An employee or former employee of a current employer association member, working owner (one that works 20 hours/week or 80 hours/month), sole proprietor, partner, and their beneficiaries (e.g., spouses and dependent children) may all be eligible participants in an AHP. Independent contractors, such as those working in the “gig” economy, that possess
a sufficient relationship with the association may aggregate their hours to allow participation in the AHP. Once members (including working owners) cease membership in the association, they can no longer be covered by the AHP because they have lost a significant connection to the group.
Keep in mind, these rules did not change the tax implications when group coverage is provided to certain self-employed individuals. Sole proprietors, partners and independent contractors who obtain coverage through a group plan will have the same tax restrictions and consequences that existed prior to the DOL guidance. Individuals holding greater than 2% of shares in an S-corporation and their family members, sole proprietors, partners, non-employee directors, non-employee independent contractors will continue to be restricted from participating in a Section 125 cafeteria plan (pre-tax premium payments). Contributions made by an employer toward the cost of group coverage to these individuals is generally taxable.
Plan Coverage
These rules do not require the underlying medical coverage to be of a “Bronze” level. This means, assuming it is permissible under state law, an AHP could offer a plan that does not meet minimum value. This could include “skinny” coverage (e.g., preventive care only). Applicable large employers (ALEs) considering coverage through an AHP should be mindful as to the potential penalty implications in the event the coverage does not meet minimum value requirements.
Nondiscrimination
AHPs are subject to the same HIPAA nondiscrimination rules as other large group health plans. The AHP cannot discriminate in eligibility, benefits or premiums against individuals within a group of similarly situated individuals based on a health factor. The AHP may make distinctions between groups of individuals based on bona-fide employment-based classification consistent with the employer’s usual business practices. Notably, absent a bona fide business classification, all employers within an AHP will have the same benefits, premiums and eligibility rules. The Department’s rule does not allow experience rating at each employer level.
Examples
Example 1
Association A offers group health coverage to all members. According to the bylaws of Association A, membership is
subject to the following criteria: All members must be restaurants located in a specified area. Restaurant B, which is
located within the specified area, has several employees with large health claims. Restaurant B applies for membership
in Association A, and is denied membership based on the claims experience of its employees.
In this Example 1, Association A’s exclusion of Restaurant B from Association A discriminates on the basis of claims
history, which is a health factor. Association A does not meet the definition of a bona fide group or association of
employers.
Example 2
Association F offers group health coverage to all plumbers working for plumbing companies in a state, if the plumbing
company employer chooses to join the association. Plumbers employed by a plumbing company on a full-time basis
(which is defined under the terms of the arrangement as regularly working at least 30 hours a week) are eligible for
health coverage without a waiting period. Plumbers employed by a plumbing company on a part-time basis (which is
defined under the terms of the arrangement as regularly working at least 10 hours per week, but less than 30 hours per
week) are eligible for health coverage after a 60-day waiting period.
In this Example 2, making a distinction between part-time versus full-time employment status is a permitted distinction
between similarly-situated individuals provided the distinction is not directed at individuals. Accordingly, the requirement
that plumbers working part time must satisfy a waiting period for coverage is a rule for eligibility that is permissible under
the nondiscrimination rules.
Example 3
Association G sponsors a group health plan, available to all employers doing business in Town H. Association G charges
Business I more for premiums than it charges other members because Business I employs several individuals with
chronic illnesses.
The employees of Business I cannot be treated as a separate group of similarly-situated individuals from other members
based on a health factor of one or more individuals. Therefore, charging Business I more for premiums based on one or
more health factors of the employees of Business I does not satisfy these requirements.
Example 4
Association Q is a retail industry association. It sponsors a group health plan that charges employees of employers
different premiums based on their occupation: Cashier, stockers, and sales associates. The distinction is not directed at
individual participants or beneficiaries based on a health factor.
The premium distinction is permissible because it is not based on a health factor and is not directed at individual
participants and beneficiaries based on a health factor.
Cosmo Insurance Agency is an independent insurance agency serving surrounding communities in New Jersey. Cosmo keeps its promise to assure an efficient and creative approach to the services we offer. Each of our clients experience a personalized and long-term relationship with us. Our New Jersey based team of health brokers guides our clients in helping them choose the most cost-effective options. By incorporating the latest in technology-based tools and laws on healthcare, employee benefits, life insurance and finance, we keep our clients up-to-date with the plans that encompass all of their needs, whether it is individual or group insurance.
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