Proposed Rule2023-27510
Definition of “Employer”-Association Health Plans
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 20, 2023
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document proposes to rescind the Department of Labor's (Department or DOL) 2018 rule entitled "Definition of Employer-- Association Health Plans" (2018 AHP Rule). The 2018 AHP Rule establishes an alternative set of criteria from those set forth in the Department's pre-rule guidance for determining when a group or association of employers is acting "indirectly in the interest of an employer" under section 3(5) of the Employee Retirement Income Security Act of 1974 (ERISA) for purposes of establishing an association health plan (AHP) as a multiple employer group health plan. The 2018 AHP Rule's alternative criteria were set aside in large part by the U.S. District Court for the District of Columbia in New York v. United States Department of Labor. The district court found the bona fide association and working owner provisions in the rule to be an unreasonable interpretation of ERISA, inconsistent with congressional intent that ERISA applies to employee benefits arising out of employment relationships. The Department, after further review of the relevant statutory language, judicial decisions, and pre-rule guidance, and further consideration of ERISA's statutory purposes and related policy goals, now proposes to rescind in full the 2018 AHP Rule in order to resolve and mitigate any uncertainty regarding the status of the standards that were set under the 2018 AHP Rule, allow for a reexamination of the criteria for a group or association of employers to be able to sponsor an AHP, and ensure that guidance being provided to the regulated community is in alignment with ERISA's text, purposes, and policies.
Full Text
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<title>Federal Register, Volume 88 Issue 243 (Wednesday, December 20, 2023)</title>
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[Federal Register Volume 88, Number 243 (Wednesday, December 20, 2023)]
[Proposed Rules]
[Pages 87968-87981]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-27510]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2510
RIN 1210-AC16
Definition of ``Employer''--Association Health Plans
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document proposes to rescind the Department of Labor's
(Department or DOL) 2018 rule entitled ``Definition of Employer--
Association Health Plans'' (2018 AHP Rule). The 2018 AHP Rule
establishes an alternative set of criteria from those set forth in the
Department's pre-rule guidance for determining when a group or
association of employers is acting ``indirectly in the interest of an
employer'' under section 3(5) of the Employee Retirement Income
Security Act of 1974 (ERISA) for purposes of establishing an
association health plan (AHP) as a multiple employer group health plan.
The 2018 AHP Rule's alternative criteria were set aside in large part
by the U.S. District Court for the District of Columbia in New York v.
United States Department of Labor. The district court found the bona
fide association and working owner provisions in the rule to be an
unreasonable interpretation of ERISA, inconsistent with congressional
intent that ERISA applies to employee benefits arising out of
employment relationships. The Department, after further review of the
relevant statutory language, judicial decisions, and pre-rule guidance,
and further consideration of ERISA's statutory purposes and related
policy goals, now proposes to rescind in full the 2018 AHP Rule in
order to resolve and mitigate any uncertainty regarding the status of
the standards that were set under the 2018 AHP Rule, allow for a
reexamination of the criteria for a group or association of employers
to be able to sponsor an AHP, and ensure that guidance being provided
to the regulated community is in alignment with ERISA's text, purposes,
and policies.
DATES: Comments are due on or before February 20, 2024.
ADDRESSES: You may submit written comments, identified by RIN 1210-
AC16, by one of the following methods:
Federal eRulemaking Portal: <a href="https://www.regulations.gov">https://www.regulations.gov</a>. Follow the
instructions for submitting comments. To facilitate receipt and
processing of comments, the Department encourages interested parties to
submit their comments electronically.
Mail: Office of Regulations and Interpretations, Employee Benefits
Security Administration, Room N-5655, U.S. Department of Labor, 200
Constitution Ave. NW, Washington, DC 20210, Attention: Proposed
Rescission of AHP Final Rule RIN 1210-AC16.
Instructions: All submissions must include the agency name and
Regulatory Identifier Number (RIN) for this rulemaking. Any comment
that is submitted will be shared with the Internal Revenue Service
(IRS). If you submit comments electronically, do not submit paper
copies. Comments will be available to the public, without charge,
online at <a href="https://www.regulations.gov">https://www.regulations.gov</a> and <a href="https://www.dol.gov/agencies/ebsa">https://www.dol.gov/agencies/ebsa</a> and at the Public Disclosure Room, Employee Benefits Security
Administration, Suite N-1513, 200 Constitution Ave. NW, Washington, DC
20210.
Warning: Do not include any personally identifiable or confidential
business information that you do not want publicly disclosed. Comments
are public records posted on the internet as received and can be
retrieved by most internet search engines.
Docket: Go to the Federal eRulemaking Portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> for access to the rulemaking docket, including any
background documents and the plain-language summary of the proposed
rule of not more than 100 words in length required by the Providing
Accountability Through Transparency Act of 2023.
FOR FURTHER INFORMATION CONTACT: Suzanne Adelman, Office of Regulations
and Interpretations, Employee Benefits Security Administration, U.S.
Department of Labor, (202) 693-8500 (this is not a toll-free number).
SUPPLEMENTARY INFORMATION:
I. Background
A. Definition of Employer Under Section 3(5) of ERISA
ERISA regulates ``employee benefit plans'' (classified as
``employee welfare benefit plans'' and ``employee pension benefit
plans''), and generally preempts State laws that relate to or have a
[[Page 87969]]
connection with such plans, subject to certain exceptions. An
``employee welfare benefit plan'' is defined in section 3(1) of ERISA
to include, among other arrangements, ``any plan, fund, or program . .
. established or maintained by an employer or by an employee
organization, or by both, to the extent that such plan, fund or program
was established or is maintained for the purpose of providing for its
participants, or their beneficiaries, through the purchase of insurance
or otherwise . . . medical, surgical, or hospital care or benefits, or
benefits in the event of sickness, accident, disability, [or] death. .
. .'' Thus, to be an employee welfare benefit plan, the plan, fund, or
program must, among other criteria, be established or maintained by an
employer, an employee organization, or both an employer and an employee
organization.
Section 3(5) of ERISA generally defines the term ``employer'' as
``any person acting directly as an employer, or indirectly in the
interest of an employer, in relation to an employee benefit plan.''
Thus, ERISA defines the term ``employer'' to include the ``direct'' (or
common-law) employer of the covered employees or ``any person acting .
. . indirectly in the interest of'' the common-law employer, in
relation to an employee benefit plan. Section 3(5) of ERISA also
expressly identifies ``a group or association of employers acting for
an employer in such capacity'' as falling within the definition of
``employer.'' A group or association may establish an employee welfare
benefit plan only when it is acting as an ``employer'' within the
meaning of ERISA section 3(5). The Department of Labor's (Department or
DOL) regulation at 29 CFR 2510.3-5, published in its 2018 rule entitled
``Definition of Employer--Association Health Plans'' (2018 AHP
Rule),\1\ which is the subject of this proposal to rescind, sought to
define circumstances under which a group or association of employers
constitutes an ``employer'' within the meaning of ERISA section 3(5)
with respect to sponsorship of a group health plan and the provision of
health benefits.
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\1\ 83 FR 28912 (June 21, 2018). The 2018 AHP Rule included an
amendment to the Department's regulation at 29 CFR 2510.3-3, which
excludes ``plans without employees'' from the definition of employee
benefit plans covered by Title I of ERISA, to expressly address
participation of working owners without any common-law employees in
AHPs under that provision by cross-referencing the regulation at 29
CFR 2510.3-5, under which a working owner was able to be treated as
an employee and the working owner's business as the individual's
employer for purposes of being an employer member of the bona fide
group or association and an employee participant in the AHP. This
proposal would also rescind that amendment to 29 CFR 2510.3-3.
