May 10, 2024

The Department of Labor (DOL) issued a final rule on April 29 that formally rescinds previous rules that would have expanded the ability to use an association health plan (AHPs).

Prior to 2018, AHPs were required to be formed by groups with a tangible and close common interest, often related to their industry or profession. Although they were primarily regulated by state laws, AHPs had to comply with ACA requirements for essential health benefits and other protections. Additionally, most AHP arrangements were considered multiple employer welfare arrangements (MEWAs) as defined by ERISA; AHPs were typically small-employer arrangements and had different restrictions than large, self-insured employers.

The landscape for AHPs shifted in 2018 when the DOL, under President Trump, introduced new rules. These changes were aimed at expanding access to AHPs and making them more competitive. Under those rules, regarding who could form or join an AHP were loosened, allowing a broader array of employers, including those with more tenuous commonalities. Self-employed individuals could also participate, opening up AHPs to a wider demographic.

Shortly after the 2018 regulations were finalized, 11 states and the District of Columbia filed suit against the DOL. In March 2019, the U.S. District Court for the District of Columbia vacated the 2018 rule’s relaxation of the “business purpose” and “commonality of interest” standards as well as the provisions allowing working owners without common-law employees to be treated as both employers and employees when participating in an AHP. While the court did not vacate the entire rule, it effectively ended the AHP expansion.

This new final 2024 rule fully rescinds the 2018 AHP rule and returns AHPs to the regulatory status they had prior. “The [2018] rule struck the wrong balance between ensuring a sufficient employment connection and enabling the creation of AHPs,” the DOL noted in their fact sheet. “The employment relationship is at the heart of what makes an entity a bona fide group or association of employers capable of sponsoring an AHP. It's also at the heart of what separates bona fide employer associations from commercial ventures that sell insurance to unrelated individuals and employers.”

AHPs that were established in good faith reliance on the 2018 AHP rule were allowed to continue to the end of the applicable plan year or contract term. However, that enforcement policy has long since expired, and the Biden administration notes that it is improbable any AHPs relying on the 2018 rule are in existence today. Given the expiration of the enforcement policy and the administration's assessment that most – if not all – AHPs are complying with pre-2018 rules, it is unlikely that plan sponsors will need to take any action.

We provide this material for informational purposes only; it is not a substitute for legal advice.

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