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Proposed Rules Federal Register Vol. 83, No. 4

Friday, January 5, 2018

This section of the FEDERAL REGISTER and also to be treated as employees with FOR FURTHER INFORMATION CONTACT: contains notices to the public of the proposed respect to a trade, business or Elizabeth Schumacher, Office of Health issuance of rules and regulations. The partnership for purposes of being Plan Standards and Compliance purpose of these notices is to give interested covered by the employer group’s or Assistance, Employee Benefits Security persons an opportunity to participate in the association’s health plan. The goal of Administration, (202) 693–8335 or Janet rule making prior to the adoption of the final rules. the rulemaking is to expand access to K. Song, Office of Regulations and affordable health coverage, especially Interpretations, Employee Benefits among small employers and self- Security Administration, (202) 693– DEPARTMENT OF LABOR employed individuals, by removing 8500. These are not toll free numbers. undue restrictions on the establishment SUPPLEMENTARY INFORMATION: Employee Benefits Security and maintenance of association health A. Overview Administration plans under ERISA. The proposed regulation would affect such association Since the Affordable Care Act 1 (or 29 CFR Part 2510 health plans, health coverage under ACA) was enacted, many consumers these health plans, groups and have continued to face rising costs of RIN 1210–AB85 associations of employers sponsoring coverage and a lack of quality affordable healthcare options. On October 12, Definition of ‘‘Employer’’ Under Section such plans, participants and beneficiaries with health coverage under 2017, President Trump issued Executive 3(5) of ERISA—Association Health Order 13813, ‘‘Promoting Healthcare Plans these plans, health insurance issuers, and purchasers of health insurance not Choice and Competition Across the AGENCY: Employee Benefits Security purchased through association health United States,’’ stating that ‘‘[i]t shall be Administration, Department of Labor. plans. the policy of the executive branch, to the extent consistent with law, to ACTION: Proposed rule. DATES: Comments are due on or before facilitate the purchase of insurance March 6, 2018. SUMMARY: This document contains a across State lines and the development proposed regulation under Title I of the ADDRESSES: You may submit written and operation of a healthcare system Employee Retirement Income Security comments, identified by RIN 1210– that provides high-quality care at Act (ERISA) that would broaden the AB85, by one of the following methods: affordable prices for the American criteria under ERISA section 3(5) for • Federal eRulemaking Portal: http:// people.’’ The Executive Order states that determining when employers may join www.regulations.gov. Follow the the Administration will prioritize three together in an employer group or instructions for submitting comments. areas for improvement in the near term: association that is treated as the • Mail: Office of Regulations and association health plans (AHPs), short- ‘‘employer’’ sponsor of a single Interpretations, Employee Benefits term, limited-duration insurance, and multiple-employer ‘‘employee welfare Security Administration, Room N–5655, health reimbursement arrangements benefit plan’’ and ‘‘group health plan’’ U.S. Department of Labor, 200 (HRAs). With regard to AHPs, the as those terms are defined in Title I of Constitution Avenue NW, Washington, Executive Order directs the Secretary of ERISA. By treating the association itself DC 20210, Attention: Definition of Labor, within 60 days of the date of the as the employer sponsor of a single Employer—Small Business Health Plans Executive Order, to consider proposing plan, the regulation would facilitate the RIN 1210–AB85. regulations or revising guidance, adoption and administration of such Instructions: All submissions received consistent with law, to expand access to arrangements. The regulation would must include the agency name and health coverage by allowing more modify the definition of ‘‘employer,’’ in Regulatory Identifier Number (RIN) for employers to form AHPs. The Executive part, by creating a more flexible this rulemaking. Persons submitting Order further notes that ‘‘[l]arge ‘‘commonality of interest’’ test for the comments electronically are encouraged employers often are able to obtain better employer members than the Department to submit only by one electronic method terms on health insurance for their of Labor (DOL or Department) had and not to submit paper copies. employees than small employers adopted in sub-regulatory interpretive Comments will be available to the public, without charge, online at http:// 1 The Patient Protection and Affordable Care Act rulings under ERISA section 3(5). At the (Pub. L. 111–148), enacted on March 23, 2010, and same time, the regulation would www.regulations.gov and http:// the Health Care and Education Reconciliation Act continue to distinguish employment- www.dol.gov/agencies/ebsa and at the of 2010 (Pub. L. 111–152), enacted on March 30, based plans, the focal point of Title I of Public Disclosure Room, Employee 2010, collectively are known as the Affordable Care Benefits Security Administration, Suite Act or ACA. The Affordable Care Act reorganizes, ERISA, from mere commercial amends, and adds to the provisions in part A of title insurance programs and administrative N–1513, 200 Constitution Avenue NW, XXVII of the Public Health Service Act (PHS Act) service arrangements marketed to Washington, DC 20210. relating to group health plans and health insurance employers. For purposes of Title I of Warning: Do not include any issuers in the group and individual markets. In addition, the Affordable Care Act adds section ERISA, the proposal would also permit personally identifiable or confidential 715(a)(1) to ERISA and section 9815(a)(1) to the working owners of an incorporated or business information that you do not Internal Revenue Code (Code) to incorporate the unincorporated trade or business, want publicly disclosed. Comments are provisions of part A of title XXVII of the PHS Act including partners in a partnership, to public records and are posted on the (PHS Act sections 2701 through 2728) into ERISA and the Code, and make them applicable to group elect to act as employers for purposes of internet as received, and can be health plans, and health insurance issuers participating in an employer group or retrieved by most internet search providing health insurance coverage in connection association sponsoring a health plan engines. with group health plans.

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because of their larger pools of insurable coverage are generally treated as a Since these AHPs tend to cover many individuals across which they can collection of plans, separately employees, the coverage, in such cases, spread risk and administrative costs. sponsored by each of the individual tends to be regulated as large group Expanding access to AHPs can help employers. coverage for ACA purposes. small businesses overcome this Whether, and the extent to which, The current criteria that an employer competitive disadvantage by allowing various regulatory requirements apply association must satisfy to sponsor a them to group together to self-insure or to association health coverage, like other single multiple employer plan, however, purchase large group health insurance. coverage, depends on whether the are narrow. Thus, the Department often Expanding access to AHPs will also coverage is treated as individual or has found that the association is not the allow more small businesses to avoid group coverage and, in turn, whether sponsor of a multiple employer plan; many of the PPACA’s costly the group coverage is small or large instead, each employer that gets its requirements. Expanding access to group coverage. Generally, unless the health coverage through the association AHPs would provide more affordable arrangement sponsored by the is considered to have established a health insurance options to many association constitutes a single ERISA- separate, single-employer health benefit Americans, including hourly wage covered plan, the current regulatory plan covering its own employees. In earners, farmers, and the employees of framework disregards the association in such cases, the association, much like small businesses and entrepreneurs that determining whether the coverage an insurance company, is simply the fuel economic growth.’’ obtained by any particular participating mechanism by which each individual The Executive Order directs the individual or employer is treated as employer obtains benefits and Secretary, to the extent permitted by law individual, small group, or large group administrative services for its own and as supported by sound policy, to market coverage. Instead, the test for separate plan. Therefore, to the extent consider expanding the conditions that determining the type of coverage the separate employers are small satisfy the commonality-of-interest focuses on whether the coverage is employers, each of their plans are requirements under existing DOL offered to individuals or employers. subject to regulation as small group advisory opinions interpreting the coverage for ACA purposes. Similarly, And, if the coverage is offered to definition of an ‘‘employer’’ under in the case of sole proprietors and other employers, whether the group coverage section 3(5) of ERISA. The Executive business owners that do not employ is large group or small group coverage Order also directs the Department to other individuals, the coverage they depends on the number of people consider ways to promote AHP obtain for themselves through an employed by the particular employer formation on the basis of common association is treated as individual obtaining the coverage. Thus, unless the geography or industry. coverage. As a result of this regulatory association plan is treated as a single AHPs are an innovative option for structure today, AHPs currently face a ERISA-covered plan, the size of each expanding access to employer- complex and costly compliance individual employer participating in the sponsored coverage (especially for small environment that may simultaneously association determines whether that businesses). AHPs permit employers to subject the AHP to large group, small employer’s coverage is subject to the band together to purchase health group, and individual market small group or large group market rules coverage. Supporters contend that AHPs regulation, which undermines one of (or the individual market rules, if the can help reduce the cost of health the core purposes and advantages of participant is an individual and not an coverage by giving groups of employers forming or joining an AHP. Accordingly, employer that can establish and increased bargaining power vis-a`-vis the Department is proposing to amend maintain a group health plan), and it is hospitals, doctors, and pharmacy benefit the definition of employer in section possible that different association providers, and creating new economies 3(5) of ERISA to change this state of members will have coverage that is of scale, administrative efficiencies, and affairs. a more efficient allocation of plan subject to the individual market, small responsibilities (as the AHP effectively group market, and/or large group market B. Purpose of Regulatory Action transfers the obligation to provide and rules, as determined by each member’s Executive Order 13813 directs the administer benefit programs from circumstances. Secretary to consider issuing regulations participating employers, who may have There are circumstances, however, that will expand access to more little expertise in these matters, to the even under the Department’s existing affordable health coverage by permitting AHP sponsor). sub-regulatory guidance, when more employers to form AHPs, and the Under current federal law and employer association health coverage is Secretary has been specifically directed regulations, health insurance coverage treated as being provided through a to consider expanding the conditions offered or provided through an plan, fund, or program that is a single that a group of employers must satisfy employer trade association, chamber of ERISA-covered employee welfare to act as an ‘‘employer’’ under ERISA for commerce, or similar organization, to benefit plan. In general, this occurs purposes of sponsoring a group health individuals and small employers is when the employer association, rather plan by reconsidering the generally regulated under the same than the individual employer member, ‘‘commonality-of-interest’’ requirements federal standards that apply to is considered the sponsoring under current Departmental guidance. insurance coverage sold by health ‘‘employer’’ that establishes and This proposed regulation would define insurance issuers directly to these maintains the plan. In such cases, the the term ‘‘group or association of individuals and small employers, unless health coverage program is, accordingly, employers’’ under ERISA section 3(5) the coverage sponsored by the treated as a single multiple employer more broadly, in a way that would allow association constitutes a single ERISA- plan for purposes of Title I of ERISA.2 more freedom for businesses to join covered plan. As a practical matter, together in organizations that could however, under existing sub-regulatory 2 The Department’s prior guidance under ERISA offer group health coverage regulated guidance, the Department treats few section 3(5) addressed health benefits and other benefits under section 3(1) of ERISA. However, under the ACA as large group coverage. associations as sponsoring single these proposed rules are limited to health benefits. ERISA-covered plans. Instead the Accordingly, for simplicity, these proposed including when discussing the application of prior associations’ arrangements for health regulations often refer only to health benefits, Departmental guidance.

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A principal objective of the proposed employer associations to provide group similar functions on behalf of these rule is to expand employer and health coverage to their employer- members with respect to the plan and employee access to more affordable, members, thus making available any trust established under the program. high-quality coverage. The Department advantages distinct from non-plan DOL guidance generally refers to these proposes changes in its approach to the MEWAs, including, often, access to the entities as ‘‘bona fide’’ employer groups ERISA section 3(5) definition of large group market. or associations. See, e.g., Advisory Opinions 2008–07A, 2003–17A and employer under ERISA. The ACA has C. Background caused individual and small group 2001–04A. See also Advisory Opinion insurance premiums to increase 1. Section 3(5) of ERISA and the Current 96–25A (if an employer adopts for its significantly. In part as a result of this Standards for an Association To Be employees a program of benefits increase, health insurance available in Treated as the ‘‘Employer’’ Sponsor of sponsored by an employer group or the large group market is now typically an Employee Welfare Benefit Plan That association that does not itself less expensive, all else equal, than Is a Group Health Plan. constitute an ‘‘employer,’’ such an coverage in the small group or The term ‘‘employee welfare benefit adopting employer may have individual market. In addition, treating plan’’ is defined in section 3(1) of established a separate, single-employer health coverage sponsored by an ERISA to include, among other benefit plan covered by Title I of employer association as a single group arrangements, ‘‘any plan, fund, or ERISA). health plan may promote economies of program . . . established or maintained In distinguishing employer groups or scale, administrative efficiencies, and by an employer or by an employee associations that can act as an ERISA transfer plan maintenance organization, or by both, to the extent section 3(5) employer in sponsoring a responsibilities from participating that such plan, fund, or program was multiple employer plan from those that employers to the association. The established or is maintained for the cannot, the touchstone has long been proposed definition includes purpose of providing for its participants whether the group or association has a conditions, including or their beneficiaries, through the sufficiently close economic or nondiscrimination provisions, designed purchase of insurance or otherwise . . . representational nexus to the employers to continue to draw a line between the medical, surgical, or hospital care or and employees that participate in the sorts of employer-sponsored benefits, or benefits in the event of plan. This ‘‘commonality of interest’’ arrangements that are regulated by sickness, accident, disability, death or requirement distinguishes bona fide ERISA on the one hand, and commercial unemployment . . . .’’ Thus, in order to groups or associations of employers who insurance-type arrangements that lack be an employee welfare benefit plan, a provide coverage to their employees and the requisite connection to the plan must, among other criteria, be the families of their employees from employment relationship on the other, established or maintained by an arrangements that more closely as well as to prevent potential adverse employer, an employee organization, or resemble State-regulated private impacts on the individual and small both. The term ‘‘employer’’ is defined in insurance offered to the market at large. group markets. section 3(5) of ERISA as ‘‘. . . any See, e.g., Advisory Opinion 94–07A; Advisory Opinion 2001–04A. Courts It is important to note that the person acting directly as an employer, or indirectly in the interest of an have also held that there must be some proposed regulation would not preclude cohesive relationship between the associations that do not meet the employer, in relation to an employee benefit plan; and includes a group or provider of benefits and the recipient of conditions of the proposal from offering benefits under the plan so that the entity health coverage in accordance with association of employers acting for an employer in such capacity.’’ Thus, that maintains the plan and the existing ACA requirements and individuals who benefit from the plan applicable State insurance regulation. ERISA defines the term ‘‘employer’’ to include the ‘‘direct’’ (or common law) are tied by a common economic or See, e.g., CMS Insurance Standards representational interest. Wisconsin Bulletin, Application of Individual and employer of the covered employees or ‘‘any other person acting indirectly in Educ. Assn. Ins. Trust v. Iowa State Bd. Group Market Requirements Under Title of Public Instruction, 804 F.2d 1059, XXVII of the Public Health Service Act the interest of’’ the common law employer.3 Although there are various 1064 (8th Cir. 1986). See also MD when Insurance Coverage is Sold to, or Physicians & Associates, Inc. v. State through, Associations (September 1, ways in which groups of employers can participate in a single plan, for example Bd. of Ins., 957 F.2d 178 (5th Cir. 1992), 2011) and Department of Labor cert. denied, 506 U.S. 861 (1992); Publication, Multiple Employer Welfare because they share substantial common ownership (e.g., a controlled group of National Business Assn. Trust v. Arrangements Under ERISA, A Guide to Morgan, 770 F. Supp. 1169 (W.D. Ky. Federal and State Regulation (available corporations), the Department has taken the view, on the basis of the definitional 1991). at www.dol.gov/sites/default/files/ebsa/ DOL advisory opinions and court provisions of ERISA, as well as the about-ebsa/our-activities/resource- decisions have applied a facts-and- overall structure of Title I of ERISA, center/publications/mewa-under-erisa- circumstances approach to determining that, in the absence of the involvement a-guide-to-federal-and-state- whether there is a sufficient common of an employee organization, a single regulation.pdf). In particular, health economic or representational interest or ‘‘multiple employer’’ plan may also insurance coverage sold to, or through, genuine organizational relationship for exist where a cognizable group or associations that do not sponsor their there to be a bona fide employer group association of employers, acting in the own separate ERISA-covered employee or association capable of sponsoring an interest of its employer members, benefit plans would not need to alter ERISA plan on behalf of its employer establishes a benefit program for the their operations if the proposed rule members. This analysis has focused on employees of member employers and becomes final. Rather than constricting three broad sets of issues, in particular: exercises control over the amendment the offering of such non-plan multiple (1) Whether the group or association is process, plan termination, and other employer welfare arrangements a bona fide organization with business/ (MEWAs), the proposed rule would organizational purposes and functions 3 For more information on common law simply make more widely available employment relationships, see Nationwide Mutual unrelated to the provision of benefits; another vehicle —the AHP— for the Insurance Co. v. Darden, 503 U.S. 318 (1992). (2) whether the employers share some