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B. Historical Guidance Prior to the 2018 AHP Rule--``Bona Fide'' Group
or Association of Employers
Based on definitions in title I of ERISA, and because title I's
overall structure contemplates employment-based benefit arrangements,
the Department has long recognized that, even absent the involvement of
an employee organization, a group or association of employers may
sponsor a single ``multiple employer'' plan if certain criteria are
satisfied. If a group or association satisfies these criteria, the
Department's guidance that predates the 2018 AHP Rule (hereinafter
referred to as pre-rule guidance) generally refers to these entities as
``bona fide'' employer groups or associations. Under that pre-rule
guidance, health coverage sponsored by a bona fide employer group or
association can be structured as a single, multiple employer plan
covered by ERISA. The criteria specified in the pre-rule guidance are
intended to distinguish bona fide groups or associations of employers
that provide coverage to their employees and the families of their
employees from arrangements that more closely resemble State-regulated
private health insurance coverage.The Department's pre-rule guidance is
consistent with the criteria articulated and applied by every appellate
court, in addition to several federal district courts, that considered
whether an organization was acting in the interests of employer-
members.\2\ Moreover, to the Department's knowledge, no court has
found, or even suggested, that the pre-rule guidance criteria too
narrowly construe the meaning of acting ``indirectly in the interest of
an employer'' under section 3(5) of ERISA.
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\2\ Gruber v. Hubbard Bert Karle Weber, Inc., 159 F.3d 780, 786-
87 (3d Cir. 1998) (endorsing the Department's historical approach to
determining whether an organization is acting in the interests of
employer-members); MDPhysicians & Assocs., Inc. v. State Bd. of
Ins., 957 F.2d 178, 185-86 (5th Cir. 1992) (consistent with the
Department's pre-rule guidance, requiring that, to act in the
interests of employer members, an organization must not be a
commercial, ``entrepreneurial venture'' but must instead represent
members with ``a common economic or representation interest''
unrelated to the provision of benefits and who established or
maintained the plan); Wisconsin Educ. Ass'n Ins. Tr. v. Iowa State
Bd. of Pub. Instruction, 804 F.2d 1059, 1062-65 (8th Cir. 1986)
(same); Int'l Ass'n of Entrepreneurs of Am. Ben. Tr. v. Foster, 883
F. Supp. 1050, 1056-62 (E.D. Va. 1995); Assoc. Indus. Mgmt. Servs.
v. Moda Health Plan, Inc., No. 3:14-CV-01711-AA, 2015 WL 4426241, at
*2-*5 (D. Or. July 16, 2015); Smith v. Prudential Health Care Plan
Inc., No. CIV. A. 97-891, 1997 WL 297096, at *3-*4 (E.D. Pa. May 27,
1997).
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Historically, the Department has taken a facts-and-circumstances
approach to determining whether a group or association of employers is
a bona fide employer group or association that may sponsor an ERISA
group health plan on behalf of its employer members. The Department's
pre-rule guidance, largely taking the form of a collection of advisory
opinions issued over more than three decades, has expressed the
Department's view regarding whether, based on individual circumstances,
a particular group or association was able to sponsor a multiple
employer welfare plan.\3\ While the language in the Department's pre-
rule advisory opinions was tailored to the issues presented in the
specific arrangements involved, the Department's interpretive guidance
has consistently focused on three criteria: (1) whether the group or
association has business or organizational purposes and functions
unrelated to the provision of benefits (the ``business purpose''
standard); (2) whether the employers share some commonality of interest
and genuine organizational relationship unrelated to the provision of
benefits (the ``commonality'' standard); and (3) whether the employers
that participate in a benefit program, either directly or indirectly,
exercise control over the program, both in form and substance (the
``control'' standard).
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\3\ See, e.g., Advisory Opinions Nos. 94-07A (Mar. 14, 1994),
95-01A (Feb. 13, 1995), 96-25 (Oct. 31, 1996), 2001-04A (Mar. 22,
2001), 2003-13A (Sept. 30, 2003), 2003-17A (Dec. 12, 2003), 2007-06A
(Aug. 16, 2007), 2012-04A (May 25, 2012), and 2019-01A (July 8.
2019). See also Department of Labor Publication, ``Multiple Employer
Welfare Arrangements Under ERISA, A Guide to Federal and State
Regulation,'' at <a href="http://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/mewa-under-erisa-a-guide-to-federal-and-state-regulation.pdf">www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/mewa-under-erisa-a-guide-to-federal-and-state-regulation.pdf</a>. Judicial decisions tended to take
approaches consistent with that followed by the Department. See also
Wisconsin Educ. Assn. Ins. Trust v. Iowa State Bd. of Public
Instruction, 804 F.2d 1059, 1063-1064 (8th Cir. 1986); MDPhysicians
& Associates, Inc. v. State Bd. of Ins., 957 F.2d 178, 183-186 (5th
Cir. 1992) [hereinafter MDPhysicians]; National Business Assn. Trust
v. Morgan, 770 F. Supp. 1169 (W.D. Ky. 1991).
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A variety of factors were set forth in the Department's pre-rule
guidance as relevant when applying these three general criteria to a
particular group or association. These factors include how members are
solicited; who is entitled to participate and who actually participates
in the group or association; the process by which the group or
association was formed; the purposes for which it was formed; what, if
any, were the preexisting relationships of its members; the powers,
rights, and privileges of employer members that exist by reason of
their status as employers; who actually controls and directs the
activities and operations of
[[Page 87970]]
the benefit program; and the extent of any employment-based common
nexus or other genuine organizational relationship unrelated to the
provision of benefits.\4\
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\4\ See Gruber, 159 F.3d at 788 fn. 5 (listing DOL criteria);
Int'l Ass'n of Entrepreneurs of Am. Ben. Tr. v. Foster, 883 F. Supp.
at 1061 (same); Hall v. Maine Mun. Emps. Health Tr., 93 F. Supp. 2d
73, 77 (D. Me. 2000); Assoc. Indus. Mgmt. Servs. v. Moda Health
Plan, Inc., 2015 WL 4426241, at *3.
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C. Association Coverage Under the Public Health Service Act
The Public Health Service Act (PHS Act) derives its definitions of
group health plan and employer from the ERISA definitions of employee
welfare benefit plan and employer.\5\ Thus, reference to ERISA is
needed when determining whether a group health plan exists for PHS Act
purposes and determining, if one does exist whether it exists at the
individual employer level or at the association level. In other words,
the ERISA definitions determine whether health insurance coverage sold
to or through associations is individual or group coverage for purposes
of title XXVII of the PHS Act, and if group coverage, whether the
sponsor of the group coverage is the association, or whether each
employer-member of the association sponsors its own group coverage.
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\5\ Section 2791(a)(1) and (d)(6) of the PHS Act.
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In general, unless health insurance coverage issued through a group
or association constitutes a single group health plan, the group or
association is disregarded in determining whether the coverage offered
to an individual or employer member of the association is individual,
small group, or large group market coverage. The Centers for Medicare &
Medicaid Services (CMS) has long maintained that the test for
determining whether association coverage is individual or group market
coverage for purpose of title XXVII of the PHS Act is the same test as
that applied to health insurance coverage offered directly to
individuals or employers.\6\ As that guidance explained, coverage that
is provided to associations but not related to employment is not
considered group health insurance coverage for purposes of the PHS Act.
If the coverage is offered to an association member other than in
connection with a group health plan, the coverage is considered
coverage in the individual market, regardless of whether it is
considered group coverage under State law.\7\
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\6\ Centers for Medicare & Medicaid Services, Application of
Individual and Group Market Requirements under title XXVII of the
Public Health Service Act when Insurance Coverage Is Sold to, or
through Associations, Insurance Standards Bulletin Series--
INFORMATION (Sept. 1, 2011), available at <a href="https://www.cms.gov/cciio/resources/files/downloads/association_coverage_9_1_2011.pdf">https://www.cms.gov/cciio/resources/files/downloads/association_coverage_9_1_2011.pdf</a>.
