has diabetes is a decision that 

discriminates on the basis of a medical 

condition, which is a health factor under 

§ 2590.702(a)(1) of this chapter. Accordingly, 

Association C does not satisfy the 

requirement in paragraph (d)(1) of this 

section and would not meet the definition of 

a bona fide group or association of employers 

under paragraph (b) of this section. 

Example 3. (i) Facts. Association F offers 

group health coverage to all plumbers 

working for plumbing companies in a State, 

if the plumbing company employer chooses 

to join the association. Plumbers employed 

by a plumbing company on a full-time basis 

(which is defined under the terms of the 

arrangement as regularly working at least 30 

hours a week) are eligible for health coverage 

without a waiting period. Plumbers 

employed by a plumbing company on a parttime basis (which is defined under the terms 

of the arrangement as regularly working at 

least 10 hours per week, but less than 30 

hours per week) are eligible for health 

coverage after a 60-day waiting period. 

(ii) Conclusion. In this Example 3, making 

a distinction between part-time versus fulltime employment status is a permitted 

distinction between similarly-situated 

individuals under § 2590.702(d) of this 

chapter, provided the distinction is not 

directed at individuals under 

§ 2590.702(d)(3) of this chapter. Accordingly, 

the requirement that plumbers working part 

time must satisfy a waiting period for 

coverage is a rule for eligibility that does not 

violate § 2590.702(b) and, as a consequence, 

satisfies paragraph (d)(2) of this section. 

Example 4. (i) Facts. Association G 

sponsors a group health plan, available to all 

employers doing business in Town H. 

Association G charges Business I more for 

premiums than it charges other members 

because Business I employs several 

individuals with chronic illnesses. 

(ii) Conclusion. In this Example 4, the 

employees of Business I cannot be treated as 

a separate group of similarly-situated 

individuals from other members based on a 

health factor of one or more individuals 

under paragraph (d)(4) of this section. 

Therefore, charging Business I more for 

premiums based on one or more health 

factors of the employees of Business I does 

not satisfy the requirements in paragraph 

(d)(4) of this section. 

Example 5. (i) Facts. Association J 

sponsors a group health plan that is available 

to all members. According to the bylaws of 

Association J, membership is open to any 

entity whose principal place of business is in 

State K, which has only one major 

metropolitan area, the capital city of State K. 

Members whose principal place of business 

is in the capital city of State K are charged 

more for premiums than members whose 

principal place of business is outside of the 

capital city. 

(ii) Conclusion. In this Example 5, making 

a distinction between members whose 

principal place of business is in the capital 

city of State K, as compared to some other 

area in State K, is a permitted distinction 

between similarly-situated individuals under 

§ 2590.702(d) of this chapter, provided the 

distinction is not directed at individuals 

under § 2590.702(d)(3) of this chapter. 

Accordingly, Association J’s rule for charging 

different premiums based on principal place 

of business satisfies paragraph (d)(3) and 

(d)(4) of this section. 

Example 6. (i) Facts. Association L 

sponsors a group health plan, available to all 

its members. According to the bylaws of 

Association L, membership is open to any 

entity whose principal place of business is in 

State M. Sole Proprietor N’s principal place 

of business is in City O, within State M. It 

is the only member whose principal place of 

business is in City O, and it is otherwise 

similarly situated with respect to all other 

members of the association. After learning 

that Sole Proprietor N has been diagnosed 

with cancer, based on the cancer diagnosis, 

Association L changes its premium structure 

to charge higher premiums for members 

whose principal place of business is in 

City O. 

(ii) Conclusion. In this Example 6, cancer 

is a health factor under § 2590.702(a) of this 

chapter. Making a distinction between groups 

of otherwise similarly situated individuals 

that on its face is based on geography (which 

is not a health factor), but that is directed at 

one or more individuals based on a health 

factor (cancer), is in this case a distinction 

directed at an individual under 

§ 2590.702(d)(3) of this chapter and is not a 

permitted distinction. Accordingly, by 

charging higher premiums to members whose 

principal place of business is City O, 

Association L violates § 2590.702(c) of this 

chapter and, consequently, the conditions of 

paragraphs (d)(3) and (d)(4) of this section are 

not satisfied. 

Example 7. (i) Facts. Association P is an 

agriculture industry association. It sponsors a 

group health plan that charges employers 

different premiums based on their primary 

agriculture subsector, defined under the 

terms of the plan as: Crop farming, livestock, 

fishing and aquaculture, and forestry. The 

distinction is not directed at individual 

participants or beneficiaries based on a 

health factor. 

(ii) Conclusion. In this Example 7, the 

premium distinction between members is 

permitted under paragraphs (d)(3) and (d)(4) 

because it is not based on a health factor and 

is not directed at individual participants and 

beneficiaries based on a health factor. 

Example 8. (i) Facts. Association Q is a 

retail industry association. It sponsors a 

group health plan that charges employees of 

employers different premiums based on their 

occupation: Cashier, stockers, and sales 

associates. The distinction is not directed at 

individual participants or beneficiaries based 

on a health factor. 