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commonality and genuine have provided quality health coverage insurance issued by an insurance organizational relationship unrelated to to their members’ employees with less company that is ‘‘qualified to conduct the provision of benefits; and (3) administrative overhead. But others business in a State.’’ With respect to whether the employers that participate have failed to pay promised health other non-insurance State laws, AHPs in a benefit program, either directly or benefits to sick and injured workers under the proposal would be subject to indirectly, exercise control over the while diverting, to the pockets of the same general ERISA preemption program, both in form and substance. fraudsters, employer and employee standards that apply to other ERISA- The first two issues have tended to contributions from their intended covered employee benefit plans. merge, depending on the facts of a purpose of funding benefits. The Affordable Care Act established a particular case. When an entity meets Congress has enacted reforms to curb multipronged approach to MEWA each of these requirements, the MEWA abuse. Prior to 1983, a number abuses. Improvements in reporting Department has concluded that it is of States attempted to subject MEWAs to requirements, together with stronger appropriate to treat the entity as an State insurance law requirements but enforcement tools, are designed to ‘‘employer’’ within the meaning of were frustrated in their regulatory and reduce MEWA fraud and abuse. These section 3(5) of ERISA, rather than enforcement efforts by MEWA-promoter include expanded reporting and merely as a commercial insurance-type claims of ERISA-plan status and federal required registration for MEWAs with arrangement that lacks the requisite preemption. Recognizing that it was the Department prior to operating in a connection to the employment both appropriate and necessary for State. The additional information relationship. States to be able to establish, apply, and facilitates joint State and Federal efforts This approach has ensured that the enforce State insurance laws with to prevent harm and take enforcement Department’s regulation of employee respect to MEWAs, Congress amended action. The Affordable Care Act also benefit plans is focused on employment- ERISA in 1983 to provide an exception strengthened enforcement by giving the based arrangements, as contemplated by to ERISA’s broad preemption provisions Secretary of Labor authority to issue a ERISA’s text, but neither the for the regulation of MEWAs under cease and desist order when a MEWA Department’s previous advisory State insurance laws. In general, under engages in fraudulent or other abusive opinions, nor relevant court cases, have the 1983 amendments, if a MEWA that conduct and issue a summary seizure ever held that the Department is is also an employee welfare benefit plan order when a MEWA is in a financially foreclosed from adopting a more flexible (an uncommon situation under prior hazardous condition.5 test in a regulation, or from departing guidance, as explained elsewhere) is not from the three particular factors set forth fully insured, then under section 3. Impact of ERISA Definition of above in determining whether a group 514(b)(6)(A)(ii) of ERISA, any State law Employer on Health Insurance Markets or association can be treated as acting as that regulates insurance may apply to Federal and State healthcare laws, an ‘‘employer’’ or ‘‘indirectly in the the MEWA to the extent that such State including the Affordable Care Act, interest of an employer,’’ for purposes of law is not inconsistent with ERISA. For include a variety of requirements that the statutory definition. These example, a State law could regulate sometimes differ based on whether definitional terms are ambiguous as solvency, benefit levels, or rating. health coverage is insured or self- applied to a group or association in the Similarly, States could require insured, and if the coverage is insured, context of ERISA section 3(5), and the registration and claims data reporting of whether it is offered in the individual, statute does not specifically refer to or MEWA operators. If, on the other hand, small group, or large group health impose the particular historical a MEWA is also an employee welfare insurance market. Whether coverage is elements of the ‘‘commonality’’ test on benefit plan and is fully insured, ERISA offered in the individual or group health the determination of whether a group or section 514(b)(6)(A)(i) of ERISA insurance market is determined by association acts as the ‘‘employer’’ provides that State laws that regulate reference to ERISA. Specifically, sponsor of an ERISA-covered plan the maintenance of specified ‘‘individual market coverage’’ is health within the scope of ERISA section 3(5). contribution and reserve levels (and that insurance coverage that is offered other Accordingly, that determination may be enforce those standards) may apply to than in connection with a group health more broadly guided by ERISA’s the MEWA, but other State non- plan. PHS Act section 2791(e)(1)(A). See purposes and appropriate policy insurance laws are preempted. ERISA also 26 CFR 54.9801–2; 29 CFR considerations, including the need to section 514(b)(6)(D) provides, in turn, 2590.701–2; 45 CFR 144.103. A ‘‘group expand access to healthcare and to that a MEWA will be considered fully health plan’’ is generally defined as an respond to statutory changes and insured for purposes of section 514(b)(6) employee welfare benefit plan under changing market dynamics. only if all of the benefits offered or ERISA section 3(1), to the extent the provided under the MEWA are 2. Federal and State Regulation of plan provides medical care. ERISA guaranteed under a contract or policy of Multiple Employer Welfare 5 Arrangements Section 6605 of the Affordable Care Act added providing any ERISA welfare benefit to the section 521 to ERISA to give the Secretary of Labor For many years, promoters of health employees of two or more employers (including one additional enforcement authority to protect plan coverage arrangements and others have or more self-employed individuals), or to their participants, beneficiaries, employees or employee beneficiaries. Section 3(40) expressly excludes from organizations, or other members of the public established and operated MEWAs, also the MEWA definition any such plan or arrangement against fraudulent, abusive, or financially described as ‘‘multiple employer trusts’’ that is established or maintained under or pursuant hazardous MEWAs. ERISA section 521(a) or ‘‘METs,’’ as vehicles for marketing to one or more agreements which the Secretary authorizes the Secretary of Labor to issue an ex health and welfare benefits to employers finds to be collective bargaining agreements, by a parte cease and desist order if it appears to the 4 rural electric cooperative, or by a rural telephone Secretary that the alleged conduct of a MEWA for their employees. Some MEWAs cooperative association. The definition of MEWA under section 3(40) of ERISA is fraudulent, or thus includes both ERISA-covered employee creates an immediate danger to the public safety or 4 The term MEWA or ‘‘multiple employer welfare welfare benefit plans and other arrangements which welfare, or is causing or can be reasonably expected arrangement’’ is defined in ERISA section 3(40). offer or provide medical, surgical, hospital care or to cause significant, imminent, and irreparable The term includes an employee welfare benefit benefits, or benefits in the event of sickness, public injury. Section 521(e) of ERISA authorizes plan, or any other arrangement (other than an accident, disability, or any other benefit described the Secretary to issue a summary seizure order if employee welfare benefit plan) which is established in ERISA Section 3(1). AHPs as described in this it appears that a MEWA is in a financially or maintained for the purpose of offering or proposal are one type of MEWA. hazardous condition.

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section 733(a); PHS Act section 2791. members of a single risk pool, also individual and group market See also 26 CFR 54.9831–1(a); 29 CFR applies only in the individual and small requirements of the PHS Act to 2590.732(a); 45 CFR 146.145(a). ‘‘Group group markets, not the large group insurance coverage offered or provided health insurance coverage’’ means, in market.9 In addition, the health through associations, CMS will ignore connection with a group health plan, insurance premium rules that prohibit the association and look directly to each health insurance coverage offered in issuers from varying premiums except association member to determine the connection with such plan. ERISA with respect to location, age (within status of each member’s coverage. As a section 733(b)(4); PHS Act section certain limits), family size, and tobacco- result, association coverage may be 2791(b)(4). See also 26 CFR 54.9801–2; use (within certain limits) apply only in treated as comprised of individual 29 CFR 2590.701–2; 45 CFR 144.103. the individual and small group market coverage, small group market The group health insurance market is markets.10 Finally, the Medical Loss coverage, large group market coverage, divided into the small group market and Ratio (MLR) provisions, which limit the and mixed associations of more than the large group market, depending on portion of premium dollars health one coverage type. the number of employees employed by insurance issuers may spend on The CMS 2011 guidance further states the employer. PHS Act section administration, marketing, and profits that, ‘‘in most situations involving 2791(e)(2)–(7). See also 45 CFR 144.103. establish different thresholds for the employment-based association coverage, Generally, group health insurance small group market and the large group the group health plan exists at the offered by an employer with at least one market.11 Self-insured group health individual employer level and not at the and not more than 50 employees is in plans are exempt from each of these association-of-employers level. In these the small group market, while group obligations regardless of the size of the situations, the size of each individual health insurance offered by an employer employer that establishes or maintains employer participating in the with at least 51 employees is in the large the plan. These differences in association determines whether that group market. Id.6 obligations result in a complex and employer’s coverage is subject to the With respect to insured coverage, costly compliance environment for small group market or the large group whether coverage is offered in the coverages provided through market rules. In the rare instances where individual, small group, or large group associations, particularly if the the association of employers is, in fact, market affects compliance obligations coverages are simultaneously subject to sponsoring the group health plan and under the Affordable Care Act and other individual, small group, and large group the association itself is deemed the State and Federal insurance laws. For market regulation. ‘employer,’ the association coverage is example, only individual and small Guidance issued by the HHS Centers considered a single group health plan. group market health insurance coverage for Medicare & Medicaid Services (CMS) In that case, the number of employees is subject to the requirement to cover in 2011 (CMS 2011 guidance) clarifies employed by all of the employers essential health benefits as defined that the test for determining whether participating in the association under section 1302 of the Affordable association coverage is individual, small determines whether the coverage is Care Act.7 Moreover, the risk group, or large group market coverage subject to the small group market or the adjustment program, which transfers for purposes of Title XXVII of the PHS large group market rules.’’ funds from plans with lower-risk Act is the same test as that applied to Since the enactment of the Affordable enrollees to plans with higher-risk health insurance offered directly to Care Act, DOL and HHS have heard a enrollees, applies only to health individuals or employers.12 Association number of concerns from stakeholders— insurance issuers offering coverage in coverage does not exist as a distinct especially working owners of businesses the individual and small group markets, meaningful category of health insurance that do not employ other individuals, not the large group market.8 The single coverage under Title XXVII of the PHS and independent contractors—regarding risk pool requirement, which requires Act.13 Instead, when applying the challenges that small businesses face in each health insurance issuer to consider securing affordable health coverage the claims experience of all individuals 9 See section 1312(c) of the Affordable Care Act. options. enrolled in plans offered by the issuer States may require issuers to merge their individual Some stakeholders have suggested to in the individual market to be in a and small group risk pools. the Department that allowing single risk pool, and all its individuals 10 See PHS Act section 2701, as added by the businesses, especially small businesses, Affordable Care Act. more flexibility to form AHPs would in the small group market to be 11 The MLR provision of the Affordable Care Act requires most health insurance issuers that cover facilitate more choice and potentially 6 Under the ACA, the upper bound for the individuals or small employers to spend at least make health coverage more affordable. definition of a small employer for purposes of title 80% of their premium dollars on healthcare claims These stakeholders opined that the AHP XXVII of the PHS Act was to change from 50 (as and quality improvement, leaving the remaining structure would give them increased originally enacted) to 100 employees as of 2016. 20% for overhead expenses, such as administrative However, the Protecting Affordable Coverage for costs, marketing, and profit. The MLR threshold is negotiating power to bargain for lower Employees Act (PACE Act, Pub. L. 114–60) higher for large group plans, which must spend at premiums for their employees, as well amended the definition so that the upper bound least 85% of premium dollars on healthcare claims as the ability to purchase coverage that would remain at 50. The PACE Act also permits and quality improvement. 45 CFR part 158. would be less expensive because it States to elect an upper bound of 100 employees. 12 See CMS Insurance Standards Bulletin Series— would not be subject to some of the CMS guidance indicates that States may elect to (September 1, 2011) available at: https:// extend this upper bound to 100 employees by any www.cms.gov/CCIIO/Resources/Files/Downloads/ regulatory requirements applicable to means that is legally binding under State law, association_coverage_9_1_2011.pdf. See also CMS the small group market but not the large provided the definition applies to all insurers. Insurance Standards Bulletin Transmittal No. 02–02 group market. Proponents also contend States that elect to extend the upper bound were (August 2002) available at: https://www.cms.gov/ that AHPs can help reduce the cost of requested to notify CMS. See https://www.cms.gov/ CCIIO/Resources/Files/Downloads/dwnlds/hipaa_ CCIIO/Resources/Fact-Sheets-and-FAQs/ 02_02_508.pdf. health coverage because of increased Downloads/FAQ-on-the-Impact-of-the-PACE-Act- 13 Title XXVII of the PHS Act does recognize bargaining power, economies of scale, on-State-Small-Group-Expansion.pdf. CMS has coverage offered through ‘‘bona fide associations,’’ informed DOL that, to date, no States have elected but only for purposes of providing limited Bona fide groups or associations of employers to change the upper bound to 100. exceptions from its guaranteed issue (in limited under the definition proposed in this rulemaking 7 See PHS Act section 2707, as added by the cases) and guaranteed renewability requirements. would not necessarily qualify as ‘‘bona fide Affordable Care Act. PHS Act secs. 2741(e)(1); 2742(b)(5) and (e); associations’’ under the PHS Act definition for 8 See section 1343 of the Affordable Care Act. 2703(b)(6), as added by the ACA; and 2791(d)(3). purposes of these PHS Act provisions.

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administrative efficiencies, and transfer would apply solely for purposes of Title proposed rule do not address the of plan maintenance responsibilities I of ERISA and for determining whether application of the ERISA section 3(5) from participating employers to the health insurance coverage is regulated statutory phrase, ‘‘acting. . .indirectly AHP sponsor. AHPs may also help by PHS Act provisions that apply in the in the interest’’ or ‘‘group or association contain costs by creating a stable risk individual, small group, or large group of employers,’’, in any context other pool that may enable AHPs to self- market, and not, for example, for than as applied to an employer group or insure rather than purchase insurance purposes of taxation under the Code. association sponsoring an AHP. from commercial insurers. Legislative proposals designed to 4. Overview of Proposed Regulation a. Employers Could Band Together for foster the formation of AHPs have The Department believes providing the Single Purpose of Obtaining Health repeatedly been introduced in additional opportunities for employer Coverage 14 Congress. These legislative efforts groups or associations to offer health The proposed regulation would generally would make it easier for coverage to their members’ employees remove existing restrictions in the employers to form AHPs and set a under a single plan may, under the Department’s sub-regulatory guidance uniform federal framework for conditions proposed here, offer many on ERISA section 3(5) to allow regulation. In the absence of legislation, small businesses more affordable employers to more easily join together however, Executive Order 13813 directs alternatives than are currently available in organizations that offer group health the Department to consider proposing to them in the individual or small group coverage to member employers and their regulations or revising guidance, markets. Consequently, the proposed employees under one group health plan. consistent with law, to expand access to rule may prompt some working owners Specifically, the regulation would allow health coverage by allowing more who were previously uninsured and employers to band together for the employers to form AHPs by expanding some small businesses that did not express purpose of offering health the conditions that satisfy the previously offer insurance to their coverage if they either are: (1) in the commonality-of-interest requirements employees, to enroll in AHPs, and same trade, industry, line of business, or under existing Department advisory similarly prompt some small businesses profession; or (2) have a principal place opinions interpreting the definition of with insured health plans to switch of business within a region that does not an ‘‘employer’’ under section 3(5) of from their existing individual or small exceed the boundaries of the same State ERISA in the context of AHPs in a group policies to AHPs. In addition, the or the same metropolitan area (even if manner that would focus on the option for small employers to join AHPs the metropolitan area includes more association rather than the individual could offer better financial protection to than one State). As discussed elsewhere members of the association when employers (and their employees) than if in this document, the restrictions in the evaluating association coverage. they self-insured and purchased stop- Department’s existing advisory opinions 16 Upon due consideration as directed loss insurance that may not were intended to help distinguish by the Executive Order, the Department adequately protect them from financial healthcare arrangements sponsored by is proposing for public comment a risk. Under the proposed rule, AHPs an entity acting as an ‘‘employer’’ 17 revision to its long-standing that buy insurance would not be within the meaning of section 3(5) of interpretation of what constitutes an subject to the insurance ‘‘look-through’’ ERISA from commercial-insurance-type ‘‘employer’’ capable of sponsoring an doctrine as set forth in the CMS 2011 arrangements that lack the requisite ‘‘employee benefit plan’’ under ERISA guidance; instead, because an AHP connection to the employment in the context of group health coverage. under the proposed rule would relationship. The Department has Under the proposal, AHPs that meet the constitute a single plan, whether the concluded that other conditions in this regulation’s conditions would have a plan would be buying insurance as a proposal can adequately serve that ready means of offering their employer- large or small group plan would be purpose while removing the condition members, and their employer members’ determined by reference to the number that the employer association must have employees, a single group health plan of employees in the entire AHP. a purpose other than offering health subject to the same State and Federal The proposed regulation would coverage as a potential undue restriction regulatory structure as other ERISA- redefine the criteria in the Department’s on the establishment and maintenance covered employee welfare benefit plans. existing sub-regulatory guidance for a of AHPs under ERISA. The proposal This proposed rule has been developed bona fide group or association of also would allow associations to rely on in consultation with HHS, CMS, the employers capable of establishing a other characteristics upon which they Department of the Treasury, and the multiple employer group health plan previously relied to satisfy the Internal Revenue Service, with which that is an employee welfare benefit plan commonality provision of paragraph (c) the Department is working to implement and a group health plan as those terms of the proposed rules, because the the Affordable Care Act, Executive are defined in ERISA. The Department Department’s existing sub-regulatory Order 13813, and Executive Order notes that this preamble and the guidance applies the commonality 15 13765. However, these proposed rules requirement as a facts and Act, and provides for coordination and circumstances test, and the Department 14 See, e.g., Small Business Health Fairness Act of consultation. See 64 FR 70164 (December 15, 1999). 2017, H.R. 1101, 115th Cong. sec. 1 (2017); see also, 16 Stop-loss insurance (sometimes also known as intends that any employer group or the Better Care Reconciliation Act of 2017, excess insurance) is generally an insurance product association that meets the commonality discussion draft of an amendment in the form of a that provides protection for self-insured employers requirement in the Department’s substitute to the American Healthcare Act, H.R. or plans by serving as a reimbursement mechanism existing sub-regulatory requirement 1628, 115th Cong. sec. 1 (2017) (available at for catastrophic claims exceeding pre-determined www.budget.senate.gov/imo/media/doc/ levels. See https://www.siia.org/i4a/pages/ should also be treated as meeting the ERN17500.pdf.). index.cfm?pageID=4549. commonality requirement in the 15 The Departments of Labor, HHS, and the 17 The CMS 2011 guidance ‘‘Application of proposed regulation. The Department Treasury operate under a Memorandum of Individual and Group Market Requirements under seeks comment on whether the final Understanding that implements section 104 of the Title XXVII of the Public Health Service Act when Health Insurance Portability and Accountability Act Insurance Coverage Is Sold to, or Through, rule, if adopted, should also recognize of 1996 (HIPAA) and subsequent amendments, Associations’’ apples only to insured arrangements, other bases for finding a commonality of including certain sections of the Affordable Care and not to self-insured arrangements. interest.