\7\ 45 CFR 144.102(c).
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On the other hand, if the health insurance coverage is offered in
connection with a group health plan as defined at section 2791 of the
PHS Act, it is considered group health insurance coverage. The group
market is divided into the small group market and the large group
market. In situations involving employment-based association coverage
where the group health plan exists at the individual employer level,
the size of each individual employer participating in the association
determines whether that employer's coverage is subject to the small
group market or large group market rules. In instances where the group
or association of employers is, in fact, sponsoring the group health
plan and the association itself is deemed the ``employer,'' the
association coverage is considered a single group health plan. In that
case, because the PHS Act definitions of large employer and small
employer are based on the average number of employees employed on
business days during the preceding calendar year, the number of
employees employed by all the employers participating in the
association determines whether the coverage is subject to the small
group market or large group market rules.
In a ``mixed'' association where different members have coverage
that is subject to the individual market, small group market, and/or
large group market rules under the PHS Act, as determined by each
member's circumstances, each association member must receive coverage
that complies with the requirements arising out of its status as an
individual, small employer, or large employer. For example, it is not
permissible under the PHS Act for mixed association coverage to comply
only with the large group market rules, with respect to its individual
and small employer members.
As explained below, by expanding access to AHPs, the 2018 AHP Rule
sought to allow small employers and working owners to band together to
purchase coverage in the large group market, thereby avoiding the
application of certain legal provisions governing individual and small
group markets, such as modified community rating, single risk pool, and
essential health benefit requirements.
D. The 2018 AHP Rule
On June 21, 2018, the Department published the 2018 AHP Rule,\8\
intended to broaden the types of employer groups and associations that
may sponsor a single group health plan under ERISA. The Department
issued the 2018 AHP Rule in response to a 2017 Executive order (E.O.)
that was rescinded in 2021.\9\ The 2018 AHP Rule substantially loosened
the requirements for groups or associations to be considered a bona
fide group or association that is eligible to establish an employee
welfare benefit plan or to otherwise meet the definition of
``employer'' under ERISA section 3(5) (for example, by allowing such
groups or associations to include ``working owners'' who have no
employees).\10\ But the Department expressly noted in the 2018 AHP Rule
that the rule ``does not invalidate any existing advisory opinions, or
preclude future advisory opinions, from the Department under section
3(5) of ERISA that address other circumstances in which the Department
will view a person as able to act directly or indirectly in the
interest of direct employers in sponsoring an employee welfare benefit
plan that is a group health plan.'' \11\
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\8\ 83 FR 28912, 28962 (June 21, 2018).
\9\ E.O. 13813, 82 FR 48385 (rescinded by E.O. 14009, 86 FR 7793
(Jan. 28, 2021)).
\10\ See generally 83 FR 28912 (June 21, 2018).
\11\ 29 CFR 2510.3-5(a).
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To establish the additional and broader standard, paragraph (b) of
the 2018 AHP Rule set forth eight overall criteria that a group or
association must meet to be a bona fide group or association eligible
to establish an ERISA plan, including criteria related to (1) purposes
of the group or association, (2) status of each group member as an
employer of at least one employee participant in the AHP, (3) formal
organizational structure requirements for the group, (4) control of the
group and the AHP by employer members, (5) a commonality requirement
for employer members, (6) limitations on providing health coverage to
persons other than employees and beneficiaries, (7) nondiscrimination
requirements, and (8) a limitation on health insurance issuers' ability
to own or control the association or plan other than being an employer
member of the group or association. Paragraphs (c) and (d) added
specific details on the commonality and nondiscrimination requirements,
and paragraph (e) addressed the dual classification of working owners
without common-law employees who could be treated as both employers and
employees for purposes
[[Page 87971]]
of participation in the employer group and the AHP.\12\
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\12\ 29 CFR 2510.3-5(b)(4).
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These criteria were modeled on elements of the pre-rule guidance,
but the 2018 AHP Rule differed in several significant ways, discussed
below,\13\ that were designed to loosen some requirements of the pre-
rule guidance.
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\13\ Infra, section I.D.
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While paragraph (b)(1) of the 2018 AHP Rule provided that ``the
primary purpose of the group or association'' could be ``to offer and
provide health coverage to its employer members and their employees,''
the pre-rule guidance requires that the group or association acting as
an employer must exist for purposes other than providing health
benefits. The 2018 AHP Rule required that ``the group or association
also must have at least one substantial business purpose unrelated to
offering and providing health coverage or other employee benefits to
its employer members and their employees.'' A group of employers could
satisfy the business purpose standard through a safe harbor requiring
only that it would be a ``viable'' entity in the absence of sponsoring
an employee benefit plan. The pre-rule guidance, however, does not
equate the business purpose standard with whether the group or
association could be viable even if it did not sponsor a plan. By
equating purpose with viability, the 2018 AHP Rule weakened the
business purpose standard and allowed the creation of groups or
associations under ERISA section 3(5) primarily for the purpose of the
provision of health benefits.
Paragraph (c) of the 2018 AHP Rule provided for a broader
commonality standard than the pre-rule guidance. Under the 2018 AHP
Rule, a group or association of employers satisfied the commonality of
interest requirement if either (1) its employer members were in the
same trade or business; or (2) the principal places of business for
their employer members were located within a region that did not exceed
the boundaries of the same State or metropolitan area, such as the
Washington Metropolitan Area of the District of Columbia (which also
includes portions of Maryland and Virginia). No other common interests
were required.\14\ Under the pre-rule guidance, geography alone is not
sufficient to establish commonality between otherwise disparate
businesses.
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\14\ 29 CFR 2510.3-5(c); see 83 FR 28912, 28924 (June 21, 2018).
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The 2018 AHP Rule also included express nondiscrimination standards
that had to be met--aside from other health coverage requirements--in
order for an employer group or association to act as an employer within
the meaning of ERISA section 3(5) in sponsoring a single group health
plan.\15\ The 2018 AHP Rule incorporated and adapted existing health
nondiscrimination provisions already applicable to group health plans,
including AHPs, under the Health Insurance Portability and
Accountability Act of 1996 (HIPAA).\16\ In applying the HIPAA health
nondiscrimination rules for defining similarly situated individuals,
under the 2018 AHP Rule, the group or association could not treat
member employers as distinct groups of similarly situated individuals
if it wished to qualify as a bona fide group or association for
purposes of sponsoring an AHP.\17\ The pre-rule guidance does not
include any explicit nondiscrimination requirements. The Department
noted in the preamble to the 2018 AHP Rule, however, that the HIPAA
nondiscrimination rules apply to group health plans, including AHPs,
and noted, therefore, that AHPs, like any other group health plan,
cannot discriminate in eligibility, benefits, or premiums against an
individual within a group of similarly situated individuals based on a
health factor.\18\
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\15\ Under the 2018 AHP rule, in addition to the bona fide group
or association, the underlying health coverage offered by the bona
fide group or association must also meet these requirements for the
bona fide group or association to qualify as an employer under the
2018 AHP Rule. 29 CFR 2510.3-5(d).
\16\ 83 FR 28912, 28926-27 (June 21, 2018).
\17\ 29 CFR 2510.3-5(d)(4).
\18\ 83 FR 28927 (June 21, 2018). The preamble also noted that
AHPs, like other group health plans, generally may make distinctions
between groups of individuals based on bona fide employment-based
classifications consistent with the employer's usual business
practice, provided such distinction is not directed at individual
participants or beneficiaries based on a health factor. Id. The
Department notes that no inference should be drawn based on this
proposal to rescind the 2018 AHP Rule as to whether treating the
employees of each employer member of an AHP as a distinct group of
similarly situated individuals is a bona fide employment-based
classification for purposes of the HIPAA nondiscrimination rules.
