The United States District Court for the District of Columbia struck down major portions of the Department of Labor’s (DOL) final rules regarding Association Health Plans (“AHPs”).

The final AHP rules expand the definition of “employer” under ERISA by providing a more favorable path forward for a “bona fide group or association of employers” to be treated as an employer for purposes of establishing one ERISA group health plan for its employer-members. One practical effect of the DOL’s AHP rules is that it eased the standards for new and existing associations to access the large group health insurance market (or to self-fund), which has certain advantages over the small group health insurance market. For more information on the final AHP rules, see our prior client alert: DOL Finalizes Expansion of Association Health Plans.

In State of New York v. United States Department of Labor, eleven states and the District of Columbia sued the DOL claiming the final rule exceeded the scope of ERISA and would destabilize the individual and small group health insurance market. The court agreed and held that the AHP rules were an attempt to “end run” the regulatory requirements of the Affordable Care Act (ACA). Specifically, the court vacated the “bona fide association” provisions and the “working owner” provisions (which, under certain circumstances, would allow self-employed individuals to participate in an AHP) under the final rules.

The Department of Labor has indicated that it is “considering all available options” for moving forward, including an appeal and requesting a stay of the court’s decision pending the appeal. For now, however, the ruling appears to be effective immediately. As a result, it is unclear if the final AHP rules can survive without the vacated provisions. To that end, the court also remanded the AHP rules back to the DOL for consideration of if and how the remaining portions of the AHP rules can operate without the struck provisions.

Importantly, the court’s ruling does not affect the guidance that existed prior to the final AHP rules regarding “bona fide groups or associations of employers.” Even after the final AHP rules, these “old rules” remained in place as another option to creating an AHP. In general, the old rules apply a facts and circumstances test to determine if the group or association of employers satisfies the standards to be treated as the employer for purposes of establishing a group health plan. A key factor in determining the existence of a bona fide association of employers is the degree of control the employer-members exercise, either directly or indirectly both in form and in substance, over the group health plan and the association.

In the past, the DOL applied the old rules stringently, resulting in few associations qualifying as an “employer” for purposes of establishing one ERISA plan for its employer-members (often referred to under the old rules as a “plan-MEWA”). As a reaction to the court’s decisions, however, the DOL may decide to take a broader approach under the old rules if its efforts to expand the availability of AHPs under the new rules are unsuccessful. For this reason, associations that have made efforts towards establishing AHPs under the new rules should consider whether they may satisfy the standards under the old rules (and what changes can be made to their circumstances to help satisfy the standards under the old rules).

For more information about anything discussed in this Client Alert, please contact a member of the Maynard Nexsen Employee Benefits & Executive Compensation Practice Group.

Click here to download this client alert.

This Client Alert is for information purposes only and should not be construed as legal advice. This information is not intended to create, and receipt of it does not constitute a lawyer-client relationship.


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