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The latter part of the second prong of requirement that the group or requires. The proposed regulation this proposal’s definition relating to association be a pre-existing would also retain the requirement in the States and metropolitan areas will allow organization. Rather, employers could Department’s existing sub-regulatory an AHP to satisfy the commonality band together in new organizations guidance under section 3(5) of ERISA requirement if its members have a whose sole purpose is to provide group that an AHP’s employer-members principal place of business within a health coverage to member employers control the AHP. This requirement is region that does not exceed the and their employees. And by allowing necessary to satisfy the statutory boundaries of the same State or formation of such an organization based requirement in ERISA section 3(5) that metropolitan area (even if the on either common industry or the group or association must act ‘‘in the metropolitan area includes more than geography, the Department expects that interest of’’ the direct employers in one State). the regulation could greatly increase relation to the employee benefit plan, Examples of such metropolitan areas association coverage options available to and to prevent formation of commercial include the Greater New York City American workers. enterprises that claim to be AHPs but, Area/Tri-State Region covering portions One of the primary aims of this in reality, merely operate similar to of New York, New Jersey and proposal is to give small employers (as traditional insurers selling insurance in Connecticut; the Washington well as sole proprietors and other the group market. In the latter Metropolitan Area of the District of working-owners) the opportunity to join circumstance, the association lacks the Columbia and portions of Maryland and together to provide more affordable requisite connection to the employment Virginia; and the Kansas City healthcare to their employees; however, relationship, inasmuch as it neither acts Metropolitan Area covering portions of the proposed regulation would not directly as an employer, nor ‘‘in the Missouri and Kansas. AHPs could also restrict the size of the employers that are interest’’ of employers, within the satisfy the commonality requirement by able to participate in a bona fide group meaning of section 3(5) of ERISA. The limiting themselves to a smaller or association of employers. The Department intends that any employer geographic region, such as a city or Department expects minimal interest group or association that meets the county. The Department invites among large employers in establishing control requirement in the Department’s comments specifically on whether more or joining an AHP as envisioned in this existing sub-regulatory requirement clarification would be helpful regarding proposal because large employers should also be treated as meeting the the definition of a metropolitan area. already enjoy many of the large group control requirement in the proposed For example, the Department is market advantages that this proposal regulation. interested in whether a federal would afford small employers. designation by the U.S. Census or the However, the Department anticipates c. Group or Association Plan Coverage Office of Management and Budget that there may be some large employers Must Be Limited to Employees of (OMB), which delineates metropolitan that may see cost savings and/or Employer Members and Treatment of and micropolitan statistical areas administrative efficiencies in using an Working Owners according to published standards (see AHP as the vehicle for providing health In addition, paragraph (b)(6) of the www.census.gov/programs-surveys/ coverage to their employees. proposed regulations would require that metro-micro.html), or another only employees and former employees b. The Group or Association Must Have definition, should be used and, if so, of employer members (and family/ an Organizational Structure and Be how, for purposes of establishing beneficiaries of those employees and Functionally Controlled by Its Employer eligibility for continued or new former employees) may participate in a Members employer membership (e.g., at the group health plan sponsored by the beginning of each plan year). The Paragraph (b) of the proposed association and that the group or Department is also interested, for regulation defines certain criteria for a association does not make health example, in comments on whether there bona fide group or association of coverage offered through the association is any reason for concern that employers to be capable of establishing available to anybody other than to associations could manipulate a group health plan under ERISA. The employees and former employees of geographic classifications to avoid proposal would require that the group employer members and their families or offering coverage to employers expected or association have a formal other beneficiaries. Together, these to incur more costly health claims. The organizational structure with a criteria are intended to ensure that, for Department also seeks comments on governing body and have by-laws or purposes of Title I of ERISA, the groups whether there are other examples that other similar indications of formality or associations sponsoring the covered would be helpful to clarify the provision appropriate for the legal form in which AHPs are bona fide employment-based and also on whether there should be a the group or association operates, and associations, as clarified by this special process established to obtain a that the group or association’s member proposal, and not more general determination from the Department that employers control its functions and membership organizations essentially all an association’s members have a activities, including the establishment operating as unlicensed health principal place of business in a and maintenance of the group health insurance providers selling commercial metropolitan area. plan, either directly or through the group health coverage to individuals By expressly allowing the group or regular election of directors, officers, or and employers without the type of association to exist for the purpose, in other similar representatives. These connection to the employment whole or in part, of offering or providing requirements largely duplicate relationship envisioned by ERISA’s health coverage to its members, the conditions in the Department’s existing section 3(1) definition of employee regulation would depart from previous sub-regulatory guidance under ERISA welfare benefit plan. See, e.g., sub-regulatory guidance providing that section 3(5), and ensure that the Wisconsin Educ. Assn. Ins. Trust v. Iowa the group or association must exist for organizations are genuine organizations State Bd. of Public Instruction, 804 F.2d a bona fide purpose other than offering with the organizational structure 1059, 1064 (8th Cir. 1986) (‘‘The only health coverage to be an employer for necessary to act ‘‘in the interest’’ of relationship between the sponsoring purposes of section 3(5) of ERISA. The participating employers with respect to labor union and these non-member proposal also would not include any employee benefit plans as the statute recipients stems from the benefit plan

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itself. Such a relationship is similar to ‘‘participants’’ in ERISA plans. For U.S. 1 (2004), concluded in a case the relationship between a private example, Advisory Opinion 99–04A involving section 2510.3–3, that insurance company, which is subject to reviews various provisions of ERISA ‘‘[u]nder ERISA, a working owner may myriad State insurance regulations, and and the Code that specifically address have dual status, i.e., he can be an the beneficiaries of a group insurance working owner issues in ERISA plans, employee entitled to participate in a plan.’’). Accord Mandala v. California and concludes that, taken as a whole, plan and, at the same time, the Law Enforcement Ass’n, 561 F. Supp.2d they ‘‘reveal a clear Congressional employer (or owner or member of the 1130, 1135 (C.D. Cal. 2008)). design to include ’working owners’ employer) who established the plan.’’ The text of ERISA relevant here within the definition of ’participant’ for The definition of ‘‘plans without specifies that only employees and purposes of Title I of ERISA.’’ 18 employees’’ in 29 CFR 2510.3–3(b) former employees of the member This proposed rule would also serve simply defines a limited circumstance employers, and their families or other to confirm that the Department’s in which the only parties participating beneficiaries, may receive coverage regulation at 29 CFR 2510.3–3 does not in the benefit arrangement are an through an AHP as an ERISA-covered limit the ability of working owners to individual owner/partner and spouse, benefit plan. ERISA is an acronym for participate in AHPs alongside other and declines to deem the individuals, in the ‘‘Employee Retirement Income employer members. Section 2510.3–3(b) that limited circumstance, as employees Security Act of 1974.’’ Consistent with excludes ‘‘plans without employees’’ of the trade or business for purposes of the Act’s title and understandings about from the definition of employee benefit the regulation. In that narrow the workplace, the touchstone of ERISA plans covered by Title I of ERISA, circumstance, the regulation concludes is the provision of benefits through the thereby ensuring that a health insurance that ERISA’s reporting and disclosure, employment relationship. That arrangement that covers, for example, fiduciary, and enforcement provisions understanding appears in the definition only the working owner and his or her are unnecessary. of ‘‘employee welfare benefit plan,’’ spouse, is not generally subject to The regulatory definition does not which defines which benefit ERISA’s reporting and disclosure, apply, however, outside that limited arrangements are subject to ERISA. An fiduciary, and enforcement provisions. context and, accordingly, does not ‘‘employee welfare benefit plan’’ is Thus, Section (c) of 29 CFR 2510.3–3 is prevent sole proprietors or other defined as ‘‘any plan, fund, or program titled ‘‘Employees’’ and states: ‘‘For working owners from being participants . . . established or maintained by an purposes of this section [i.e., for in broader plan arrangements, such as employer or by an employee purposes of the regulation defining a the AHPs that are the subject of this organization, or by both, to the extent covered plan]: (1) An individual and his proposal. As proposed here, AHPs are a that such plan, fund, or program was or her spouse shall not be deemed to be far cry from such individual established or is maintained for the employees with respect to a trade or arrangements ‘‘administered’’ by a purpose of providing for its participants business, whether incorporated or single individual on behalf of himself or or their beneficiaries [benefits such as unincorporated, which is wholly owned herself and a spouse. Instead, the health insurance].’’ ERISA section 3(1). by the individual or by the individual association and the AHP are responsible The term ‘‘participant’’ is in turn and his or her spouse, and (2) A partner for the provision of employment-based defined as ‘‘any employee or former in a partnership and his or her spouse benefits payable to numerous workers employee of an employer . . . who is or shall not be deemed to be employees employed by multiple employers. Many may become eligible to receive a benefit with respect to the partnership.’’ or most of the affected employers and . . . from an employee benefit plan Accordingly, if the sole participants in employees will not be directly involved which covers employees of such a benefit arrangement are the individual in the administration of benefits, and all employer.’’ Id. section 3(7) (emphasis owner of a business and his or her of the employers and employees should added). In other words, a participant is spouse or partners in the same benefit from prudence and loyalty an employee of an employer who may partnership and their spouses, the requirements for those running the receive benefits from that employer’s regulation treats the arrangement as a AHP, as well as such other protections own benefits plan. Individuals who are plan without employees and excludes it as reporting and disclosure obligations not ‘‘participants’’ within the meaning from the definition of ERISA-covered and claims procedure requirements, and of ERISA section 3(7), e.g., individuals plans. enforcement, in the same manner and to who are not employees or former However, that same regulation the same extent as participants in other employees of employers sponsoring a expressly limits this language to 29 CFR ERISA plan arrangements. particular plan, are ineligible to be 2510.3–3, and sole owners or partners Accordingly, this proposal would covered (or have their families or other are not excluded from being participants extend by regulation the availability of beneficiaries covered) by an ERISA in a plan that also covers one or more the dual status of working owners to plan. See, e.g., Wisconsin Educ. Assn. common law employees in addition to AHPs as a type of multiple employer Ins. Trust, 804 F.2d at 1064. the sole owner or partners of the same plan, and make it clear that 29 CFR Significantly, in paragraph (e) of the partnership and their spouses. Rather, 2510.3–3 does not broadly preclude regulation, the proposal would plans covering working owners and working owners of trades or businesses expressly provide that working owners, their non-owner employees clearly fall and other self-employed individuals such as sole proprietors and other self- within ERISA’s scope. Thus, the U.S. without common law employees from employed individuals, may elect to act Supreme Court in Yates v. Hendon, 541 joining a group health plan sponsored as employers for purposes of by an employer group or association. participating in an employer group or 18 The Advisory Opinion cites Code section The Department set forth above its view association and also be treated as 401(c), which for purposes of certain provisions regarding the permissible interpretation relating to qualified retirement plans, and also for employees of their businesses for certain other Code provisions related to employee of the 29 CFR 2510.3–3 regulation as it purposes of being covered by the group benefits that cross-reference section 401(c), relates to working owners participating or association’s health plan. This generally treats a sole proprietor as both an in AHPs. Notwithstanding those views, approach is consistent with advisory employer and an employee and treats partners to the extent the regulation could result (including owners of entities taxed as partnerships, opinions in which the Department has such as limited liability companies) as employees in working owners not being able to concluded that working owners may be of the partnership. participate as employees even in some

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circumstances, the Department believes not be eligible for other subsidized genuinely engaged in a trade or business the policies and objectives underlying group health plan coverage under and are performing services for the trade this proposal support an amendment of another employer or a spouse’s or business in a manner that is in the the 29 CFR 2510.3–3 regulation so that employer. nature of an employment relationship. it clearly does not interfere with The Department included the Under the proposal, an AHP thus working owners participating in AHPs proposed working owner criteria to could be comprised of participants who as envisioned in this proposal. ensure that a legitimate trade or are common law employees, common Accordingly, and to eliminate any business exists. ERISA governs benefits law employees and working owners, or potential ambiguity regarding the provided in the context of an comprised of only working owners. In interaction of this proposal with the employment relationship. The all cases, the working owner would be regulation at 29 CFR 2510–3–3, this Department is concerned, therefore, that treated as an employee and the business proposal also includes a technical without such criteria, the regulation as the individual’s employer for amendment of paragraph (c) of 2510.3– could effectively eliminate the statutory purposes of being an employer member 3 to include an express cross-reference distinction between offering and of the association and an employee to the working owner provision in this maintaining employment-based ERISA- participant in the AHP. In the proposal. covered plans, on the one hand, and the Department’s view, allowing sole Specifically, the proposed regulation mere marketing of insurance to proprietors and other working owners includes a provision that expressly individuals outside the employment without common law employees to states that a working owner of a trade context, on the other. Thus, for example, participate in AHPs covered by ERISA or business without common law an association would fall outside the on an equal basis with other employers employees, regardless of the legal form purview of this rule if it offered and employees furthers ERISA’s in which the business is operated (e.g., coverage to persons who are not purposes of promoting employee benefit sole proprietors or other working genuinely engaged in a trade or business plans and protecting the interests of owners of businesses, whether (e.g., a vendor marketing AHP coverage plan participants and their beneficiaries. incorporated or unincorporated), may could not make eligibility turn on such This approach acknowledges that an elect to act as an employer for purposes de minimis ‘‘commercial activities’’ as AHP may include as employer-members of participating in an employer group or giving a ‘‘customer’’ a single on-demand working owners with common law association and be treated as an ride for a fee, or knitting a single scarf employees and also addresses the employee of the trade or business for to be offered for sale on the internet, operational impracticability of having purposes of being covered by the with no requirement that the individual an AHP switch in and out of its status employer group’s or association’s health ever engage in the supposed ‘‘trade or as a single multiple employer plan plan, if the individual is earning income business’’ ever again). The rule is during periods in which the AHP from the trade or business for providing intended to cover genuine employment- sometimes has and sometimes does not personal services to the trade or based relationships, not to provide have employees other than sole business; and either provides on average cover for the marketing of individual proprietors. at least 30 hours of personal services to insurance masquerading as Finally, as noted above, AHPs that the trade or business per week or 120 employment-based coverage. already meet the Department’s current hours of such service per month, or has The Department recognizes that it commonality of interest and employer- earned income derived from such trade could be possible to draw the line member control standards will continue or business that at least equals the cost between employment-based to be treated as meeting those of coverage under the group or arrangements, as covered by ERISA, and requirements under the proposal for association’s health plan. In addition, non-ERISA arrangements in other ways. sponsoring a single multiple employer the individual must not be eligible for For example, the Department also plan under ERISA. However, if the other subsidized group health plan recognizes that some legitimate start-up proposal is adopted as a final rule, upon coverage under a group health plan trades or businesses may take time to effectiveness of the final rule, such an sponsored by any other employer of the become profitable, and ongoing genuine existing AHP would need to meet all the individual or by a spouse’s employer.19 trades or businesses may experience bad conditions in the final rule to continue The proposal also includes an express years financially. Alternative to act as an ERISA section 3(5) employer provision that would allow the group or approaches could focus on other going forward. association sponsoring the AHP to rely, measures of the trade or business as a To the extent a final rule consistent absent knowledge to the contrary, on source of earnings or other measures of with this proposal would be written representations from the time spent on the work activity. inconsistent with any prior sub- individual seeking to participate as a Accordingly, the Department solicits regulatory guidance, the final rule working owner as a basis for concluding comments on whether the proposed would supersede that guidance. For that these conditions are satisfied. standard is workable and, if so, whether example, the regulation would Comments are invited on this provision, any additional clarifications would be supersede the statement in Advisory including whether an individual must helpful to address issues relating to how Opinion 2003–13A that ERISA section working owners could reasonably 3(5) does not cover groups with 19 The earned income standard and other group predict whether they will meet the memberships that include persons who health plan eligibility provision are informed by earned income and hours worked are not employers of common-law Federal tax standards, including section 162(l) of requirements, and whether AHPs employees. In the case of statutory and the Code that describe conditions for self-employed should be required to obtain any regulatory provisions like those individuals to deduct the cost of health insurance. However, federal tax treatment, including tax evidence in support of such a prediction involved here, the Department has the administration of Code section 162(l) and any beyond a representation from the authority to supersede its previous potential IRS reporting requirements, of working working owner. Thus, the Department interpretations, as articulated in non- owners is not affected by the proposed regulation’s generally invites comment on whether binding advisory opinions, to address characterization of a working owner as an employer for purposes of participating in a sponsoring different criteria would be more marketplace developments and new employer group or association and an employee for appropriate to ensure that so-called policy and regulatory issues, see purposes of being covered by the group health plan. ‘‘working owners’’ who join an AHP are generally Perez v. Mortgage Bankers

