And in this Corner…the Fight to Expand Association Health Plans Continues

Contacts

Employee Health & Benefits National Compliance Leader
+1 972 770 7153
August 12, 2019

The U.S. Department of Labor (DOL) issued Advisory Opinion 2019-01a to little fanfare on July 8, 2019, but the DOL’s move was a little bigger than the attention it received. It marked Round #3 in the ongoing battle between certain states and the DOL over the expansion of Association Health Plans (AHPs).

The Bottom Line
In its Advisory Opinion, the DOL agreed that Ace Hardware’s[1] corporate operations and independently owned retail stores were employers within the same industry and approved their formation of a Pathway 1 AHP in a large number of states. Traditional Pathway 1 AHPs have historically been limited to the same state, and this appears to be a reaction by the DOL to the unfavorable court opinion given to Pathway 2 AHPs last March.

A Quick Roadmap
The DOL refers to the two categories of AHPs as Pathway 1 and Pathway 2, and we’ll use those terms in this article.[2] Both can enable member employers to participate in large group insurance coverage or potentially self-insure. Please see below for a discussion of Pathway 1 and Pathway 2 AHPs and how we got here. 

Pre-Fight
This was the AHP environment before the final rules expanding AHPs were issued:

Pathway 1 AHP

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession

    AND

  • Be located within the same geographic location (usually within the same state)

 

 

 

 

 

 

Round 1
The final rules creating the Pathway 2 AHP were issued on June 18, 2018. There were staggered effective dates described in our earlier expansion of AHPs article.  

Pathway 1 AHP

Pathway 2 AHP

AHP Member Employers Must:

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession

    AND

  • Be located within the same geographic location (usually withinthe same state)
  • Be within the same industry, trade, line of business or profession (without regard to geographic location)

    OR

  • Have their principal place of business located within the same state or metro area (even if the metro area crosses state lines)

 

 

 

 

 

 

 

 

 

 

Pathway 2 AHPs also permit broader participation by self-employed individuals.

Round 2
Eleven States and the District of Columbia sued the DOL over Pathway 2 AHPs and received a favorable ruling on March 28, 2019. In an earlier article, we indicated the ruling appeared to leave wiggle room for employers in the same trades or businesses to form Pathway 2 AHPs across state lines. In a set of FAQs released in May, the DOL indicated it would appeal the ruling but would restrict the expansion of existing or the formation of new Pathway 2 AHPs in the meantime.

Pathway 1 AHP

Pathway 2 AHP | SUSPENDED

AHP Member Employers Must:

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession

    AND

  • Be located within the same geographic location (usually within the same state)
  • Be within the same industry, trade, line of business or profession (without regard to geographic location)

    OR

  • Have their principal place of business located within the same state or metro area (even if the metro area crosses state lines)

 

 

 

 

 

 

 

 

 

Round 3
The DOL’s recent Advisory Opinion has this effect:

Pathway 1 AHP

Pathway 2 AHP | SUSPENDED

AHP Member Employers Must:

AHP Member Employers Must:

  • Be within the same industry, trade, line of business or profession (without regard to geographic location)

    AND
  • Be located within the same geographic location (usually within the same state)
  • Be within the same industry, trade, line of business or profession (without regard to geographic location)

    OR

  • Have their principal place of business located within the same state or metro area (even if the metro area crosses state lines)

 

 

 

 

 

 

 

 

 

What’s Next?
It will be interesting to see if the DOL’s Advisory Opinion encourages employers and insurance carriers/third party administrators to begin forming Pathway 1 AHPs across state lines or if most adopt a more general wait-and-see approach. It seems likely the States engaged in the current litigation with the DOL over Pathway 2 AHPs will also challenge this apparent expansion of Pathway 1 AHPs. The DOL appears to be on firmer footing with this Pathway 1 AHP expansion, and the position taken by the DOL also seems consistent with the language of the earlier court ruling from Round #2.[3]


[1] Full disclosure:  Ace Hardware is a client of Marsh & McLennan Agency.

[2] In our previous articles, we referred to Pathway 1 as the “Narrow Standard AHP” and Pathway 2 as the “Relaxed Standard AHP.”

[3] Yes, we feel largely vindicated for our earlier interpretation that the court’s ruling seemed to leave room for employers in the same trades or businesses to form AHPs across state lines.