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Lastly, paragraph (e) of the 2018 AHP Rule allowed working owners
without any common-law employees to participate in AHPs, stating that a
working owner would be treated both as an ``employer'' and ``employee''
for purposes of participating in, and being covered by, an AHP,
notwithstanding the absence of any employment relationship with common-
law employees.\19\ Under the pre-rule guidance, working owners without
common-law employees are not permitted to be treated as employers for
the purpose of participating in a bona fide employer group or
association and generally are not treated as employees able to be
participants in an ERISA-covered employee welfare benefit plan.\20\
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\19\ 29 CFR 2510.3-5(e).
\20\ 83 FR 28912, 28928, fn. 40 (June 21, 2018).
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E. Decision Setting Aside Core Provisions of the 2018 AHP Rule
In July 2018, eleven States and the District of Columbia
(collectively, the States) sued the Department in Federal district
court. They argued that the 2018 AHP Rule violates the Administrative
Procedure Act (APA), 5 U.S.C. 551 et seq., because it exceeds the
Department's statutory authority and is arbitrary or capricious. The
States moved for summary judgment, and the Department moved to dismiss
the lawsuit for lack of standing and cross-moved in the alternative for
summary judgment. On March 28, 2019, the U.S. District Court for the
District of Columbia denied the Department's motions and granted the
States' motion for summary judgment. In granting the States' motion,
the court set aside the 2018 AHP Rule's definition of bona fide group
or association of employers and the language permitting working owners
without common-law employees to be treated as employees when
participating in an AHP.\21\ The Department's pre-rule guidance was not
affected by the district court's decision.
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\21\ New York v. United States Department of Labor, 363 F. Supp.
3d 109 (D.D.C. 2019).
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Specifically, the district court concluded that the 2018 AHP Rule's
criteria for establishing AHPs unreasonably construed ERISA's
requirement that the association act ``indirectly in the interest of an
employer'' because the 2018 AHP Rule's ``substantial business purpose''
and ``geographical commonality'' requirements were not drawn narrowly
enough to limit AHPs to those that act in the interest of employers,
thus unreasonably expanding the definition of ``employer.'' \22\ In
addition, the district court ruled that the 2018 AHP Rule's expansion
of the term ``employer'' under ERISA to include working owners without
common-law employees (when members of an association) was unreasonable
because it was contrary to ERISA's text and central purpose of
regulating employment-based relationships.\23\ Regarding ERISA's text
and purpose, the district court held that Congress did not intend for
working owners without common-law employees to be included
[[Page 87972]]
within ERISA--either as individuals or when joined in an employer
association.\24\ In conclusion, the district court held that the 2018
AHP Rule was inconsistent with ERISA and the APA because the provisions
unlawfully failed to limit bona fide associations to those acting ``in
the interest of'' their employer members, within the meaning of ERISA,
thus exceeding the Department's statutory authority.\25\ The district
court remanded the 2018 AHP Rule to the Department to consider how the
severability provision of the 2018 AHP Rule affects any of its
remaining provisions.\26\
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\22\ Id. at 131-34.
\23\ Id. at 136-40.
\24\ Id. at 137. The district court concluded that the provision
was contrary to ERISA and the APA and that it relied on ``a tortured
reading'' of the Affordable Care Act (ACA). Id. at 141.
\25\ Id. at 128.
\26\ Id. at 141.
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The Department appealed the district court's decision.\27\
Thereafter, at the Department's request, the U.S. Court of Appeals for
the District of Columbia Circuit granted the Department's request to
stay the appeal.\28\ Subsequently, the Department informed the appeals
court that it would undertake notice and comment rulemaking on a
proposal to rescind the 2018 AHP Rule. The appeal pending before the
D.C. Circuit remains stayed.
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\27\ New York v. United States Department of Labor, 363 F. Supp.
3d 109, appeal docketed, No. 19-5125 (D.C. Cir. May 31, 2019).
\28\ New York v. United States Department of Labor, No. 19-5125
(D.C. Cir. Feb. 8, 2021) (order granting consent motion to hold case
in abeyance).
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The Department considered the severability clause issue raised by
the district court and concluded that, without the core provisions that
the district court set aside, the 2018 AHP Rule would have no
operationalizable substance and provide no meaningful guidance. To
minimize consequences of the district court's decision on AHP
participants, the Department announced a temporary enforcement policy
on April 29, 2019.\29\ Specifically, the Department announced that it
would not pursue enforcement actions against parties for potential
violations stemming from actions taken prior to the district court's
decision and in good faith reliance on the 2018 AHP Rule, as long as
parties met their responsibilities to association members and their
participants and beneficiaries to pay health benefit claims as
promised.\30\ In addition, the Department announced that it would not
take action against existing AHPs for continuing, through the remainder
of the applicable plan year or contract term that was in force at the
time of the district court's decision, to provide health benefits to
members who enrolled in good faith reliance on the 2018 AHP Rule before
the district court's order.\31\ Because the 2018 AHP Rule ceased being
an alternative pathway for entities to be treated as bona fide employer
groups or associations after the district court's decision, the
Department anticipated that parties who established AHPs in reliance on
the 2018 AHP Rule would wind them down and that no new AHPs would be
formed in reliance on the 2018 AHP rule until the judicial process
ended. The Department's temporary enforcement policy period expired
long ago, and the Department is not aware of any AHPs that currently
exist in reliance on the 2018 AHP Rule.
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\29\ Press Release, Employee Benefits Security Administration,
U.S. Department of Labor Statement Relating to the U.S. District
Court Ruling in State of New York v. United States Department of
Labor (Apr. 29, 2019), available at <a href="https://www.dol.gov/newsroom/releases/ebsa/ebsa20190429">https://www.dol.gov/newsroom/releases/ebsa/ebsa20190429</a>.
\30\ Id.
\31\ In addition, as explained in the April 29, 2019 statement,
the Department of Health and Human Services (HHS) had advised the
Department that HHS would not pursue enforcement against nonfederal
governmental plans or health insurance issuers for potential
violations of title XXVII of the PHS Act caused by actions taken
before the district court's decision in good faith reliance on the
rule's validity, through the remainder of the applicable plan year
or contract term that was in force at the time of the district
court's decision. HHS had also advised the Department that HHS would
not consider States to be failing to substantially enforce
applicable requirements under title XXVII of the PHS Act in cases
where the State adopted a similar approach with respect to health
insurance coverage issued within the State. Id.
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II. Proposal To Rescind
The Department proposes to remove the 29 CFR 2510.3-5 regulation
established by the 2018 AHP Rule and the related amendment to the 29
CFR 2510.3-3 regulation made by the 2018 AHP Rule. This proposed rule,
if finalized, would rescind the 2018 AHP Rule in its entirety.
A. Authority To Define ``Employer'' in ERISA Section 3(5)
Congress tasked the Department with administering ERISA.\32\ The
Department has clear authority to interpret the term ``employer,''
including defining when a ``group or association of employers'' may act
``indirectly in the interest of an employer'' in establishing an
employee benefit plan and has done so in numerous advisory
opinions.\33\ As emphasized elsewhere in this preamble, the courts and
the Department have consistently stressed that ERISA's definition of
``employee benefit plan,'' including the definition's reference to
arrangements ``established or maintained by an employer or employee
organization, or both,'' envisions employment-based arrangements. No
court decision or guidance from the Department, including the 2018 AHP
Rule, has suggested the ``employer group or association'' provision in
the ERISA section 3(5) definition of ``employer'' extends the concept
of an ``employee benefit plan'' to commercial insurance-type
arrangements.
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\32\ 29 U.S.C. 1135 (delegating authority to the Secretary of
Labor to ``prescribe such regulations as he finds necessary or
appropriate to carry out the provisions of [ERISA]''); see Black &
Decker Disability Plan v. Nord, 538 U.S. 822, 831 (2003) (deferring
to the Department's interpretation of an ERISA provision).