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Assn, 135 S. Ct. 1199 (2015), and the Association of Insurance Commissioners which an employer group or association authority to supersede a prior (NAIC) also wrote a letter to the sponsoring an ERISA employee benefit interpretation by a federal court, see Chairwoman and Ranking Member plan may exist solely for the purpose of National Cable & Telecommunications stating that the legislation would providing group health coverage. In the Ass’n v. Brand X internet Services encourage AHPs to select healthy Department’s view, AHPs that (Brand X), 545 U.S. 967, 125 S. Ct. 2688 groups by designing benefit packages discriminate among employer-members (2005) (‘‘A court’s prior judicial and setting rates to the detriment of in ways that would violate the construction of a statute trumps an unhealthy groups.22 nondiscrimination provisions in the agency construction otherwise entitled Alternatively, some have argued that proposal may not reflect the common to Chevron deference only if the prior more actuarially appropriate pricing employer interests that characterize an court decision holds that its where premiums match risk tends to employee benefit plan as compared to construction follows from the lead people to buy the efficient amount the sort of commercial insurance unambiguous terms of the statute and of coverage, rather than underinsuring enterprise that ERISA intended to leave thus leaves no room for agency or overinsuring, and that such pricing to state, rather than federal, regulation. discretion.’’). The ERISA statutory also reduces the likelihood that The nondiscrimination provisions are definition of the term ‘‘employer,’’ insurance markets deteriorate into also based on the Department’s broad which includes direct employers and adverse selection spirals. In the case of rulemaking authority under ERISA any other person acting indirectly in the associations, some stakeholders have section 505 (authorizing ‘‘such interest of the employer in relation to an argued that the presence of regulations as [the Secretary] finds employee benefit plan, including a nondiscrimination rules may create necessary or appropriate to carry out the group or association of employers, is not instability in the AHP market, as provisions of this title’’) and ERISA an unambiguous term that leaves no employers with disproportionately section 734. ERISA section 734 room for agency discretion. Moreover, unhealthy employees seek to join AHPs authorizes the Secretary to promulgate by proceeding through notice and to lower their rates while AHPs with such regulations as may be necessary or comment rulemaking, the Department disproportionately healthy employees appropriate to carry out the provisions has exercised its authority in a way that constantly modify their rules of of Part 7 of ERISA, including ERISA ensures all interested stakeholders will admission to avoid this outcome. And section 715(a)(1), which incorporates have an opportunity to present their stakeholders have argued that allowing the provisions of part A of title XXVII views on the implications and employers to join together voluntarily of the PHS Act (generally, sections 2701 significance of the proposal in light of on their own terms to offer health through 2728 of the PHS Act) into past guidance, judicial decisions, and coverage to their members would reflect ERISA and makes those provisions sound public policy. those employers’ interests and applicable to plans and issuers. maximize the potential for the market, The nondiscrimination provisions in d. Health Nondiscrimination Protections while the converse would deter AHP paragraph (d) of the proposed regulation formation and lead to fewer insured build on the existing health Two distinct potential issues prompt people. nondiscrimination provisions the nondiscrimination protections in the Second, the nondiscrimination applicable to group health plans under proposed rule. First, some stakeholders provisions distinguish genuine HIPAA, as amended by the Affordable and experts have expressed concerns employment-based plans from Care Act (HIPAA/ACA health that legislative proposals that would commercial enterprises that claim to be nondiscrimination rules), with an have permitted employer groups or AHPs but that are more akin to additional clarification addressing how associations to sponsor group health traditional insurers selling insurance in to apply those rules to association plans for the purpose of promoting and the employer marketplace. ERISA coverage. expanding association health coverage sections 3(1) and (5) require a bona fide Specifically, paragraph (d)(1) of the could have resulted in risk selection. employment nexus and a level of proposed regulation would ensure the For example, in a letter to the cohesion and commonality among group or association does not restrict Chairwoman and Ranking Member of entities acting on behalf of common law membership in the association itself the House Committee on Education & employers, the common law employers, based on any health factor, as defined in the Workforce, the American Academy and the covered employees, as the HIPAA/ACA health of Actuaries argued that AHPs could nondiscrimination rules. The HIPAA/ 20 distinguished from commercial create adverse selection if legislation insurance arrangements that sell ACA health nondiscrimination rules being considered by the committee insurance coverage to unrelated define a health factor as: health status, allowed them to operate under different common law employers. The medical condition (including both rules than other group health plans. nondiscrimination provisions maintain physical and mental illnesses), claims They wrote: ‘‘If one set of plans operates that nexus and cohesion—embodied in experience, receipt of healthcare, under rules that are more advantageous the longstanding ERISA section 3(5) medical history, genetic information, to healthy individuals, then those ‘‘commonality of interests’’ evidence of insurability, and disability. individuals will migrate to those plans; requirement—in the new circumstance Code section 9802(a)(1), ERISA section less healthy individuals will migrate to permitted under the proposal under 702(a)(1), and PHS Act section the plans more advantageous to 2705(a)(1). See also 26 CFR 54.9802– 21 them.’’ Similarly, the National 2017) (available at https://www.actuary.org/files/ 1(a), 29 CFR 2590.702(a), and 45 CFR publications/AHPs_HR1101_030817.pdf). 146.121(a). 20 22 Small Business Health Fairness Act of 2017, Letter from the NAIC to Virginia Foxx, Paragraphs (d)(2) and (d)(3) of the H.R. 1101, 115th Cong. (2017). Chairwoman, Committee on Education and the 21 Letter from the American Academy of Workforce, U.S. House of Representatives, and proposed rules provide that the group Actuaries to Virginia Foxx, Chairwoman, Robert C. Scott, Ranking Member, Committee on health plan sponsored by the group or Committee on Education and the Workforce, U.S. Education and the Workforce, U.S. House of association must comply with the House of Representatives, and Robert C. Scott, Representatives (Feb. 28, 2017) (available at http:// HIPAA/ACA health nondiscrimination Ranking Member, Committee on Education and the www.naic.org/documents/health_archive_naic_ Workforce, U.S. House of Representatives (March 8, opposes_small_business_fairness_act.pdf). rules, which govern eligibility for

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benefits 23 and premiums for group beneficiaries based on any health factor entirely—indistinguishable from such health plan coverage. In determining of the participants or beneficiaries. commercial-insurance-type entities. The what is a group of similarly situated In addition, under the HIPAA/ACA extension of ERISA coverage to such individuals for purposes of applying health nondiscrimination rules, a plan commercial entities would not be those rules, this proposed regulation may, generally, subject to certain anti- consistent with Congress’ deliberate provides in paragraph (d)(4) how to abuse provisions for discrimination decision to limit ERISA’s coverage to apply these HIPAA/ACA health directed at individuals, treat employment-based relationships. nondiscrimination rules in the context beneficiaries as distinct groups based on Coupled with the control requirement, of a group or association of employers the bona fide employment-based also requiring AHPs to accept all sponsoring a single group health plan. classification of the participant through employers who fit their geographic, Specifically, the HIPAA/ACA health whom the beneficiary is receiving industry, or any other non-health-based nondiscrimination rules generally coverage, the relationship to the selection criteria that each AHP prohibit health discrimination within participant, marital status, age or chooses, the nondiscrimination groups of similarly situated individuals, student status (subject to PHS Act provisions ensure a level of cohesion but they do not prohibit discrimination section 2714, as incorporated in ERISA and commonality among entities acting across different groups of similarly section 715, as well as ERISA section on behalf of common law employers, situated individuals. In determining 714) and other factors if the factor is not the common law employers themselves, what counts as a group of similarly a health factor. Finally, the HIPAA/ACA and the covered employees, as situated individuals, for these purposes, health nondiscrimination rules distinguished from commercial paragraph (d) of the HIPAA/ACA health generally allow group health plans to insurance arrangements that sell nondiscrimination rules generally treat participants and beneficiaries as insurance coverage to unrelated provides that plans may, subject to an distinct groups. common law employers. anti-abuse provision for discrimination The proposed regulations propose Paragraph (d)(5) contains examples directed at individuals, treat that, in applying the HIPAA/ACA health that illustrate the rules of paragraphs participants as distinct groups if the nondiscrimination rules for defining (d)(1) through (d)(4). groups are defined by reference to a similarly-situated individuals, the group The Department specifically solicits bona fide employment-based or association may not treat member comments on the above described classification consistent with the employers as distinct groups of nondiscrimination requirements, employer’s usual business practice. As similarly-situated individuals. As noted including how they balance risk stated in the HIPAA/ACA health above, the HIPAA/ACA health selection issues with the stability of the nondiscrimination rules, whether an nondiscrimination rules apply within AHP market and the ability of groups of similarly-situated individuals. employers to innovate and enter employment-based classification is bona If an association could treat different voluntary coverage arrangements. The fide is determined based on all the employer-members as different bona Department also solicits comments on relevant facts and circumstances, fide employment classifications, the the effect of additional or different including whether the employer uses nondiscrimination protections in nondiscrimination protections, such as the classification for purposes paragraphs (d)(1) through (d)(3) could further limitations on price flexibility. independent of qualification for health be ineffective, as AHPs could offer Specifically, the Department invites coverage (for example, determining membership to all employers meeting comments on whether paragraph (d)(4) eligibility for other employee benefits or the association’s membership criteria, is an appropriate or sufficient response determining other terms of but then charge specific employer to the need to distinguish AHPs from employment). Examples in the HIPAA/ members higher premiums, based on the commercial insurance (and on any ACA health nondiscrimination rules of health status of those employers’ alternative provisions that might classifications that may be bona fide, employees and dependents. achieve the same goal, as well as on based on all the relevant facts and Accordingly, under the proposed whether paragraph (d)(4) could circumstances, include full-time versus regulation a group or association which destabilize the AHP market or hamper part-time status, different geographic seeks treatment as an ‘‘employer’’ under employers’ ability to create flexible and location, membership in a collective ERISA section 3(5) for purposes of affordable coverage options for their bargaining unit, date of hire, length of sponsoring a single group health plan employees. service, current employee versus former under ERISA section 3(1) cannot 5. Request for Public Comments employee status, and different simultaneously undermine that status occupations. Under an anti-abuse by treating different employers as The Department invites comments on provision contained in paragraph (d)(3) different groups based on a health factor the specific issues identified in the of the HIPAA/ACA health of an individual or individuals within discussion above, as well as on all nondiscrimination rules, however, a an employer member. DOL seeks aspects of the proposed rule as a distinction between groups of comment on whether this structure, potential alternative approach to the individuals is not permitted if the which could potentially represent an Department’s existing sub-regulatory creation or modification of an expansion of current regulations, would guidance criteria. Comments are invited employment or coverage classification is create involuntary cross-subsidization on the interaction with and directed at individual participants or across firms that would discourage consequences under other State and formation and use of AHPs. Federal laws, including the interaction 23 A rule for eligibility for benefits is defined by Moreover, the Department views such with the Code section 501(c)(9) reference to the HIPAA/ACA health nondiscrimination rules and includes rules relating employer-by-employer risk-rating as provisions for voluntary employees’ to enrollment, the effective date of coverage, undermining the statutory aim of beneficiary associations (VEBAs), waiting (or affiliation) periods, late or special limiting plan sponsors to ‘‘employers’’ should an AHP want to use a VEBA. enrollment, eligibility for benefit packages, benefits and to entities acting ‘‘in the interest’’ The Department also invites comments (including covered benefits, benefit restrictions, and cost-sharing), continued eligibility, and terminating of employers, and instead extending on whether any notice requirements are coverage. 26 CFR 54.9802–1(b)(1)(ii); 29 CFR ERISA coverage to entities that seek to needed to ensure that employer 2590.702(b)(1)(ii); 45 CFR 146.121(b)(1)(ii). underwrite risk and are nearly—or members of associations, and

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participants and beneficiaries of group lines. Specifically, ERISA section relating to AHP solvency. The health plans, are adequately informed of 514(b)(6)(B) provides that the Department also invites comments on their rights or responsibilities with Department may prescribe regulations whether additional provisions should be respect to AHP coverage. Comments are under which non-fully insured MEWAs added to the final rule to assist existing also solicited on the impact of these that are employee benefit plans may be employer associations—including proposals on the risk pools of the granted exemptions, individually or MEWAs that do not now constitute individual and small group health class by class, from certain State AHPs—in making adjustments to their insurance markets, and for data, studies insurance regulation. Section business structures, governing or other information that would help 514(b)(6)(B) does not, however, give the documents, or group health coverage to estimate the benefits, costs, and Department unlimited exemption become AHPs under the final rule. transfers of the rule. authority. The text limiting the The Department likewise encourages Department’s authority is in ERISA 6. Request for Information commenters to identify any aspect of the section 514(b)(6)(A). That section foregoing rules and obligations that In addition to the proposal set forth in provides that the Department cannot this document, pursuant to Executive would benefit from additional guidance exempt an employee benefit plan that is as applied to AHPs, as well as any Order 13813, the Department is a non-fully insured MEWA from state considering other actions it could take perceived deficiencies in existing insurance laws that can apply to a fully guidance or regulatory safeguards. to promote healthcare consumer choice insured MEWA plan under ERISA and competition across the United section 514(b)(6)(A), i.e., state insurance Regulatory Impact Analysis States. The proposed rules would not laws that establish reserves and 1.1. Executive Orders alter existing ERISA statutory provisions contribution requirements that must be governing MEWAs. The proposed rules met in order for the non-fully insured Executive Orders 12866 and 13563 also would not modify the States’ MEWA plan to be considered able to direct agencies to assess all costs and authority to regulate health insurance pay benefits in full when due, and benefits of available regulatory issuers or the insurance policies they provisions to enforce such standards. alternatives and, if regulation is sell to AHPs. As described above, some Thus, self-insured MEWAs, even if necessary, to select regulatory MEWAs have historically been unable covered by an exemption, would remain approaches that maximize net benefits to pay claims due to fraud, insufficient subject to State insurance laws that (including potential economic, 24 funding, or inadequate reserves. provide standards requiring the environmental, public health and safety ERISA section 514(b)(6) gives the maintenance of specified levels of 25 effects; distributive impacts; and Department and State insurance reserves and contributions as means of equity). Executive Order 13563 regulators joint authority over MEWAs ensuring the payment of promised emphasizes the importance of (including AHPs described in this benefits. While beyond the scope of this quantifying both costs and benefits, of proposed rule), to ensure appropriate proposed rulemaking, the Department is reducing costs, of harmonizing rules, consumer protections for employers and interested in receiving additional input and of promoting flexibility. employees relying on an AHP for from the public about the relative merits healthcare coverage. of possible exemption approaches under Under Executive Order 12866 (58 FR Some stakeholders have identified the ERISA section 514(b)(6)(B). The 51735), ‘‘significant’’ regulatory actions Department’s authority under ERISA Department is interested both in the are subject to review by the Office of section 514(b)(6)(B) to exempt self- potential for such exemptions to Management and Budget (OMB). insured MEWA plans from State promote healthcare consumer choice Section 3(f) of the Executive Order insurance regulation as a way of and competition across the United defines a ‘‘significant regulatory action’’ promoting consumer choice across State States, as well as in the risk such as an action that is likely to result in a exemptions might present to rule (1) having an annual effect on the 24 See U.S. Gov’t Accountability Office, GAO–92– appropriate regulation and oversight of economy of $100 million or more in any 40, States Need Labor’s Help Regulating Multiple AHPs, including State insurance one year, or adversely and materially Employer Welfare Arrangements, (1992) (available affecting a sector of the economy, at http://www.gao.gov/products/HRD-92-40); See regulation oversight functions. also U.S. Gov’t Accountability Office, GAO–04–312, The Department is also interested in productivity, competition, jobs, the Employers and Individuals Are Vulnerable to comments on how best to ensure environment, public health or safety, or Unauthorized or Bogus Entities Selling Coverage compliance with the ERISA and ACA State, local or tribal governments or (2004) (available at http://www.gao.gov/products/ communities (also referred to as GAO-04-312). standards that would govern AHPs and 25 Because small employer group health plans on any need for additional guidance on ‘‘economically significant’’); (2) creating typically are fully-insured or pay benefits out of the the application of these standards or a serious inconsistency or otherwise employer’s general assets, they are generally exempt other needed consumer protections. In interfering with an action taken or under current DOL regulations from most, if not all, planned by another agency; (3) of ERISA’s annual reporting requirements. See 29 this connection, the Department CFR 2520.104–20. However, as a MEWA, an AHP emphasizes that AHPs would be subject materially altering the budgetary MEWA would not be eligible for this filing to existing generally applicable federal impacts of entitlement grants, user fees, exemption, even if it covered fewer than 100 regulatory standards governing ERISA or loan programs or the rights and participants. Further, ERISA-covered group health obligations of recipients thereof; or (4) plans that have 100 participants or more generally plans and additional requirements are required to file a Form 5500, whether insured governing MEWAs specifically, and raising novel legal or policy issues or self-insured. Thus, AHPs established as a result sponsors of AHPs would need to arising out of legal mandates, the of the proposal would be required to file Forms exercise care to ensure compliance with President’s priorities, or the principles 5500. See ERISA section 101(b). In addition, because, as noted above, these AHPs are also those standards. set forth in the Executive Order. It has MEWAs, they would be required to file a Form M– The Department requests comments been determined that this rule is 1. See ERISA section 101(g) and 29 CFR 2520.101– on how it can best use the provisions of economically significant within the 2. Both Form 5500 and Form M–1 information is ERISA Title I to require and promote meaning of section 3(f)(1) of the accessible by DOL, as well as the States, to fulfill Executive Order. Therefore, OMB has traditional oversight functions to help ensure that actuarial soundness, proper plans meet their obligations to pay benefits as maintenance of reserves, adequate reviewed these proposed rules pursuant promised under the plan and the law. underwriting and other standards to the Executive Order.

