Contacts
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: |
|
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: |
|
|
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: |
|
|
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: |
|
|
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.
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