\33\ See 2018 AHP Rule, 83 FR 28912, 28914 (June 21, 2018); New
York v. United States Department of Labor, 363 F. Supp. 3d 109, 128
(D.D.C. 2019). See also Advisory Opinions Nos. 94-07A (Mar. 14,
1994), 95-01A (Feb. 13, 1995), 96-25A (Oct. 31, 1996), 2001-04A
(Mar. 22, 2001), 2003-13A (Sept. 30, 2003), 2003-17A (Dec. 12,
2003), 2007-06A (Aug. 16, 2007), 2012-04A (May 25, 2012), and 2019-
01A (July 8. 2019).
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As described above, the Department's pre-rule guidance, as
articulated in advisory opinions, has traditionally applied a facts-
and-circumstances approach to determine whether a group or association
of employers is a bona fide employer group or association capable of
sponsoring an ERISA plan on behalf of its employer members. As noted
above, this pre-rule guidance focuses on three general criteria: (1)
whether the group or association has business or organizational
purposes and functions unrelated to the provision of benefits; (2)
whether the employers share some commonality of interest and genuine
organizational relationship unrelated to the provision of benefits; and
(3) whether the employers that participate in a benefit program, either
directly or indirectly, exercise control over the program, both in form
and substance. While there are many organizations of employers, the
Department's pre-rule guidance makes clear that only certain entities
consisting of more than one employer meet the definition of a bona fide
group or association of employers under ERISA.
Before the 2018 AHP Rule, the Department's approach to these
determinations had consistently focused on employment-based
arrangements, as contemplated by ERISA, rather than commercial
insurance-type arrangements that lack the requisite connection to the
employment relationship.\34\ The Department's
[[Page 87973]]
longstanding pre-rule guidance has also been informed by its extensive
experience with unscrupulous promoters, marketers, and operators of
multiple employer welfare arrangements (MEWAs).\35\ AHPs generally
qualify as MEWAs under ERISA. Although MEWAs can provide valuable
coverage, historically MEWAs, particularly self-funded MEWAs, have
disproportionately suffered from financial mismanagement or abuse,
leaving participants and providers with unpaid benefits and bills and
putting small businesses at financial risk.\36\ Because of this history
of abuse by MEWA promoters claiming ERISA coverage and protection from
State regulation, Congress amended ERISA in 1983 to provide an
exception to ERISA's broad preemption provisions for the regulation of
plan and non-plan MEWAs under State insurance laws.\37\
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\34\ ``We are mindful of the potentially harmful effects of an
overly broad interpretation of the term `employee benefit plan' when
coupled with the policy of section 514. As we have already noted, we
do not believe that the statute and legislative history will support
the inclusion of what amounts to commercial products within the
umbrella of the definition. Where a `plan' is, in effect, an
entrepreneurial venture, it is outside the policy of section 514 . .
. . In short, to be properly characterized as an ERISA employee
benefit plan, a plan must satisfy the definitional requirement of
section 3(3) in both form and substance.'' Wisconsin Educ. Ass'n
Ins. Trust v. Iowa State Bd. of Public Instruction, 804 F.2d 1059,
1063-64 (8th Cir. 1986) (quoting H.R. Rep. No. 1785, 94th Cong., 2d
Sess. 48 (1977)).
\35\ ERISA section 3(40)(A) (defining MEWAs).
\36\ For discussions of this history, see: (1) U.S. Gov't
Accountability Office, GAO-92-40, ``States Need Labor's Help
Regulating Multiple Employer Welfare Arrangements.'', March 1992, at
<a href="https://www.gao.gov/assets/220/215647.pdf">https://www.gao.gov/assets/220/215647.pdf</a>; (2) U.S. Gov't
Accountability Office, GAO-04-312, ``Employers and Individuals Are
Vulnerable to Unauthorized or Bogus Entities Selling Coverage.''
Feb. 2004, at <a href="https://www.gao.gov/new.items/d04312.pdf">https://www.gao.gov/new.items/d04312.pdf</a>; and (3)
Kofman, M. and Jennifer Libster, ``Turbulent Past, Uncertain Future:
Is It Time to Re-evaluate Regulation of Self-Insured Multiple
Employer Arrangements?'', Journal of Insurance Regulation, 2005,
Vol. 23, Issue 3, pp. 17-33.
\37\ ERISA section 514(b)(6), 29 U.S.C. 1144(b)(6).
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Employees and their dependents have too often become financially
responsible for paying medical claims they were promised would be
covered by the plan after paying premiums to fraudulent or mismanaged
MEWAs, which could include AHPs. Because these entities often become
insolvent, individuals and families bear the risk, and the impact can
be devastating and can include being deprived of medical services if
they cannot afford to pay out-of-pocket for medical claims that are not
paid by the AHP.\38\ Even before such MEWAs become insolvent, employees
and their dependents may still become financially responsible for
medical claims where the AHP failed to adequately disclose the
limitations and exclusions under the plan.\39\ The Department is
concerned about the potential uptake and expansion of fraudulent and
mismanaged MEWAs, especially at a time when over 90 million low-income
children and adults are in the process of renewing their Medicaid and
Children's Health Insurance Program (CHIP) coverage, and may need to
transition to other sources of coverage if they no longer qualify.\40\
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\38\ Based on DOL enforcement data, since 2001, the Department
has taken civil and criminal enforcement action, such as criminal
indictments, civil complaints filed, temporary restraining orders,
and cease and desist orders on 108 fraudulent and mismanaged MEWAs
and their operators. Just since 2018, the Department was forced to
take civil and criminal enforcement action against 21 MEWAs in order
to protect participants and beneficiaries from fraud or
mismanagement of these arrangements. Further, the Department has
civilly recovered over $95 million from mismanaged or fraudulent
MEWAs in the last five years alone. See EBSA National Enforcement
Project--Health Enforcement Initiatives at <a href="http://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/enforcement#national-enforcement-projects">www.dol.gov/agencies/ebsa/about-ebsa/our-activities/enforcement#national-enforcement-projects</a>; U.S. Department of Labor Files Complaint to protect
Participants and Beneficiaries of failing Medova MEWA operating in
38 states, available at <a href="https://www.dol.gov/newsroom/releases/ebsa/ebsa20201218">https://www.dol.gov/newsroom/releases/ebsa/ebsa20201218</a>; Federal Court Appoints Independent Fiduciary as Claims
Administrator of Medova Arrangement, available at <a href="https://www.dol.gov/newsroom/releases/ebsa/ebsa20210412">https://www.dol.gov/newsroom/releases/ebsa/ebsa20210412</a>; Federal Court
Orders Kentucky Bankers Association to Pay $1,561,818 In Losses to
Benefits Plan After U.S. Department of Labor Finds Violations,
available at <a href="https://www.dol.gov/newsroom/releases/ebsa/ebsa20201015">https://www.dol.gov/newsroom/releases/ebsa/ebsa20201015</a>; MEWA Enforcement Fact Sheet, available at <a href="https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/mewa-enforcement.pdf">https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/mewa-enforcement.pdf</a>.
\39\ See 83 FR 28912, 28952 (June 21, 2018) (highlighting that
many of the Department's civil enforcement cases involving MEWAs
involved failure to follow plan terms or health care laws, failure
to provide plan benefits, or reporting and disclosure deficiencies).
\40\ During the COVID-19 public health emergency, States were
required to maintain enrollment of nearly all Medicaid enrollees.