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In accordance with the direction of insure rather than purchase group working owners, and to clarify that Executive Order 13813, DOL is insurance in the large group market nationwide industry organizations such proposing a rule to broaden the segment.) Historically, relative to large as trade associations can sponsor circumstances under which an AHP will employers, small businesses accessing nationwide AHPs. be treated as a single multiple employer- health insurance in the individual and This proposal would broaden the plan under ERISA. The proposal is small group markets have faced at least conditions under which associations intended to extend advantages typically two disadvantages. First, owing to their can sponsor AHPs, thereby increasing enjoyed by large employer-sponsored small size, working owners and other the number of small businesses health benefit plans to more working small businesses generally lack large potentially eligible to participate in owners and small employers employers’ potential for administrative AHPs and providing new, affordable (collectively hereafter, small businesses) efficiencies and negotiating power. health insurance options for many that under the proposal would be Second, unlike large employers, Americans. It generally would do this in eligible to participate in AHPs. AHPs individual small businesses do not four important ways. First, it would generally can offer these small constitute naturally cohesive large risk relax the existing requirement that businesses more health benefit options, pools. Any single small business’s associations sponsoring AHPs must and options that are more affordable, claims can spike abruptly due to one exist for a reason other than offering than typically are available in today’s serious illness. Historically, individual health insurance. Second, it would relax individual and small group health and small group issuers often responded the requirement that association insurance markets. This document to such spikes by sharply increasing members share a common interest, as assesses the proposal’s potential premiums, and/or by refusing to issue or long as they operate in a common impacts. renew policies or to cover pre-existing geographic area. Third, it would make conditions. More recently, State and clear that associations whose members 1.2. Introduction and Need for Federal legal changes including the operate in the same industry can Regulation ACA generally have outlawed these sponsor AHPs, regardless of geographic U.S. families obtain health benefits practices. Current rules generally distribution. Fourth, it would clarify from a number of different private and regulate the individual and small group that working owners and their public sources. Essentially all markets in which small businesses dependents are eligible to participate in individuals age 65 or older are covered obtain insurance more stringently than AHPs. Consequently, for example, the by Medicare. Most individuals under the large group markets and self-insured proposal would newly allow a local age 65 are covered by employer- employer plans. Unfortunately such chamber of commerce that meets the sponsored insurance. Nearly all large rules can themselves limit choice, other conditions in the proposal to offer employers offer health insurance to increase premiums, or even destabilize AHP coverage to its small-business their employees, but only about one-half small group and individual markets. members, including working owners. As large groups, AHPs might offer of employers with fewer than 50 They, in effect, force issuers to raise small businesses some of the scale and employees do. Altogether, 61 percent of premiums broadly, particularly for efficiency advantages typically enjoyed individuals under age 65 have healthier small groups and individuals, by large employer plans. They employer-sponsored coverage. Thirty- which can prompt such groups and additionally could offer small eight percent of individuals under age individuals to seek more affordable businesses relief from ACA and State 65 obtain coverage from private coverage elsewhere if available, or drop rules that restrict issuers’ product employers with 50 or more employees, insurance altogether. In contrast, large 9 percent from smaller private offerings and pricing in individual and employers’ natural ability to provide small group markets. employers, and 14 percent from public- comprehensive coverage at relatively sector employers.26 stable cost is mirrored by the regulatory 1.3. AHPs’ Potential Impacts Large employers have a long history framework that applies to large group By facilitating the establishment and of providing their employees with markets and self-insured ERISA plans. operation of more AHPs, this proposed affordable health insurance options. Given the natural advantages enjoyed rule aims to make more, and more This regulation is needed to lower some by large employer groups, it may be affordable, health insurance options barriers that can prevent many small advantageous to allow more small available to more employees of small businesses from accessing such options. businesses to combine into large groups businesses and the families of such Today, businesses generally access for purposes of obtaining or providing employees. Insuring more American insurance in one of three market health insurance. While some AHPs workers, and offering premiums and segments, depending on their size. exist today, their reach currently is benefits that faithfully match These segments are the individual limited by the Department’s existing employees’ preferences, are the most market, which includes working owners interpretation of the conditions under important benefits of this rule. The among other individuals and their which an AHP is an employer- proposed rule contains provisions families, if they do not employ sponsored plan under ERISA. Under designed to prevent potentially adverse employees and therefore cannot that interpretation, eligible association impacts on individual or small group establish a group health plan; the small members must share a common interest risk pools that might otherwise carry group market, which generally includes (generally, operate in the same social costs. AHPs will also affect tax small businesses with at least one and industry), must join together for subsidies and revenue and the Medicaid not more than 50 employees; and the purposes other than providing health program.While the impacts of this large group market, which includes insurance, must exercise control over proposed rule, and of AHPs themselves, larger employers and some groups of the AHP, and must have one or more are intended to be positive on net, the employers. (Many large employers self- employees in addition to the business incidence, nature and magnitude of both owner. Accordingly, this proposed rule positive and negative effects are 26 DOL calculations based on the Abstract of uncertain. Predictions of these impacts Auxiliary Data for the March 2016 Annual Social aims to encourage the establishment and and Economic Supplement to the Current growth of AHPs comprising otherwise are confounded by numerous factors Population Survey, U.S. Department of Labor. unrelated small businesses, including including:

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• The dynamic and in some cases groups.27 AHPs may, under favorable As large groups, AHPs also may unstable conditions currently prevailing circumstances, achieve some savings in achieve some savings by offering self- in local individual and small group the same way. On the other hand, rather insured coverage. Because large group insurance markets under existing ACA than avoiding these costs, some AHPs plans in and of themselves constitute and State rules; sometimes may merely internalize them, large and potentially stable risk pools, it • A lack of data on the risk profiles in the form of employers’ cost to form often is feasible for them to self-insure of existing and potential associations associations and AHPs’ own efforts to rather than to purchase fully-insured and the individual and small group recruit and enroll association members, large group insurance policies from markets with which they intersect; and to sign members up for insurance. licensed health insurance issuers. Large • A lack of data on the relative AHPs sponsored by pre-existing risk pools’ claims experience generally availabilities and sizes of subsidies and associations that exist for reasons other varies only modestly from year to year, tax preferences for prospective AHP than offering health insurance might so well-run large group plans can set enrollees in Exchanges or Small have more potential to deliver premiums and operate with little risk of Business Health Options Program administrative savings than those set up financial shortfalls. By self-insuring, (SHOP) Exchanges versus in AHPs; to offer health insurance. Organizations some large AHPs may avoid some of the overhead cost otherwise associated with • Legislative proposals to amend or that already exist for reasons other than offering health insurance (such as fully-insured large group health repeal and replace the ACA; insurance policies. However State • chambers of commerce or trade States’ broad discretion to regulate revenue may also decline in States that AHPs, and variations in State practices; associations) may already have extensive memberships and thus may tax insurance premiums. and Also, as large groups, in addition to have fewer setup, recruitment, and • Interactions with related initiatives potential administrative and overhead enrollment costs than organizations per Executive Order 13813, including savings, AHPs sometimes may be able to newly formed to offer insurance. Under HRAs and short-term limited duration achieve savings through market power, this proposal, such existing associations insurance policies. negotiating discounts that come at that have been prohibited from offering In light of these uncertainties, what suppliers’ expense. In otherwise AHPs to some or all of their existing follows is a mostly qualitative competitive markets, the exercise of members by the Department’s current assessment of this proposal’s potential market power sometimes can result in interpretations could newly extend AHP impacts, rather than a quantitative economic inefficiency. The opposite eligibility to existing members. Some prediction. The Department is seeking might be true, however, where an AHP’s other AHPs, however, might thrive by comments and data that will allow the market power acts to counterbalance impacts of the rule to be quantified, and delivering savings to members by other market power otherwise exercised by that will enable it to more fully assess means, such as by offering less issuers or providers. If large group the proposed rule’s effects. comprehensive benefits, even if their premiums are not already at competitive administrative costs are higher. levels, sufficiently large AHPs may be 1.4. Potential Advantages of Scale Some other efficiency gains might able to negotiate with issuers for Owing to their potentially large scale, arise from AHPs’ scale in purchasing premium discounts. More frequently, under the right conditions, AHPs result not insurance but healthcare services. issuers and other large payers, in lower insurance premiums compared Healthcare payers and providers potentially including large, self-insured to existing small group and individual sometimes realize administrative AHPs, may be able to negotiate insurance market arrangements. efficiencies in their interactions if a discounts and other savings measures Consequently, AHPs may offer small large proportion of each provider’s with hospitals, providers, and third businesses comparable coverage at patients are covered by a common party administrators (TPAs). Because lower prices, thereby delivering payer. For example, streamlining of markets for healthcare services are economic benefits to many working billing and payment processes and inherently local, payers’ market power owners and employees of small procedures for preauthorization for generally requires not merely scale, but businesses. covered services may facilitate volume a large geographic market share. Large employers often enjoy some discounts. A self-insured AHP with a Consequently, self-insured AHPs with advantages of scale in the provision of sufficiently large presence in a local geographically concentrated health benefits for their employees, and market might capture some such membership are more likely to realize such savings than are AHPs whose AHPs may realize some of these same efficiency. On the other hand, in some membership is spread thinly across advantages. Scale may yield savings via cases AHPs’ entry into markets States. one or more of three mechanisms: alongside other payers might erode such efficiency by reducing such issuer’s On the other hand, AHPs might administrative efficiencies from sometimes dilute other payers’ market economies of scale, self-insurance, and scale in purchasing healthcare services. That is, an increase in the number of power to command provider market power. discounts,28 thereby increasing costs for Administrative savings generally can payers may sometimes increase the administrative burden associated with such payers’ enrollees. AHP’s net effect be understood to constitute a social on payers’ market power with respect to benefit, as resources are freed for other the payer-provider interface for some or all payers and providers. Consequently, providers and consequent effect on uses without reducing consumption. enrollee costs consequently could be With respect to administrative the net impact of this proposal on efficiency in this interface (and on positive or negative. efficiency from economies of scale, large It should be noted that diluting associated social welfare) could be employers generally avoid the others’ market power can increase social potentially high cost associated with positive or negative. health insurance issuers’ efforts to 28 For a discussion of insurers’ market power see market to, enroll, and underwrite and 27 ACA and State rules that limit underwriting Sheffler, Richard M. and Daniel R.Arnold. ‘‘Insurer set premiums for large numbers of and set floors for insurers’ loss ratios may make Market Power Lowers Prices in Numerous some of these savings available even within the Concentrated Provider Markets.’’ Health Affairs 36, individual families or small employer existing individual and small group markets. no. 9 (2017).

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welfare if it produces more healthy AHPs consequently could offer many with additional, potentially inefficient competition. If local individual and small businesses more options than rules, including the requirement that all small group market premiums are not could individual and small group individuals acquire coverage and already at competitive levels, increasing insurance issuers. For instance, AHPs mandatory transfers of ‘‘risk adjustment competitive pressure from AHPs might could offer less comprehensive—and payments’’ from some issuers to others. force some individual and small group hence more affordable—coverage that AHPs would not be subject to these issuers to lower their own premiums. some employees may prefer. ACA and State rules, but will be subject There is some evidence that competition Some stakeholders have expressed to the nondiscrimination rules that bar among issuers has this effect,29 although concern that AHPs, by offering less all group health plans from conditioning the likelihood of this effect occurring in comprehensive benefits, could attract eligibility, benefits, or premiums on this case is unclear, as market rules and healthier individuals, leaving less health status. Properly designed, these claims experience may already have healthy individuals in the individual rules should help AHPs to assemble eliminated excess profit. and small group markets and thus large, stable risk pools, while at the Given all of these variables, the net driving up the premiums in those same time limiting the risk that AHPs transfer and social welfare effects markets and potentially destabilizing might tend to enroll healthier small related to AHPs’ exercise of, or impact them. This risk may be small, however, businesses and thereby adversely affect on others’ exercise of, market power are relative to the benefits realized by small individual and small group markets. ambiguous. businesses and their employees that Some stakeholders have raised In summary, AHPs’ potential to reap gain access to more affordable insurance concerns that AHPs will be more likely advantages from scale may vary. Under that more closely matches their to form in industries with younger, favorable conditions they may realize preferences. AHPs’ benefits to their healthier employees, as employers and some administrative savings, and/or members can be substantial, as their employees receive greater access to negotiate discounts from insurers, discussed above. For example, a small more affordable coverage than is providers, or TPAs. Market forces may businesses electing less comprehensive available in the individual and small favor AHPs that reap such advantages, AHP coverage can deliver benefits that group markets. The Department believes but may also sustain AHPs that deliver are more closely tailored to their such concerns at this juncture are savings to members by other means. employees’ actual health needs at a speculative. While AHPs may have 1.5. Increased Choice price their employees prefer. In larger incentives to form in industries addition, to the extent that AHPs deliver with younger, healthier workers, they Because they would not be subject to will also have incentives to form in individual and small group market administrative savings or market power they may offer less expensive but industries with older or less healthy rules, AHPs in the large group market workers when, for example, they deliver (which the Department expects would equally comprehensive benefit options as compared to plans available in the sufficient administrative savings to include all or almost all AHPs) would offset any additional cost of insuring an enjoy greater flexibility with respect to individual or small group markets. This feature of AHPs would appeal to their older or less healthy population. The the products and prices they could offer Department requests comments that to small businesses. AHPs consequently less healthy members, prompting less healthy individuals to leave the would help further address this issue. could offer many small businesses more Likewise, some stakeholders have individual and small group markets and affordable insurance options than would raised concerns that, because AHPs will potentially balancing out any exodus of be available to them in individual and enjoy greater pricing flexibility to set healthy individuals from these markets. small group markets. Under the ACA premiums, some might offer lower and State rules, non-grandfathered Moreover, this proposal addresses the prices to healthier groups and higher individual and small group insurance risk of adverse effects on the individual prices to less healthy groups than policies generally must cover certain and small group markets by including individual and small group issuers are benefits. These rules limit the policies nondiscrimination provisions under allowed to offer to those same groups. that issuers can offer to small which AHPs could not condition Of course, the nondiscrimination businesses. Under this proposal, as eligibility for membership or benefits or provisions in this proposal would noted earlier in this section, AHPs vary members’ premiums based on their prohibit any such discrimination based would generally be treated as large health status. The Department invites on health factors, but some non-health employers and accordingly granted comments as to the benefits of AHPs factors (such as age) correlate to a large access to the large group market (or, offering wider choice including less degree with healthcare expenditures, alternatively, could self-insure). The comprehensive policies as well as any and AHPs under this proposal could large group market is not subject to the risk of adverse effects on individual or vary premiums to reflect actuarial risk same restrictions that apply in the small group markets. based on such non-health factors. Some 30 individual and small group markets. 1.6. Risk Pooling stakeholders argue that pursuit of lower prices based on non-health factors 29 Frank, Richard G. and Thomas G. McGuire. The proposal seeks to enable AHPs to would lead, for example, younger ‘‘Regulated Medicare Advantage and Marketplace assemble large, stable risk pools. The association members to join AHPs but Individual Health Insurance Markets Rely on ACA and State rules tightly regulate might lead older members to remain in Insurer Competition.’’ Health Affairs 36 no. 9 how individual and small group issuers (2017). individual and small group markets. 30 Some States do set some minimum standards pool risk, for example by limiting the This argument, however, depends on for benefits covered by large group policies, degree to which premiums can be the assumption that pricing flexibility is however. Such mandates would apply to fully adjusted based on age. These rules can the principal or only advantage insured AHPs. Because AHPs are MEWAs under threaten market stability. The ACA and ERISA, States also may have flexibility under available to AHPs. In fact, as outlined ERISA’s MEWA provisions to extend benefit State rules attempt to address this threat above, AHPs have the potential to create standards to self-insured AHPs. ERISA generally significant efficiencies that could lower precludes States from applying such standards to individual and small group markets under the ACA, self-insured ERISA plans that are not MEWAs. For and for lists of benefit standards that States apply premiums across the board. An AHP lists of ‘‘essential health benefits’’ that must be to large group plans, see https://www.cms.gov/cciio/ that realizes sufficient efficiencies may covered by non-grandfathered coverage in States’ resources/data-resources/ehb.html. offer attractive prices even to less