(ii) Conclusion. In this Example 8, the 

premium distinction is permitted under 

paragraph (d)(3) and (d)(4) of this section 

because it is not based on a health factor and 

is not directed at individual participants and 

beneficiaries based on a health factor. 

Example 9. (i) Facts. Association R 

sponsors a group health plan that is available 

to all employers with a principal place of 

business in State S. Employers are charged 

different premiums based on their industry 

subsector, defined under the terms of the 

plan as: Construction, education, health, 

financial services, information services, 

leisure and hospitality, manufacturing, 

transportation, natural resources, and other. 

In addition, within any employer, employees 

are charged different premiums based on 

part-time versus full-time status (part time 

status is defined, under the terms of the plan, 

as regularly working at least 40 hours, but 

less than 120 hours, per month). These 

distinctions are not directed at individual 

participants or beneficiaries based on a 

health factor. 

(ii) Conclusion. In this Example 9, the 

premium distinctions between employer 

members of a State AHP based on industry, 

and between employees of employer 

members who are working part-time versus 

full-time, are permitted under paragraphs 

(d)(3) and (d)(4) of this section because these 

distinctions are not based on a health factor 

or directed at individual participants and 

beneficiaries based on a health factor. 

Example 10. (i) Facts. Association T 

sponsors a group health plan that offers a 

premium discount to participants who 


amozie on DSK3GDR082PROD with RULES2
28964 Federal Register / Vol. 83, No. 120 / Thursday, June 21, 2018 / Rules and Regulations 

participate in a wellness program that 

complies with section 2590.702(f) of this 

chapter. 

(ii) Conclusion. In this Example 10, 

providing a reward (such as a premium 

discount or rebate, a waiver of all or part of 

a cost-sharing mechanism, an additional 

benefit, or any financial or other incentive, as 

well as avoiding a penalty such as the 

absence of a premium surcharge or other 

financial or nonfinancial disincentive) in 

return for adherence to a wellness program 

that satisfies conditions of § 2590.702(f) of 

this chapter is permissible under this 

paragraph (d). 

(e) Dual treatment of working owners 

as employers and employees—(1) A 

working owner of a trade or business 

without common law employees may 

qualify as both an employer and as an 

employee of the trade or business for 

purposes of the requirements in 

paragraph (b) of this section, including 

the requirement in paragraph (b)(2) that 

each employer member of the group or 

association participating in the group 

health plan must be a person acting 

directly as an employer of one or more 

employees who are participants covered 

under the plan, and the requirement in 

paragraph (b)(6) that the group or 

association does not make health 

coverage offered to employer members 

through the association available other 

than to certain employees and former 

employees and their beneficiaries. 

(2) The term ‘‘working owner’’ as used 

in this paragraph (e) of this section 

means any person who a responsible 

plan fiduciary reasonably determines is 

an individual: 

(i) Who has an ownership right of any 

nature in a trade or business, whether 

incorporated or unincorporated, 

including a partner and other selfemployed individual; 

(ii) Who is earning wages or selfemployment income from the trade or 

business for providing personal services 

to the trade or business; and 

(iii) Who either: 

(A) Works on average at least 20 hours 

per week or at least 80 hours per month 

providing personal services to the 

working owner’s trade or business, or 

(B) Has wages or self-employment 

income from such trade or business that 

at least equals the working owner’s cost 

of coverage for participation by the 

working owner and any covered 

beneficiaries in the group health plan 

sponsored by the group or association in 

which the individual is participating. 

(3) The determination under this 

paragraph must be made when the 

working owner first becomes eligible for 

coverage under the group health plan 

and continued eligibility must be 

periodically confirmed pursuant to 

reasonable monitoring procedures. 

(f) Applicability dates—(1) This 

section is applicable on September 1, 

2018, for employee welfare benefit plans 

that are fully insured and that meet the 

requirements for being an association 

health plan sponsored by a bona fide 

group or association of employers 

pursuant to paragraphs (b) through (e) of 

this section. 

(2) This section is applicable on 

January 1, 2019, for any employee 

welfare benefit plan that is not fully 

insured, is in existence on June 21, 

2018, meets the requirements that 

applied before June 21, 2018, and 

chooses to become an association health 

plan sponsored by a bona fide group or 

association of employers pursuant to 

paragraphs (b) through (e) of this section 

(e.g., in order to expand to a broader 

group of individuals, such as working 

owners without employees). 

(3) This section is applicable on April 

1, 2019, for any other employee welfare 

benefit plan established to be and 

operated as an association health plan 

sponsored by a bona fide group or 

association of employers pursuant to 

pursuant to paragraphs (b) through (e) of 

this section. 

(g) Severability. If any provision of 

this section is held to be invalid or 

unenforceable by its terms, or as applied 

to any person or circumstance, or stayed 

pending further agency action, the 

provision shall be construed so as to 

continue to give the maximum effect to 

the provision permitted by law, unless 

such holding shall be one of utter 

invalidity or unenforceability, in which 

event the provision shall be severable 

from this section and shall not affect the 

remainder thereof. 

Preston Rutledge, 

Assistant Secretary, Employee Benefits 

Security Administration, Department of 

Labor. 

[FR Doc. 2018–12992 Filed 6–20–18; 8:45 am] 

BILLING CODE 4510–29–P 


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