This ``continuous enrollment condition'' ended on March 31, 2023,
under the Consolidated Appropriations Act, 2023. State Medicaid
programs have 12 months to initiate, and 14 months to complete, a
renewal for all individuals enrolled in Medicaid. CHIP provides
health coverage to eligible children, through both Medicaid and
separate CHIP programs. HHS has estimated that 15 million
beneficiaries could lose Medicaid or CHIP coverage as a result of
Medicaid unwinding. See HHS, Assistant Secretary for Planning and
Evaluation, Office of Health Policy, ``Unwinding the Medicaid
Continuous Enrollment Provision: Projected Enrollment Effects and
Policy Approaches,'' August 19, 2022, available at <a href="https://aspe.hhs.gov/sites/default/files/documents/404a7572048090ec1259d216f3fd617e/aspe-end-mcaid-continuous-coverage_IB.pdf">https://aspe.hhs.gov/sites/default/files/documents/404a7572048090ec1259d216f3fd617e/aspe-end-mcaid-continuous-coverage_IB.pdf</a>.
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ERISA's overarching purpose is to protect participants and
beneficiaries. The provisions of Title I of ERISA were initially
enacted primarily to address public concern that funds of private
pension plans were being mismanaged and abused. ERISA's protections
have expanded over time for private group health plans as well. Both
Federal regulators and State insurance regulators have devoted
substantial resources to detecting and correcting mismanagement and
abuse, and in some cases, prosecuting wrongdoers. Even the 2018 AHP
Rule makes clear that DOL did not intend to depart too dramatically
from its traditional interpretation of the word ``employer.'' \41\
While the Department sought to expand the scope of covered entities, it
recognized the danger that too broad an expansion could result in
``associations'' masquerading as bona fide employer groups or
associations merely to promote the commercial sale of insurance. For
that reason, DOL adopted and clarified the pre-rule guidance condition
that the employers who participate in the AHP must control the group or
association and the plan, and added an express nondiscrimination
requirement as a counterweight to abuse. Thus, even in the context of
the 2018 AHP Rule, DOL was concerned about the danger of expanding the
meaning of the ``group or association of employers'' clause in ERISA
section 3(5) to cover commercial insurance-type arrangements.
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\41\ 83 FR 28912 (``[T]he regulation continues to distinguish
employment-based plans, the focal point of Title I of ERISA, from
commercial insurance programs and other service provider
arrangements.'').
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In fact, because available oversight resources are extremely
limited and fraudulent operations resist detection until claims go
unpaid, significant damage can be done before the Government even
receives a complaint about an arrangement, making it difficult for
regulators to mitigate damages and stop bad actors. The vulnerability
of participants, beneficiaries, and the small employers whose employees
receive benefits through an AHP is further heightened when the standard
for becoming a bona fide group or association is weakened. A weakened
standard also can hinder efforts by States to regulate MEWAs, including
AHPs, within their borders.\42\
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\42\ U.S. Gov't Accountability Office, GAO-92-40, ``States Need
Labor's Help Regulating Multiple Employer Welfare Arrangements.''
March 1992, pg. 2-3 at <a href="https://www.gao.gov/assets/220/215647.pdf">https://www.gao.gov/assets/220/215647.pdf</a>.
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The preamble of the 2018 AHP Rule implies as much in explaining the
importance of incorporating the nondiscrimination provision in
paragraph (d)(4) of the 2018 AHP Rule. As noted above, paragraph (d)(4)
of the 2018 AHP Rule sought to prohibit AHPs from treating member
employers as distinct groups to distinguish AHPs from commercial
insurance issuers. In discussing the importance of a requisite
connection or commonality to lessen concerns about fraud, the preamble
of the 2018 AHP Rule explained that because the final rule relaxed the
Department's pre-rule guidance on the groups or associations that may
sponsor a single ERISA-covered group health
[[Page 87974]]
plan, paragraph (d)(4) was especially important in the context of the
new, broader arrangements to distinguish a group or association
sponsored AHP from commercial-insurance-type arrangements, which lack
the requisite connection to the employment relationship and whose
purpose was, instead, principally to identify and manage risk on a
commercial basis.\43\
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\43\ 83 FR 28912, 28928-29 (June 21, 2018).
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The Department is no longer of the view that the business purpose
standard, commonality standard, and working owner provision in the 2018
AHP Rule, even bolstered by the nondiscrimination standards in
paragraph (d)(4), are sufficient to distinguish between meaningful
employment-based relationships as compared to commercial insurance-type
arrangements whose purpose is principally to identify and manage risk.
The Department continues to be mindful of the unique risks to
participants, beneficiaries, small employers, and health care providers
in the context of AHPs and any other form of MEWAs. These concerns
underscore the need to limit ERISA-covered AHPs to true employee
benefit plans that are the product of a genuine employment relationship
and not artificial structures marketed as employee benefit plans, often
with an objective of attempting to sidestep otherwise applicable
insurance regulations or misdirect State insurance regulators. Such
artificial vehicles are not ``employee benefit plans'' as defined in
ERISA section 3(3), nor, as explained above, would it be consistent
with the purpose of the statute to treat them as such. In sum, upon
further evaluation and consistent with the sound administration of
ERISA, the Department has concluded that it should rescind the 2018 AHP
Rule from the Code of Federal Regulations (CFR). The Department now
believes that the provisions of the 2018 Rule that the district court
set aside as inconsistent with the APA and in excess of the
Department's authority are, at a minimum, not consistent with the best
reading of the statutory requirements governing group health plans.
B. Discussion of Decision To Propose To Rescind
Under Supreme Court precedent, an agency has the discretion to
change a policy position provided that the agency acknowledges changing
its position, the new policy is permissible under the governing
statute, there are good reasons for the new position, the agency
believes that the new policy is better, as evidenced by the agency's
conscious action to change its policy, and the agency takes into
account any serious reliance interests in the prior policy.\44\
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\44\ Encino Motorcars, LLC v. Navarro, 579 U.S. 211, 220-23
(2016); see id. At 225 (Ginsburg, J., concurring) (restating the
rule governing an agency's reversal in policy, as articulated in
F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009)).
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The Department has further reviewed the relevant statutory
language, judicial decisions, and pre-rule guidance, and further
considered ERISA's statutory purposes and related policy goals. Based
on this review, the Department has concluded it is appropriate to
propose to rescind the regulatory provisions adopted in the 2018 AHP
Rule in order to ensure that guidance being provided to the regulated
community is in alignment with ERISA's text, purposes, and policies,
resolve and mitigate any uncertainty regarding the status of the
standards that were set under the 2018 AHP Rule, and facilitate a
reexamination of the criteria for a group or association of employers
to be able to sponsor an AHP.
The intent of the 2018 AHP Rule was to expand access to affordable
health coverage for employees of small employers and certain self-
employed individuals by lessening restrictions on the formation of
AHPs, and thereby allow for the purchase of health insurance through
the less regulated large group market. As discussed further in this
rulemaking, the Department is now of the view, however, that the
business purpose standard, the viability safe harbor in the business
purpose standard, the geography-based commonality standard, and the
working owner provisions of the 2018 AHP Rule do not align with the
best reading of ERISA's text and statutory purposes.
In addition, and independently, information presented to the
Department during the public comment process of the 2018 AHP rulemaking
indicates that implementation of the 2018 AHP Rule would have increased
adverse selection against the individual and small group markets by
drawing healthier, younger people into AHPs, thus increasing premiums
for those remaining in those markets.\45\ AHPs can also tailor plan
benefits so that individuals with preexisting conditions, or those who
are otherwise anticipated to have higher health care costs are
discouraged from joining AHPs, causing further adverse selection,
market segmentation, and higher premiums in the individual and small
group markets.\46\ The Department acknowledged in the 2018 AHP Rule
that the rule's ``increased regulatory flexibility'' would necessarily
result in some segmentation of risk that favors AHPs over individual
and small group markets and some premium increase for individuals and
other small businesses remaining in the individual and small group
markets. The Department concluded, however, that practical
considerations and Federal nondiscrimination rules would limit such
segmentation, and that States may further limit risk segmentation
through regulation of AHPs as MEWAs and assumed some premium protection
for subsidy-eligible taxpayers with household incomes at or below 400
percent of the federal poverty level purchasing coverage on Exchanges.