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healthy groups. In that scenario, less market reforms, cited below in The foregoing evidence may be healthy people would also have an connection with AHPs’ potential impact consistent with some key stakeholders’ incentive to leave the individual and on the uninsured population, mostly concerns that AHPs, if regulated too small group markets, potentially find that reforms tightening market rules loosely relative to issuers, might balancing out any exodus of healthy result in only limited adverse selection. adversely impact some risk pools.37 On people from these markets. The This might suggest that this proposal, by the other hand, severely restricting Department requests comments that in effect loosening such rules, may AHPs would hinder them from would help further address this issue. produce only limited risk selection providing additional, affordable As noted earlier, the Department effects. coverage options. The Department intends that this proposal would help Some other evidence illustrates how believes that this proposal, under which AHPs to assemble large, stable risk under some conditions changes in AHPs could not condition eligibility, pools, while at the same time limiting product and price offerings can affect benefits, or premiums on health status, any risk of adverse effects on individual the composition of risk pools. One strikes the right balance to enable AHPs and small group markets. In calibrating employer found that older and less to assemble large stable risk pools and the proposal to advance those goals, the healthy employees sometimes declined offer new affordable options to small Department considered a range of to join younger and healthier businesses without posing substantial evidence on the dynamics of health counterparts in switching to new, less risk of adverse effects on other risk insurance markets under various comprehensive options, despite pools. AHPs’ potential to deliver conditions and rules. The Department incentives provided to encourage such administrative savings further mitigates believes available evidence is consistent switches, perhaps due to concerns about any such risk with the balanced approach adopted in reduced coverage.33 A review of the proposal, and that the proposal experience with consumer-directed 1.7. Individual and Small Group would advance the intended goals, and health plans suggests some potential for Markets invites comments responsive to this similar effects.34 Some prior The Department separately evidence and viewpoint. experiences with different AHP and considered AHPs’ potential impacts on Some of the evidence the Department group purchasing arrangements both individual and small group reviewed appears to suggest this reportedly did not achieve sufficient markets. In both cases, AHPs could offer proposal would have little impact on efficiencies to fully prevent or offset all many small businesses more, and more the composition of individual and small potential risk segmentation effects.35 affordable, coverage options than group market risk pools. Other potential The Congressional Budget Office once otherwise available. avenues for segmentation that exist predicted modest risk segmentation With respect to individual markets, today do not appear to have produced from an AHP-like proposal, with small many of those insured there now might major effects. For example, a small premium increases for small employers become eligible for AHPs. AHPs could employer currently can segregate itself retaining traditional insurance, and enroll both working owners and into a separate risk pool by self-insuring increased coverage among healthier employees of small business that do not and relying on stop-loss insurance to small groups partly offset by a small loss currently offer insurance but might elect 36 backstop particularly large losses. Yet of coverage among less healthy ones. to join AHPs. The latter group may be the proportion of small-firm growing as small firms’ propensity to 33 establishments reporting that they use Fronstin, Paul, and M. Christopher Roebuck. offer health insurance for employees has ‘‘Health Plan Switching: A Case Study-Implications self-insurance has increased only declined substantially from 47 percent modestly, from 12.7 percent in 2010 to for Private- and Public-Health-Insurance Exchanges and Increased Health Plan Choice.’’ EBRI Issue Brief of establishments in 2000 to 29 percent 17.4 percent in 2016 and the percent of 432, March 23, 2017. https://www.ebri.org/pdf/ in 2016.38 Of the 25 million U.S. policy holders in self-insured plans at briefspdf/EBRI_IB_432_PlnSwtch.23Mar17.pdf. individuals under age 65 who were small-firm establishments has increased 34 Bundorf, M. Kate, ‘‘Consumer-Directed Health Plans: A Review of the Evidence.’’ The Journal of from 12.5 percent to 15.7 percent over sites/default/files/109th-congress-2005-2006/ 31 Risk and Insurance. January 2016. the same time period. In addition, 35 Historically, some efforts to assemble large costestimate/hr52500.pdf. price inelasticity and inertia in purchasing coalitions to negotiate such discounts 37 See for example: (1) NAIC letter to Reps. Foxx individuals’ and small businesses’ have met with limited success. In one major and Scott, February 28, 2017, http://www.naic.org/ _ _ _ _ _ health insurance purchases 32 may help example, the California Health Insurance documents/health archive naic opposes small Purchasing Cooperative, or HIPC, established by the business_fairness_act.pdf; (2) American Academy to limit and/or slow any potential State and later operated by a business coalition, was of Actuaries. ‘‘Issue Brief: Association Health impacts. If, as this evidence suggests, eventually disbanded after failing to deliver its Plans,’’ February 2017; .and (3) America’s Health small businesses might not vigorously intended savings. See, for example, National Insurance Plans (AHIP), ‘‘Association-Sponsored shop for better prices and products, Conference of State Legislatures, ‘‘Health Insurance Health Plans and Reform of the Individual Purchasing Cooperatives: State and Federal Roles.’’ Healthcare Market’’ February 10, 2017. there may be little potential for risk September 1, 2016. Last accessed September 25, 38 Agency for Healthcare Research and Quality, selection, but also limited demand for 2017. http://www.ncsl.org/research/health/ Center for Financing, Access and Cost Trends. AHPs. purchasing-coops-and-alliances-for- Medical Expenditure Panel Survey-Insurance Various studies of past State and health.aspx#Other_Approaches. See also Bender, Component, 2012–2016. Medical Expenditure Panel Federal individual and small group Karen, and Beth Fritchen. ‘‘Government-Sponsored Survey Private Sector Insurance Component, Table Health Insurance Purchasing Arrangements: Do II.A.2. In 2016, among employees of firms with they Reduce Costs or Expand Coverage for fewer than 50 employees, just one in four were 31 Agency for Healthcare Research and Quality Individuals and Small Employers?’’ 2008. Report enrolled in insurance on the job. Nearly one-half (AHRQ), 2016 Medical Expenditure Survey- finds that purchasing arrangements increase worked at firms that did not offer insurance. Insurance Component (MEPS–IC). premiums by as much as six percent. http:// Agency for Healthcare Research and Quality 32 See M. Kate Bundorf, Joanthan Levin, and Neal www.oliverwyman.com/content/dam/oliver- (AHRQ), 2016 Medical Expenditure Panel Survey Mahoney, ‘‘Pricing and Welfare in Health Plan wyman/global/en/files/archive/2011/health_ins_ Insurance Component (MEPS–IC) Tables. Choice,’’ American Economic Review 2012, 107(7), purchasing_arrangements(1).pdf. Nonetheless, just 18 percent of small firm 3214–3248, pointing to price inelasticity; and 36 CBO Paper, ‘‘Increasing Small-Firm Health employees were uninsured. Many obtained Benjamin R. Handel, ‘‘Adverse Selection and Inertia Insurance Coverage Through Association Health insurance from a spouse’s or parent’s employer. in Health Insurance Markets: When Nudging Plans and HealthMarts,’’ January 2000. https:// DOL calculations based on the Abstract of Auxiliary Hurts,’’ American Economic Review 2013, 103(7), www.cbo.gov/publication/12066; CBO cost Data for the March 2016 Annual Social and 2643–2682, finding that inertia restrains adverse estimate, H.R. 525 Small Business Health Fairness Economic Supplement to the Current Population selection and associated welfare losses. Act of 2005. April 8, 2005. https://www.cbo.gov/ Survey, U.S. Department of Labor.

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insured in individual markets in 2015, enrollment period that occurs after they not vary based on health. Issuers approximately 3 million were working have experienced a medical need. By offering small group policies in a given owners or dependents thereof, and an expanding AHPs, this proposed rule location both through the local SHOP additional 6 million were employees of aims to provide many more individuals and directly must treat the two as a small businesses that did not offer access to the potentially more stable and single risk pool when setting premiums. insurance or dependents thereof. With affordable large group market. However, However, the issuers offering small respect to small group markets, to the extent that AHPs prove group policies, the policies they offer, essentially all insured businesses might particularly attractive to younger or and the premiums charged can vary become eligible for AHPs. In 2015, firms lower cost individuals, they may from place to place and locally between with fewer than 50 employees insured contribute to some Exchanges’ SHOPs and outside markets. In some 24 million workers and dependents.39 instability. locations the availability of policies may In an effort to facilitate the availability Issuers may elect to offer individual be limited, and/or the premiums of individual insurance, the ACA market policies in Exchanges or outside charged may be rising rapidly, although established federal and State-based them, or both. Non-grandfathered in most locations small group markets ‘‘Exchanges,’’ or centralized, regulated individual market policies must satisfy continue to offer some choice of issuers marketplaces. The ACA envisioned that various ACA requirements including and policies and moderate premium a number of health insurance issuers minimum benefit packages, minimum growth.43 would offer a set of comparable policies actuarial value(s), and minimum loss in each Exchange, making it possible for ratios. They must be offered to any Few small employers have elected to individuals to shop (and necessary for individual who applies, and premiums acquire health insurance via SHOPs. As issuers to compete) for the best price must not vary depending on enrollees’ of January 2017, just 27,205 small and quality, while means-tested health status, instead varying only based employers purchased small group subsidies would ensure that coverage on location, age, tobacco use, and family policies via SHOPs, covering 233,000 was affordable. This vision has not been size, and within certain limits. Issuers employees and dependents.44 (Much realized fully in much of the country, offering individual policies in a given larger numbers obtained coverage however. location both through the local directly from small group issuers via In 2016, 11 million individuals were Exchange and outside it must treat the agents and brokers outside of SHOPs: In enrolled via Exchanges. A large majority two as a single risk pool when setting 2016, 1.6 million small-firm qualified for means-tested assistance premiums. The issuers offering establishments offered health benefits with premiums (9 million) and/or cost individual policies, the policies offered, for employees.) 45 Sixteen States and the sharing (6 million).40 However, for and the premiums charged can vary District of Columbia operated SHOPs, 2018, only one issuer offered coverage from place to place and locally between while federally-facilitated SHOPs in the Exchange in each of Exchanges and outside markets. operated in 33 States. (Beginning in approximately one-half of US counties. To facilitate access to health 2017, a special waiver allowed Hawaii Just two issuers participated in insurance for small employers, the ACA to operate its existing small group Exchanges in many additional established the Small Business Health market within the relevant ACA counties.41 Moreover, many Exchange Options Program, or ‘‘SHOP’’. Small framework without establishing a enrollees have faced large premium employers may purchase insurance from SHOP.) At this point, SHOPs cover far increases.42 The Administration already an issuer, agent, or broker via the SHOP, fewer employees than existing plan- has taken some steps to stabilize the or directly from issuers or through MEWAs/AHPs, which reportedly cover Exchanges, but their success is agents or brokers not via a SHOP, or 1.8 million participants. uncertain given that the ACA creates they may self-insure. Employers The Department considered the significant incentives for some people to purchasing group policies via a SHOP potential susceptibilities of individual wait to purchase insurance until an may qualify for tax credits to help cover premium costs. If available, small and small group markets to adverse selection under this proposal. All else 39 DOL calculations based on the Abstract of employers also may obtain coverage Auxiliary Data for the March 2016 Annual Social from an AHP, and thereby pool together equal, individual markets may be more and Economic Supplement to the Current with other employers and gain access to susceptible to risk selection than small Population Survey, U.S. Department of Labor. the large group market. Small employers group markets, as individuals’ costs 40 Office of the Assistant Secretary for Planning generally vary more widely than small and Evaluation (ASPE), U.S. Department of Health whose employees are represented by a and Human Services, Compilation of State Date on union may participate in a (usually groups’. The ACA’s requirement that the Affordable Care Act, December 2016. large) multiemployer health benefit essentially all individuals acquire 41 See U.S. Department of Health and Human plan, established pursuant to collective coverage and the provision of subsidies Services, ‘‘County by County Analysis of Plan Year in Exchanges may reduce that 2018 Insurer Participation in Health Insurance bargaining agreements between the Exchanges,’’ available at https://www.cms.gov/ union and two or more employers. CCIIO/Programs-and-Initiatives/Health-Insurance- Issuers may offer small group policies 43 Between 1996 and 2016 small (fewer than 50 Marketplaces/Downloads/2017-10-20-Issuer- to small employers via SHOPs, directly employees) and large private-sector employer County-Map.pdf. through issuers, agents or brokers, or premium increases followed similar trajectories. 42 The places with the largest 2017 increases in Both averaged 6 percent annually. Agency for the unsubsidized second-lowest silver plan both. Either way, as with non- Healthcare Research and Quality. Average total included Phoenix, AZ (up 145% from $207 to $507 grandfathered individual market single premium (in dollars) per enrolled employee per month for a 40-year-old non-smoker). See policies, non-grandfathered small group at private-sector establishments that offer health Cynthia Cox, Michelle Long, Ashley Semanskee, policies must satisfy various ACA insurance by firm size and selected characteristics Rabah Kamal, Gary Claxton, and Larry Levitt, ‘‘2017 (Table I.C.1). Medical Expenditure Panel Survey Premium Changes and Insurer Participation in the requirements including minimum Insurance Component Tables. Affordable Care Act’s Health Insurance benefit packages, minimum actuarial 44 SHOP numbers reported by SB–SHOPs to Marketplaces,’’ Kaiser Family Foundation, October value(s), and minimum loss ratios. They CCIIO State Marketplace Insurance Programs Group 24, 2016 (updated November 1, 2016), available at must be offered to any small employer and FF–SHOP Enrollment Database, May 15, 2017. https://www.kff.org/health-reform/issue-brief/2017- 45 Agency for Healthcare Research and Quality premium-changes-and-insurer-participation-in-the- who applies, and premiums may vary (AHRQ), 2016 Medical Expenditure Panel Survey affordable-care-acts-health-insurance- only based on location, age, and tobacco Insurance Component (MEPS–IC). Small firms marketplaces/. use, and within certain limits; they may include those with fewer than 50 employees.

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susceptibility, however.46 The coverage.50 AHPs’ potential to expand Department, using a form known as Department believes that under this coverage may be greater than this Form M1.52 The Department last proposal AHPs’ adherence to applicable experience suggests, however. Market examined the universe of these reports nondiscrimination rules and potential conditions and the size and composition in September of 2014.53 That for administrative savings would of the uninsured population are examination included reports for mitigate any risk of adverse selection different today, and as noted earlier, MEWAs (including AHPs) operating in against individual and small group small firms’ propensity to offer each year from 2010 through 2013. markets. insurance to their employees has fallen, According to this examination, in 2013, suggesting potential opportunities for 392 MEWAs covered approximately 1.6 1.8. Medicaid AHPs to expand coverage. million employees. The vast majority of these MEWAs reported themselves as Under the ACA, Medicaid eligibility 1.10. Operational Risks was expanded in many States. Some ERISA plans that covered employees of Medicaid-eligible workers may become ERISA generally classifies AHPs as two or more employers. Nearly all of eligible to enroll in AHPs under this MEWAs. Historically, a number of these covered more than 50 employees proposal. Among 42 million individuals MEWAs have suffered from financial and therefore constituted large-group under age 65 enrolled in Medicaid or mismanagement or abuse, often leaving employer plans for purposes of the CHIP in 2015, 2 million were working participants and providers with unpaid ACA. A few reported as so-called ‘‘non- 51 owners or dependents thereof, and 6 benefits and bills. Both DOL and State plan’’ MEWAs, that provided or million were employees of small insurance regulators have devoted purchased health or other welfare businesses that did not offer insurance substantial resources to detecting and benefits for two or more ERISA plans or dependents thereof.47 correcting these problems, and in some sponsored by individual employers cases, prosecuting wrongdoers. Some of (most of which probably were small- 1.9. The Uninsured these entities attempt to evade oversight group plans for ACA purposes). Some of and enforcement actions by claiming to Twenty-eight million individuals in these might qualify to begin operating as be something other than MEWAs, such the U.S. lacked health insurance ‘‘plan-MEWAs’’ (or AHPs) under this as collectively-bargained multiemployer coverage in 2015.48 Because AHPs often proposed rule. This proposed rule is ERISA plans. To address this continuing can offer more affordable alternatives to intended to facilitate the establishment risk, the ACA gave DOL expanded individual and small group insurance of more new plan-MEWAs/AHPs, all of authority to monitor MEWAs and policies, it is possible that this proposed which would be required to report intervene when MEWAs are headed for rule will extend insurance coverage to annually to the Department. trouble, and both DOL and State some otherwise uninsured individual Most reporting MEWAs operate in enforcement efforts are ongoing. families and small groups. Of the 28 more than one State, and a handful ERISA requires MEWAs to report operate in more than 20 States. In 2013, million uninsured, approximately 3 certain information annually to the million are working owners or 46 MEWAs reported expanding operations into one or more new States. dependents thereof and an additional 8 50 See for example: (1) Thomas Buchmueller and million are employees of small John DiNardo, ‘‘Did Community Rating Induce an States with the most plan-MEWAs/ businesses that do not offer insurance or Adverse Selection Death Spiral? Evidence from AHPs in 2012 included California (147), dependents thereof.49 It is likely that New York, Pennsylvania, and Connecticut, Texas (106), and New York (100). Only ‘‘American Economic Review 2002, 92(1), 280–294, one had fewer than 20 (South Dakota some of these uninsured will become finding little net effect.’’’’ (2) Mark A. Hall, eligible for an AHP under this proposed ‘‘HIPPA’s Small-Group Access Laws: Win, Loss, or had 18). MEWAs were most likely to be rule. Draw,’’ Cato Journal 2002 22(1), 71–83, generally calling the results a ‘‘draw.’’ (3) Susan M. Gates, 52 ERISA requires any plan MEWA/AHP (a Past State and Federal reforms that Kanika Kapur, and Pinar Karaca-Mandic, ‘‘State MEWA that is also an ERISA plan) to file an tightened or loosened individual and Health Insurance Mandates, Consumer Directed additional report annually with the Department. small group market rules may, Health Plans, and Health Savings Account: Are This is the same annual report filed by all ERISA They a Panacea for Small Businesses,’’ Chapter 3 in according to various studies, have plans that include 100 or more participants or hold In the Name of Entrepreneurship: The Logic and plan assets, filed using Form 5500. However, while changed the prices paid and policies Effects of Special Treatment for Small Businesses, more than 90 percent of 2012 Form M1 filers selected by different businesses, Susan M. Gates and Kristin J Leuschner, eds., Rand reported that they were plan MEWAs, only a bit Corporation, 2007, finding little effect. (4) Sudha more than one-half of these entities also filed Form somewhat improved access for targeted Xirasagar, Carleen H. Stoskopf, James R. Hussey, groups (potentially at others’ expense), 5500 for that year. Among those that did, frequently Michael E. Samuels, William R. Shrader, and Ruth some of the information reported across the two and/or prompted some individuals or P. Saunders, ‘‘The Impact of State’ Small Group forms was inconsistent. These reporting Health Insurance Reforms on Uninsurance Rates,’’ small businesses to acquire or drop inconsistencies raise questions about the reliability Journal of Health and Social Policy 2005, 20(3), of MEWAs’ compliance with ERISA’s reporting insurance, but had little net effect on finding little effect. (5) James R. Baumgardner and requirements and the reliability of the information Stuart A Hagen, ‘‘Predicting Response to Regulatory recounted here. 46 Change in the Small Group Health Insurance H.R. 1 of the 115th Congress, enacted December 53 Market: The Case of Association Health Plans and ‘‘Analysis of Form M–1 Data for Filing Years 22, 2017 will eliminate the shared responsibility 2010–2013,’’ September 23, 2014. https:// payment for failure to maintain health insurance Healthmarts,’’ Inquiry 2001/2002, 38(4), 351–364, predicting small effects. www.dol.gov/sites/default/files/ebsa/researchers/ coverage effective beginning in 2019. AHPs, by analysis/health-and-welfare/summit2014.pdf. A offering eligible individuals more affordable options 51 For discussions of this history, see: (1) U.S. Gov’t Accountability Office, GAO–92–40, ‘‘State small number of new multiemployer welfare plans than are available in individual markets, might that have been in operation for less than three years reduce somewhat any potential increase in the Need Labor’s Help Regulating Multiple Employer Welfare Arrangements.’’, March 1992, available at also are required to submit such reports. Such uninsured population that could result from multiemployer plans, which exist pursuant to elimination of the tax payment. At the same time, http://www.gao.gov/assets/220/215647.pdf; (2) U.S. Gov’t Accountability Office, GAO–04–312, collective bargaining agreements between one or however, such elimination might prompt some more employee organizations and two or more individuals who would have joined AHPs to remain ‘‘Employers and Individuals Are Vulnerable to Unauthorized or Bogus Entities Selling Coverage.’’ employers, are not subject to ERISA’s MEWA uninsured instead. February 2004, available at http://www.gao.gov/ provisions (other than the reporting requirement), 47 DOL calculations based on the Abstract of new.items/d04312.pdf; and Mila Kofman and and are not affected by this regulation. These Auxiliary Data for the March 2016 Annual Social Jennifer Libster, ‘‘Turbulent Past, Uncertain Future: multiemployer plans made up just 2 percent of all and Economic Supplement to the Current Is It Time to Re-evaluate Regulation of Self-Insured reporting entities in 2013. Because of their Population Survey, U.S. Department of Labor. Multiple Employer Arrangements?’’, Journal of inclusion among the reports, the statistics presented 48 Id. Insurance Regulation, 2005, Vol. 23, Issue 3, p. 17– here somewhat overstate the size of the true MEWA 49 Id. 33. universe.

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self-insured in certain western States likely to be resistant to abuse. 10 years to properly oversee AHPs.56 including Wyoming (37 percent), Nevertheless, the flexibility afforded Together these budget impacts would Oklahoma (31 percent), Montana (30 AHPs under this proposal could have increased the federal deficit by percent), and North Dakota (28 percent). introduce more opportunities for $317 million over 10 years. About one-fourth of reporting MEWAs mismanagement or abuse, increasing Today, consequent to the ACA, many are self-insured in all the States in potential oversight demands on the individuals who in 2005 might have which they operate, and another 9 Department and State regulators. been uninsured instead are enrolled in percent are self-insured in some States. 1.11. Federal Budget Impacts Medicaid or are insured and receive (The remaining majority does not self- subsidies on individual Exchanges, and insure and instead purchases insurance The proposal is likely to have therefore would trade existing subsidies from issuers in all States in which they offsetting effects on the budget, with for potential new tax subsidies when operate.) For MEWAs for which the type some increasing the deficit and others joining AHPs. Market forces generally of benefits offered could be determined, reducing the deficit. On balance, deficit- favor individuals capturing the larger nearly all offered health insurance, and increasing effects are likely to dominate, available subsidy, so it is likely that many offered other, additional welfare making the proposal’s net impact on the AHPs will mostly enroll higher income benefits, such as dental or vision federal budget negative. individuals, whose net subsidies will benefits, or life or disability insurance. Approximately 906,000 individuals increase, adding to the federal deficit. MEWAs’ annual reports filed with the who are insured on the Exchanges and Resources allocated to support the Department must indicate whether they eligible for subsidies, and Departments’ efforts to prevent and are in compliance with a number of approximately 2 million Medicaid correct potential mismanagement and ERISA’s minimum health plan enrollees, are working owners or abuse could add more to it. If, however, standards, and with ERISA’s general dependents thereof. An additional 2 AHPs do enroll some Medicaid requirement that plans hold assets in million and 6 million, respectively, are enrollees or individuals receiving large trust. Nearly none reported lack of employees of small businesses that do subsidies on individual Exchanges, compliance with the former, but 13 not offer insurance or dependents savings from these impacts might offset 54 percent reported that they did not thereof. As of February 2017, 10.3 a portion of these deficit increases. comply with the trust requirement. million individuals were enrolled, and This proposed rule includes paid their premiums, on a Federal or 1.12. Regulatory Alternatives provisions intended to protect AHPs State-based Exchange. Of these In developing this proposal DOL against mismanagement and abuse. It individuals, 8.7 million received tax considered various alternative requires that the group or association credits, and 5.9 million were receiving approaches. has a formal organizational structure cost-sharing reduction subsidies. The • Retaining existing rules and with a governing body and has by-laws average advanced premium tax credit interpretations. DOL elected to propose or other similar indications of formality for these individuals was $371 per relaxing existing rules and appropriate for the legal form in which month.55 Forty-two million individuals interpretations because they have the group or association is operated, and under age 65 were covered by Medicaid. proven to impede the establishment and that the functions and activities of the In 2005, the Congressional Budget growth of potentially beneficial AHPs. group or association, including the Office (CBO) estimated the potential Existing interpretations generally block establishment and maintenance of the budget impacts of a 2005 legislative working owners who lack employees group health plan, are controlled by its proposal to expand AHPs. Under the from joining AHPs. Instead these employer members. These requirements 2005 legislation and contemporaneous individuals and their families are are intended to ensure that the law, many individuals joining AHPs limited to options available in organizations are bona fide previously would have been uninsured individual markets where premiums organizations with the organizational or purchased individual policies may be higher and choice narrower than structure necessary to act ‘‘in the without benefit of any subsidies; by interests’’ of participating employers that which AHPs can sometimes joining AHPs they stood to gain provide. The existing commonality with respect to employee benefit plans potentially large subsidies in the form of as ERISA requires. The proposed rule requirement sometimes prevents tax exclusions. CBO predicted that the associations from achieving sufficient also requires that the AHP’s member legislation, by increasing spending on companies control the AHP. This scale in local markets to effectively employer-provided insurance, would establish and operate efficient AHPs. requirement is necessary both to satisfy reduce federal tax revenue by $261 ERISA’s requirement that the group or The existing uncertainty as to the million over 10 years, including a $76 sufficiency of a common industry to association must act for the direct million reduction in Social Security employers in relation to the employee permit establishment of an AHP may payroll taxes. CBO also predicted that prevent the formation of more benefit plan, and to prevent formation of AHPs would displace some Medicaid commercial enterprises that claim to be nationwide AHPs. And, the existing coverage and thereby reduce federal requirement that associations exist for AHPs but that operate like traditional spending by $80 million over 10 years. issuers selling insurance in the purposes other than providing health Finally, according to CBO, the benefits prevents the establishment of employer marketplace and may be legislation would have required DOL to vulnerable to abuse. In addition, the beneficial AHPs in circumstances where hire 150 additional employees and no other compelling reason exists to proposal would require that only spend an additional $136 million over employer members may participate in establish and maintain an association. By addressing these requirements, this the AHP and health coverage is not 54 DOL calculations based on the Abstract of made available other than to or in Auxiliary Data for the March 2016 Annual Social proposal aims to promote the connection with a member of the and Economic Supplement to the Current establishment and growth of AHPs and association. Together, these criteria are Population Survey, U.S. Department of Labor. 55 CMS, ‘‘2017 Effectuated Enrollment Snapshot,’’ 56 CBO cost estimate, H.R. 525 Small Business intended to ensure that associations June 12, 2017. https://downloads.cms.gov/files/ Health Fairness Act of 2005. April 8, 2005. https:// sponsoring AHPs are bona fide effectuated-enrollment-snapshot-report-06-12- www.cbo.gov/sites/default/files/109th-congress- employment-based associations and 17.pdf 2005-2006/costestimate/hr52500.pdf

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optimize small businesses’ access to stable risk pools, pursue administrative 3. Regulatory Flexibility Act them. savings, and offer small businesses The Regulatory Flexibility Act (5 • Relaxing the control requirement. more, and more affordable, health U.S.C. 601 et seq.) (RFA) imposes The proposal generally requires that insurance options. In light of that certain requirements with respect to association members control the AHP. objective, imposing the product and federal rules that are subject to the Relaxing this requirement might pricing restrictions that distinguish the notice and comment requirements of encourage more and faster individual and small group markets section 553(b) of the Administrative establishment and growth of AHPs, as from the large group market would have Procedure Act (5 U.S.C. 551 et seq.) and entrepreneurs identify and seize been too limiting. The flexibility also which are likely to have a significant opportunities to reap and share with may increase AHPs’ market reach, economic impact on a substantial enrollees the economic benefits AHPs making more affordable options number of small entities. Unless an can deliver. DOL believes, however, that available to more small businesses than agency determines that a proposal is not relaxing this requirement would would be possible without it. This likely to have a significant economic increase the risk that AHPs would be proposal would mitigate AHPs’ impact on a substantial number of small vulnerable to mismanagement or abuse. potential to segment risk and destabilize entities, section 603 of the RFA requires Additionally, the Department’s individual and small group markets by authority to loosen this requirement is applying nondiscrimination rules that the agency to present an initial unclear in light of ERISA’s text. bar them from conditioning eligibility, regulatory flexibility analysis (IRFA) of • Including only fully-insured AHPs. benefits, or premiums on the health the proposed rule. The Department has DOL considered prohibiting broadening status of small businesses’ employees. determined that this proposed rule, the circumstances under which an AHP Some stakeholders argue that which would broaden the criteria for is treated as a single plan under ERISA nondiscrimination provisions determining when employers may join only for fully insured AHPs. themselves unduly restrict AHPs and together in a group or association to Historically, self-insured MEWAs have could prevent AHP formation (and sponsor a group health plan under been particularly vulnerable to financial hence lower the number of insured ERISA, is likely to have a significant mismanagement and abuse. MEWA people). DOL considered, but rejected, impact on a substantial number of small promoters sometimes have used self- omitting the nondiscrimination entities. Therefore, the Department insurance both to evade State oversight provisions in part. These provisions, provides its IRFA of the proposed rule, and to maximize opportunities for among other functions, serve to below. abusive financial self-dealing, often distinguish AHPs from commercial Need for and Objectives of the Rule with highly negative consequences for insurers as a legal matter. their enrollees. Nonetheless, DOL This proposed rule is intended and recognizes that well-managed self- 1.13. Conclusion expected to deliver benefits primarily to insured AHPs may be able to realize This proposed rule broadens the the employees of small businesses and efficiencies that insured AHPs cannot. conditions under which AHPs will be their families, as well as the small In light of this potential, and treated as large group health benefit businesses themselves. As detailed considering the enforcement tools that plans under ERISA, the ACA and State earlier, this proposed rule would the ACA added to DOL’s arsenal, DOL law. Under the proposal, AHPs encourage the establishment and growth elected to allow AHPs to continue to generally can offer small businesses of AHPs. AHPs may offer small self-insure under this proposal. This more, and more affordable, benefit businesses more, and more affordable, provision will serve to further promote options than are available to them in the health benefit options than otherwise the establishment and growth of individual and small group markets, in are available to them in the individual effective AHPs, but it will also compel part through the creation of various and small group markets, resulting in DOL to commit additional resources to efficiencies. AHPs’ flexibility to tailor employer-sponsored coverage for more AHPs’ oversight. products and adjust prices to more Americans, and more diverse and • Limiting or increasing AHPs’ closely reflect expected claims will also affordable insurance options. product and/or price flexibility. As improve social welfare for AHP Affected Small Entities noted earlier, this proposal allows small participants. Although they may limit businesses to band together to obtain AHPs’ appeal and thus we are seeking Potential beneficiaries of savings and advantages that attend the provision of comment on them, rules barring increased choice from AHP coverage insurance by a large employer, discrimination based on health status under the proposed rule include: including access to the large-group will moderate the incentives for • Some of the 25 million individuals market. The large-group market is not relatively healthy people under age 65 who currently are covered subject to certain product and pricing disproportionately to leave the in individual markets, including restrictions that govern the individual individual and small group markets, approximately 3 million who are sole and small group markets. As noted which would further destabilize local proprietors or dependents thereof, and earlier, some stakeholders expressed individual and small group markets. an additional 6 million who are their concern that allowing small Operational risks may demand employees of small businesses or businesses to escape these restrictions increased federal and State oversight. dependents thereof. could lead to excessive risk The proposal may increase the federal • The 25 million individuals under segmentation and might destabilize deficit. age 65 who currently are covered in some local individual and small group small group markets. markets. The Department considered, 2. Paperwork Reduction Act • Some of the 28 million individuals but rejected, subjecting AHPs to The proposed rule is not subject to the under age 65 who currently lack constraints similar to those applicable to requirements of the Paperwork insurance, including 2 million who are the individual and small group markets. Reduction Act of 1995 (PRA 95) (44 sole proprietors or dependents thereof, The goal of the proposed rule is to allow U.S.C. 3501 et seq.), because it does not and an additional 5 million who are AHPs to leverage advantages available contain a collection of information as employees of small businesses or to large employers to assemble large, defined in 44 U.S.C. 3502(3). dependents thereof.