The Department is now of the view that the Department should give
greater attention to the long-term impacts on market risk that the 2018
AHP Rule introduced, especially in the small group and individual
markets.
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\45\ See 83 FR 28957 (June 21, 2018).
\46\ The American Medical Association noted that AHPs could
exclude benefits like insulin, maternity care, mental health
services and rehabilitative services that are particularly important
to certain workers in blue-collar professions. See, e.g., Brief for
American Medical Association and Medical Society of the State of New
York as Amici Curiae in Support of Plaintiffs' Motion for Summary
Judgment, at *16, New York v. U.S. Department of Labor, 363 F. Supp.
3d 109 (D.D.C. 2019) (No. 1:18-CV-01747-JDB).
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Additionally, health insurance coverage offered through AHPs in the
large group markets is not subject to the requirement to offer
essential health benefits, which means that individuals who join these
AHPs may become underinsured if their AHP offers only ``skinny''
coverage. Health plans that do not include benefits that non-
grandfathered small group and individual market health insurance
coverage are required to cover, such as maternity or prescription drug
benefits, or even inpatient hospital coverage, are sometimes referred
to as ``skinny plans.'' Because they offer less than comprehensive
coverage, they are cheaper to purchase; however, participants and
beneficiaries may not understand the significant limitations on such
coverage. As discussed in this preamble at section I.C., the 2018 AHP
Rule allowed small employers and working owners to band together to
qualify as a single group health plan to purchase coverage in the large
group market, thus avoiding the requirements on small group market and
individual health insurance coverage and making it easier for AHPs to
offer such skinny plans, resulting in participants and beneficiaries
being vulnerable to high out-of-pocket costs and potentially not
[[Page 87975]]
having access to benefits for care when they most need it.\47\
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\47\ The Department notes concerns expressed by commenters that
low barriers to entry to become an AHP could result in groups or
associations with less of a connection to the member employer's
community and unscrupulous operators siphoning off members by
limiting their membership to healthier groups and offering lower
rates for health coverage to their members. Commenters to the 2018
AHP notice of proposed rulemaking (NPRM) also expressed the concern
that it could fragment the individual and small group markets,
resulting in increased premiums. Commenters further communicated
that organizations that form on the basis of offering health
benefits could increase the prevalence of unscrupulous promoters
that do not have strong incentives to maintain a credible
reputation. See 83 FR 28912, 28917, and 28943 (June 21, 2018).
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The Department is also concerned that the 2018 AHP Rule could
interfere with the goal of increasing affordable, quality coverage
because the rule increases the possibility that individuals who join
AHPs will be subject to mismanaged plans. As noted above, ERISA
generally classifies AHPs as MEWAs. Historically, MEWAs, especially
self-funded MEWAs, have disproportionately suffered from financial
mismanagement or abuse, leaving participants and providers with unpaid
benefits and bills.\48\
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\48\ See 83 FR 28951, 28953 (June 21, 2018).
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The 2018 AHP Rule reflected a substantial change and significant
departure from the Department's pre-rule guidance. While the
alternative pathway provided in the 2018 AHP Rule has been unavailable
as a basis for forming an AHP since the district court's decision, the
Department's proposal to rescind the 2018 AHP Rule, if finalized, would
make clear that this significant departure from pre-rule guidance no
longer represents the Department's interpretation of when a group or
association can constitute an ``employer'' for purposes of sponsoring a
group health plan under ERISA. The proposed rescission leaves in place
the longstanding pre-rule guidance that has been consistently supported
and relied upon in numerous judicial decisions because it fosters a
sufficient employer-employee nexus and proper oversight of AHPs, while
remaining consistent with ERISA's text and purpose. The proposed
rescission would also facilitate a reexamination of the rule's
``business purpose'' standard and viability safe harbor, the geography-
based commonality alternative, and the working-owner provisions,
including the potential those provisions have for encouraging abusive
health care arrangements, especially self-insured programs, that sell
low quality or otherwise unreliable health insurance products through
MEWAs to unsuspecting employers, particularly small businesses.
Further, the Department does not believe that there is a basis for
reliance on the 2018 AHP Rule given the fact that the temporary
enforcement policy period announced by the Department immediately
following the district court's decision has long expired.\49\ The
Department has thus concluded for several reasons that it is
appropriate to propose to rescind the 2018 AHP Rule.
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\49\ See supra note 25.
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1. Business Purpose Standard
The courts of appeals have uniformly interpreted ERISA's definition
of employer to require common interests other than the provision of
welfare benefits, independent of any deference to the Department's
historical guidance.\50\ The decision of the Eighth Circuit Court of
Appeals in WEAIT is instructive; there, the court held that ``[t]he
definition of an employee welfare benefit plan is grounded on the
premise that the entity that maintains the plan and the individuals
that benefit from the plan are tied by a common economic or
representation interest, unrelated to the provision of benefits.'' \51\
The pre-rule guidance also uniformly emphasized that a purpose
unrelated to the provision of benefits is a critical factor for any
group or association of employers to be a bona fide group or
association able to act as an ``employer'' sponsoring an ``employee
benefit plan'' under ERISA. Although neither the courts nor the DOL's
pre-rule guidance articulated a generally applicable standard for
measuring the sufficiency or substantiality of the unrelated purpose,
employer groups or associations that were found to be able to sponsor
an ERISA plan tended to have well developed and shared business
purposes unrelated to the provision of benefits.\52\
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\50\ Wisconsin Educ. Ass'n Ins. Trust v. Iowa State Board of
Public Instruction, 804 F.2d 1059, 1065 (8th Cir. 1986) [hereinafter
WEAIT] (``Our decision is premised on ERISA's language and Congress'
intent. There is no need to resort to the Department of Labor's
interpretations.''); see MDPhysicians & Associates, Inc. v. State
Bd. Of Ins., 957 F.2d 178, 186 n.9 (5th Cir. 1992) (``Although we
ground our decision on the statutory language of ERISA and the
intent of Congress, we recognize that [Department of Labor] opinions
`constitute a body of experience and informed judgment to which
courts and litigants may properly resort for guidance.' '')
(citation omitted).
\51\ 804 F.2d 1059, 1064 (8th Cir. 1986) (emphasis added);
accord MDPhysicians, 957 F.2d 178, 185 (5th Cir. 1992).
\52\ See, e.g., MDPhysicians, supra note 3, at 185-87 (holding
that a MEWA that made health coverage available to ```employers at
large' in the Texas panhandle'' did not have sufficient common
economic or representational interest) (citation omitted); Gruber v.
Hubbard Bert Karle Weber, Inc., 159 F.3d 780, 787 (3d Cir. 1998)
(endorsing district court's finding of no commonality of interest
``because `there was no nexus among the individuals benefitted by
the [p]lan and the entity providing those benefits, other than the
[p]lan itself' since [the association] `was comprised of disparate
and unaffiliated businesses' who [sic] had no relationship prior to
the inception of the [p]lan'') (citation omitted); Plog v. Colorado
Ass'n of Soil Conservation Districts, 841 F. Supp. 350, 353 (D.