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• Some of the 1.6 million private, AHPs will be treated as large group 7. Executive Order 13771 Reducing small-firm establishments (those with health benefit plans under ERISA, the Regulation and Controlling Regulatory fewer than 50 employees) that currently ACA and State law. In so doing, it Costs offer insurance and the 4 million that do makes available to more small Executive Order 13771, titled not. businesses some of the advantages Reducing Regulation and Controlling Impact of the Rule currently enjoyed by large employer- Regulatory Costs, was issued on January sponsored plans. 30, 2017. This proposed rule is expected By expanding AHPs, this proposal to be an EO 13771 deregulatory action, would provide more, and more 6. Federalism Statement because it would expand small affordable, health insurance options for businesses’ access to more lightly small businesses, thereby yielding Executive Order 13132 outlines regulated and more affordable health economic benefits for participating fundamental principles of federalism, insurance options, by removing certain small businesses. The proposal includes and requires the adherence to specific restrictions on the establishment and provisions to mitigate any risk of criteria by federal agencies in the maintenance of AHPs under ERISA. negative spillovers for other small process of their formulation and businesses. The proposal may impact implementation of policies that have List of Subjects in 29 CFR Part 2510 individual and small group issuers ‘‘substantial direct effects’’ on the Employee benefit plans, Pensions. whose enrollees might switch to AHPs, States, the relationship between the For the reasons stated in the some of which would likely be small national government and States, or on preamble, the Department of Labor entities. the distribution of power and proposes to amend 29 CFR part 2510 as Duplication, Overlap, and Conflict With responsibilities among the various follows: Other Rules and Regulations levels of government. Federal agencies promulgating regulations that have PART 2510—DEFINITIONS OF TERMS The proposed actions would not federalism implications must consult USED IN SUBCHAPTERS C, D, E, F, G, conflict with any relevant federal rules. with State and local officials and AND L OF THIS CHAPTER As discussed above, the proposed rule describe the extent of their consultation would merely broaden the conditions and the nature of the concerns of State ■ 1. The authority citation for part 2510 under which an association can act as is revised to read as follows: an ‘‘employer’’ under ERISA for and local officials in the preamble to the purposes of offering a group health plan final rule. Authority: 29 U.S.C. 1002(2), 1002(5), 1002(21), 1002(37), 1002(38), 1002(40), 1031, and would not change AHPs’ status as In the Department’s view, these and 1135; Secretary of Labor’s Order No. 1– large group plans and MEWAs, under proposed regulations would have 2011, 77 FR 1088 (Jan. 9, 2012); Sec. 2510.3– ERISA, the ACA, and State law. federalism implications because they 101 also issued under sec. 102 of 4. Congressional Review Act would have direct effects on the States, Reorganization Plan No. 4 of 1978, 43 FR the relationship between the national 47713 (Oct. 17, 1978), E.O. 12108, 44 FR The proposed rule is subject to the government and the States, and on the 1065 (Jan. 3, 1979) and 29 U.S.C. 1135 note. Congressional Review Act (CRA) distribution of power and Sec. 2510.3–38 is also issued under sec. 1, provisions of the Small Business Pub. L. 105–72, 111 Stat. 1457 (1997). responsibilities among various levels of Regulatory Enforcement Fairness Act of ■ government. The Department believes 2. Section 2510.3–3 is amended by 1996 (5 U.S.C. 801 et seq.) and, if these effects are limited, insofar as the revising paragraph (c) introductory text finalized, will be transmitted to to read as follows: Congress and the Comptroller General proposal would not change AHPs’ status for review. The proposed rule is a as large group plans and MEWAs, under § 2510.3–3 Employee benefit plan. ‘‘major rule’’ as that term is defined in ERISA, the ACA, and State law. As * * * * * 5 U.S.C. 804(2), because it is likely to discussed above in this preamble, (c) Employees. For purposes of this result in an annual effect on the because ERISA classifies AHPs as section and except as provided in economy of $100 million or more. MEWAs, they generally are subject to § 2510.3–5(e): State insurance regulation. Specifically, 5. Unfunded Mandates Reform Act * * * * * if an AHP is not fully insured, then ■ 3. Section 2510.3–5 is added to read Title II of the Unfunded Mandates under section 514(b)(6)(A)(ii) of ERISA as follows: Reform Act of 1995 (Pub. L. 104–4) any State insurance law that regulates requires each federal agency to prepare insurance may apply to the AHP to the § 2510.3–5 Employer. a written statement assessing the effects extent that such State law is not (a) In general. The purpose of this of any federal mandate in a proposed or inconsistent with ERISA. If, on the other section is to clarify which persons may final agency rule that may result in an hand, an AHP is fully insured, section act as an ‘‘employer’’ within the expenditure of $100 million or more 514(b)(6)(A)(i) of ERISA provides that meaning of section 3(5) of the Act in (adjusted annually for inflation with the only those State insurance laws that sponsoring a multiple employer group base year 1995) in any one year by State, regulate the maintenance of specified health plan. Section 733(a)(1) defines local, and tribal governments, in the the term ‘‘group health plan,’’ in contribution and reserve levels may aggregate, or by the private sector. For relevant part, as an employee welfare apply to the AHP. The Department notes purposes of the Unfunded Mandates benefit plan to the extent that the plan Reform Act, as well as Executive Order that State rules vary widely in practice, provides medical care to employees or 12875, this proposal does not include and many States regulate AHPs less their dependents through insurance, any federal mandate that the stringently than individual or small reimbursement, or otherwise. The Act Department expects would result in group insurance. The Department defines an ‘‘employee welfare benefit such expenditures by State, local, or welcomes input from affected States, plan’’ in section 3(1), in relevant part, as tribal governments, or the private sector. including the NAIC and State insurance any plan, fund, or program established This proposed rule would merely officials, regarding this assessment. or maintained by an employer, broaden the conditions under which employee organization, or by both an

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employer and an employee section 733(b)(2) of ERISA, or owned or (ii) Conclusion. In this Example 1, organization, for the purpose of controlled by such a health insurance Association A’s exclusion of Restaurant B providing certain listed welfare benefits issuer. from Association A discriminates on the to participants or their beneficiaries. For (c) Commonality of interest. basis of claims history, which is a health Commonality of interest of employer factor under § 2590.702(a)(1) of this chapter. purposes of being able to establish and Accordingly, Association A violates the maintain a welfare benefit plan, an members of a group or association will requirement in paragraph (d)(1) of this ‘‘employer’’ under section 3(5) of the be determined based on relevant facts section, and, therefore would not meet the Act includes any person acting directly and circumstances and may be definition of a bona fide group or association as an employer, or any person acting established by: of employers under paragraph (b) of this indirectly in the interest of an employer (1) Employers being in the same trade, section. in relation to an employee benefit plan. industry, line of business or profession; Example 2. (i) Facts. Association C offers A group or association of employers is or group health coverage to all members. specifically identified in section 3(5) of (2) Employers having a principal According to the bylaws of Association C, place of business in a region that does membership is subject to the following the Act as a person able to act directly criteria: All members must have a principal or indirectly in the interest of an not exceed the boundaries of the same place of business in a specified metropolitan employer, including for purposes of State or the same metropolitan area area. Individual D is a sole proprietor whose establishing or maintaining an employee (even if the metropolitan area includes principal place of business is within the welfare benefit plan. more than one State). specified area. As part of the membership (b) Bona fide group or association of (d) Nondiscrimination. A bona fide application process, Individual D provides employers. For purposes of Title I of the group or association, and any health certain health information to Association C. Act and this chapter, a bona fide group coverage offered by the bona fide group After learning that Individual D has diabetes, or association of employers capable of or association, must comply with the based on D’s diabetes, Association C denies nondiscrimination provisions of this Individual D’s membership application. establishing a group health plan that is (ii) Conclusion. In this Example 2, an employee welfare benefit plan shall paragraph (d). (1) The group or association must not Association C’s exclusion of Individual D include a group or association of because D has diabetes is a decision that employers that meets the following condition employer membership in the discriminates on the basis of a medical requirements: group or association based on any condition, which is a health factor under (1) The group or association exists for health factor of an employee or § 2590.702(a)(1) of this chapter. Accordingly, the purpose, in whole or in part, of employees or a former employee or Association C violates the requirement in sponsoring a group health plan that it former employees of the employer paragraph (d)(1) of this section and would offers to its employer members; member (or any employee’s family not meet the definition of a bona fide group (2) Each employer member of the members or other beneficiaries), as or association of employers under paragraph (b) of this section. group or association participating in the defined in § 2590.702(a) of this chapter. (2) The group health plan sponsored Example 3. (i) Facts. Association F offers group health plan is a person acting group health coverage to all plumbers directly as an employer of at least one by the group or association must comply working for plumbing companies in a State. employee who is a participant covered with the rules of § 2590.702(b) of this Plumbers employed by a plumbing company under the plan; chapter with respect to on a full-time basis (which is defined under (3) The group or association has a nondiscrimination in rules for eligibility the terms of the arrangement as regularly formal organizational structure with a for benefits, subject to paragraph (d)(4) working at least 30 hours a week) are eligible governing body and has by-laws or other of this section. for health coverage without a waiting period. similar indications of formality; (3) The group health plan sponsored Plumbers employed by a plumbing company (4) The functions and activities of the by the group or association must comply on a part-time basis (which is defined under group or association, including the with the rules of § 2590.702(c) of this the terms of the arrangement as regularly chapter with respect to working at least 10 hours per week, but less establishment and maintenance of the than 30 hours per week) are eligible for group health plan, are controlled by its nondiscrimination in premiums or health coverage after a 60-day waiting period. employer members, either directly or contributions required by any (ii) Conclusion. In this Example 3, making indirectly through the regular participant or beneficiary for coverage a distinction between part-time versus full- nomination and election of directors, under the plan, subject to paragraph time employment status is a permitted officers, or other similar representatives (d)(4) of this section. distinction between similarly situated that control the group or association and (4) In applying the nondiscrimination individuals under § 2590.702(d) of this the establishment and maintenance of provisions of paragraphs (d)(2) and (3) chapter, provided the distinction is not the plan; of this section, the group or association directed at individuals under (5) The employer members have a may not treat different employer § 2590.702(d)(3) of this chapter. Accordingly, members of the group or association as the requirement that plumbers working part commonality of interest as described in time must satisfy a waiting period for paragraph (c) of this section; distinct groups of similarly-situated coverage is a rule for eligibility that does not (6) The group or association does not individuals. violate § 2590.702(b) or, as a consequence, make health coverage through the (5) The rules of this paragraph (d) are paragraph (d)(2) of this section. association available other than to illustrated by the following examples: Example 4. (i) Facts. Association G employees and former employees of Example 1. (i) Facts. Association A offers sponsors a group health plan, available to all employer members and family members group health coverage to all members. employers doing business in Town H. or other beneficiaries of those According to the bylaws of Association A, Association G charges Business I more for employees and former employees; membership is subject to the following premiums than it charges other members (7) The group or association and criteria: All members must be restaurants because Business I employs several individuals with chronic illnesses. health coverage offered by the group or located in a specified area. Restaurant B, which is located within the specified area, (ii) Conclusion. In this Example 4, association complies with the has several employees with large health Business I cannot be treated as a separate nondiscrimination provisions of claims. Restaurant B applies for membership group of similarly situated individuals from paragraph (d) of this section; and in Association A, and is denied membership other members under paragraph (d)(4) of this (8) The group or association is not a based on the claims experience of its section. Therefore, charging Business I more health insurance issuer described in employees. for premiums based on one or more health

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factors of the employees of Business I coverage offered to employer members ENVIRONMENTAL PROTECTION violates § 2590.702(c) of this chapter and, through the association available other AGENCY consequently, the requirement in paragraph than to employees and former (d)(3) of this section. 40 CFR Parts 52 and 81 Example 5. (i) Facts. Association J employees of employer members and sponsors a group health plan that is available the family members or other [EPA–R07–OAR–2017–0734; FRL 9972–64– to all members. According to the bylaws of beneficiaries of those employees and Region 7] Association J, membership is open to any former employees. entity whose principal place of business is in Air Plan Approval and Air Quality State K, which has only one major (2) The term ‘‘working owner’’ as used Designation; MO; Redesignation of the metropolitan area, the capital city of State K. in this paragraph (e) means any Missouri Portion of the St. Louis Members whose principal place of business individual: Missouri-Illinois Area to Attainment of is in the capital city of State K are charged (i) Who has an ownership right of any the 1997 Annual Standard for Fine more for premiums than members whose Particulate Matter and Approval of principal place of business is outside of the nature in a trade or business, whether capital city. incorporated or unincorporated, Associated Maintenance Plan (ii) Conclusion. In this Example 5, making including partners and other self- AGENCY: Environmental Protection a distinction between members whose employed individuals; Agency (EPA). principal place of business is in the capital city of State K, as compared to some other (ii) Who is earning wages or self- ACTION: Advanced notice of proposed area in State K, is a permitted distinction employment income from the trade or rulemaking. between similarly situated individuals under business for providing personal services § 2590.702(d) of this chapter, provided the to the trade or business; SUMMARY: The Environmental Protection distinction is not directed at individuals Agency (EPA) is issuing this Advanced under § 2590.702(d)(3) of this chapter. (iii) Who is not eligible to participate Notice of Proposed Rulemaking (ANPR) Accordingly, Association J’s rule for charging in any subsidized group health plan to inform the public of currently different premiums based on principal place maintained by any other employer of available information that will be used of business does not violate paragraph (d)(3) the individual or of the spouse of the by the Administrator to issue a of this section. individual; and subsequent action to propose Example 6. (i) Facts. Association L (iv) Who either: redesignation of the Missouri portion of sponsors a group health plan, available to all the St. Louis MO-IL nonattainment area members. According to the bylaws of (A) Works at least 30 hours per week Association L, membership is open to any for the 1997 PM2.5 NAAQS, (hereafter or at least 120 hours per month referred to as the ‘‘St. Louis area’’ or entity whose principal place of business is in providing personal services to the trade State M. Sole Proprietor N’s principal place ‘‘area’’). On September 2, 2011, of business is in City O, within State M. It or business, or Missouri, through the Missouri is the only member whose principal place of (B) Has earned income from such Department of Natural Resources business is in City O, and it is otherwise trade or business that at least equals the (MDNR) submitted a request for EPA to similarly situated with respect to all other working owner’s cost of coverage for redesignate the Missouri portion of the members of the association. After learning participation by the working owner and St. Louis MO-IL nonattainment area to that Sole Proprietor N has been diagnosed attainment for the 1997 Annual National with cancer, based on the cancer diagnosis, any covered beneficiaries in the group Association L changes its premium structure health plan sponsored by the group or Ambient Air Quality Standards to charge higher premiums for members association in which the individual is (NAAQS) for fine particulate matter whose principal place of business is in City participating. (PM2.5) and approve a state O. implementation plan (SIP) revision (ii) Conclusion. In this Example 6, cancer (3) Absent knowledge to the contrary, containing a maintenance plan for the is a health factor under § 2590.702(a) of this the group or association sponsoring the Missouri portion of the area. In advance chapter. Making a distinction based on a group health plan may reasonably rely of any potential rulemaking to address health factor, between members that are on written representations from the the state of Missouri’s request, EPA is otherwise similarly situated is in this case a individual seeking to participate as a specifically requesting early input and distinction directed at an individual under working owner as a basis for concluding § 2590.702(d)(3) of this chapter and is not a comments on its interpretation that permitted distinction. Accordingly, by that the conditions in paragraph (e)(2) currently available data support a charging higher premiums to members whose are satisfied. finding that the area will be attaining principal place of business is City O, the 1997 Annual PM2.5 NAAQS based Jeanne Klinefelter Wilson, Association L violates § 2590.702(c) of this on air quality monitoring data from chapter and, consequently, paragraph (d)(4) Deputy Assistant Secretary, Employee 2015–2017, and on EPA’s advanced of this section. Benefits Security Administration, Department notice of its expectation that the state’s of Labor. (e) Dual treatment of working owners plan for maintaining the 1997 Annual [FR Doc. 2017–28103 Filed 1–4–18; 8:45 am] as employers and employees—(1) A PM2.5 NAAQS for the St. Louis Area working owner of a trade or business BILLING CODE 4510–29–P (maintenance plan) including the may qualify as both an employer and as associated motor vehicle emission an employee of the trade or business for budgets (MVEBs) for nitrogen oxides purposes of the requirements in (NOX) and PM2.5 for the years 2008– paragraph (b) of this section, including 2025 is approvable. EPA will take any paragraph (b)(2) that each employer information received from this ANPR member of the group or association into consideration when developing a participating in the group health plan proposed action for redesignating the must be a person acting directly as an Missouri portion of the St. Louis Area employer of one or more employees to attainment for the 1997 Annual PM2.5 who are participants covered under the NAAQS. plan, and paragraph (b)(6) that the group DATES: Comments must be received on or association does not make health or before February 5, 2018.

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