Colo. 1993) (rejecting claim that association was an ``employer''
under ERISA because the association was open to any person who paid
the association fee); Advisory Opinion No. 2019-01A (July 8, 2019)
(``Ace is a hardware retailer cooperative and is the largest
cooperative, by sales, in the hardware industry. . . . Ace
facilitates access to materials, supplies and services, as well as
engages in activities that support Ace retail owners' operation of
their retail hardware businesses. Ace currently serves approximately
2,700 retail owners who operate approximately 4,400 Ace stores in
the U.S. In addition, approximately 120 corporate stores are owned
and operated as wholly-owned subsidiaries of Ace.''); Advisory
Opinion 2017-02AC (May 16, 2017) (``The First District Association
(FDA) has been operating as an independent dairy cooperative
organized under Minnesota Chapter 308A since 1921. . . . FDA's
articles of incorporation provide that, among other related
purposes, FDA's purposes and activities include the purchase, sale,
manufacture, promotion and marketing of its members' dairy and
agricultural products and engaging in other activities in connection
with manufacture, sale or supply of machineries, equipment or
supplies to its members.''); Advisory Opinion 2005-24A (Dec. 30,
2005) (``WAICU's purposes and activities include representing its
members at State and national forums, encouraging cooperation among
its members to utilize resources effectively, and encouraging
collaboration with other institutions of higher learning for the
benefit of Wisconsin citizens. WAICU's services to its members
include professional development for officers, research, public
relations, marketing, admissions support, and managing collaborative
ventures among the members (e.g., WAICU Study Abroad
Collaboration).''); Advisory Opinion 2001-04A (Mar 22, 2001) (``The
Association was incorporated in Wisconsin in 1935 for the purpose of
promoting automotive trade in the State of Wisconsin . . . .'').
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Paragraph (b) of the 2018 AHP Rule also contained a business
purpose standard. In relevant part, it provided that a group or
association of employers must have at least one ``substantial''
business purpose unrelated to offering and providing health coverage or
other employee benefits to its employer members and their employees,
even if the primary purpose of the group or association is to offer
such coverage to its members.\53\ The 2018 AHP Rule did not define
``substantial'' for this purpose, but created a broad safe harbor that
allowed a group or association to meet the business purpose standard
``if the group or association would be a viable entity in the absence
of sponsoring an employee benefit plan.'' \54\ On further
consideration, the Department is concerned that the business purpose
standard and accompanying viability safe harbor are too loose to ensure
that the group or
[[Page 87976]]
association sponsoring the AHP is actually acting in the employers'
interest or to effectively differentiate an employee health benefit
program offered by such an association from a commercial insurance
venture. Although the rule provided that a business purpose had to be
``substantial,'' the preamble's discussion of what counts as
``substantial'' was confusing and in some tension with the word's
ordinary meaning. At one point, the preamble suggested that merely
``offering classes or educational materials on business issues of
interest to members'' was per se sufficient to qualify as
substantial.\55\ Moreover, the existence of the viability safe harbor
suggested that some associations that were not viable (but for
sponsoring an AHP) could still have a substantial business purpose
under the rule.
---------------------------------------------------------------------------
\53\ 29 CFR 2520.3-5(b)(1).
\54\ Id.
\55\ 83 FR 28912, 28918 (June 21, 2018).
---------------------------------------------------------------------------
In the preamble to the 2018 AHP rule, DOL posited that this
relaxation of the standard would nonetheless work to differentiate
employer groups or associations from commercial insurance ventures
because the rule's control requirement and its new nondiscrimination
requirement would ensure that only bona fide associations become AHPs.
However, as described above, DOL has reexamined the rule's treatment of
those features and does not view those elements of the 2018 AHP Rule as
sufficient to mitigate problems with the business purpose standard and
ensure the rule distinguishes bona fide employer groups or associations
acting as an employer with respect to an employee benefit plan from a
commercial insurance venture. For example, under the 2018 AHP Rule,
especially the working owner provisions, promoters would be able to set
up arrangements with separate contribution rates for ``employer''
members based on a variety of non-health factors, such as industry,
occupation, or geography, in ways that would make the arrangement look
strikingly similar to a commercial insurance venture.\56\ The 2018 AHP
Rule attempted to address the Department's policy concerns related to
fraud and insolvency by requiring that a group or association of
employers have at least one substantial business purpose unrelated to
offering or providing employee welfare benefits. In the Department's
current view, based on its long and significant experience in this area
as well as current concerns about abuse, by permitting the provision of
benefits as the entity's primary purpose and the low bar of the
substantial business purpose standard and viability safe harbor, the
2018 AHP Rule does not establish conditions that appropriately
distinguish an employer group sponsoring an employee benefit plan from
a commercial insurance venture. Rather, for the reasons discussed in
this preamble, it may instead expose participants, beneficiaries, and
unsuspecting small employers to unscrupulous operators.\57\
---------------------------------------------------------------------------
\56\ Id. at 28929.
\57\ See supra fn. 39.
---------------------------------------------------------------------------
Moreover, the Department no longer believes that the 2018 AHP Rule
appropriately addressed the concerns expressed by commenters, and now
shared by the Department, related to market fragmentation and reduction
in the average size of AHPs, which could impact employer groups'
ability to take advantage of their market power and economies of scale,
which would ultimately impact the affordability for participants
receiving benefits through the AHP.
2. Geographic Commonality
There is a substantial body of case law interpreting ERISA's
definition of employer to require common interests other than the
provision of welfare benefits, independent of any deference to the
Department's historical guidance. For example, in WEAIT the Eighth
Circuit concluded that ``[t]he definition of an employee welfare
benefit plan is grounded on the premise that the entity that maintains
the plan and the individuals that benefit from the plan are tied by a
common economic or representation interest, unrelated to the provision
of benefits.'' \58\ The court further explained that ``[o]ur decision
is premised on ERISA's language and Congress' intent'' and that
``[t]here [wa]s no need to resort to the Department of Labor's
interpretations.'' \59\ Like the commonality of interest requirement
articulated by the Eighth Circuit in WEAIT--a requirement that court
explained was grounded in ERISA--in MDPhysicians, the court also found
that ERISA required a commonality of interest among employer
members.\60\
---------------------------------------------------------------------------
\58\ 804 F.2d at 1063 (8th Cir. 1986).
\59\ Id. at 1065.
\60\ MDPhysicians, 957 F.2d at 186 n.9 (``Although we ground our
decision on the statutory language of ERISA and the intent of
Congress, we recognize that [Department of Labor] opinions
`constitute a body of experience and informed judgment to which
courts and litigants may properly resort for guidance.' '')
(citation omitted); id. at 185-87 (holding that a MEWA that made
health coverage available to `` `employers at large' in the Texas
panhandle'' did not have sufficient common economic or
representational interest).
---------------------------------------------------------------------------
Paragraph (c) of the 2018 AHP Rule set forth alternative ways an
association could be treated as having the requisite commonality of
interest necessary to constitute a bona fide group or association of
employers. The employers who participate in the group or association
could have had ``industry commonality,'' which means they were in the
same trade, industry, line of business, or profession. Alternatively,
the participating employers could have had ``geographic commonality''
if each employer had a principal place of business in the same
geographic region that did not exceed the boundaries of a single State
or metropolitan area (even if the metropolitan area included more than
one State). In a departure from the pre-rule guidance, the 2018 AHP
Rule permitted an employer group or association to establish the
requisite commonality of interest based on a common geographic location
alone, even if the membership within the geographic locale comprises
otherwise unrelated employers in multiple unrelated trades, industries,
lines of business, or professions.\61\
---------------------------------------------------------------------------
\61\ But see Advisory Opinion No. 2008-07A (Sept. 26, 2008)
(``In the Department's view, however, the Bend Chamber [of
Commerce]'s structure is not the type of connection between employer
members that the Department requires for a group or association of
employers to sponsor a single `multiple employer plan.' Rather, the
Department would view the employers that use the Bend Chamber's
arrangement as each having established separate employee benefit
plans for their employees. Although we do not question the Bend
Chamber's status as a genuine regional chamber of commerce with
legitimate business and associational purposes, the primary economic
nexus between the member employers is a commitment to private
business development in a common geographic area. This would appear
to open membership in the Bend Chamber, and in turn participation in
the proposed health insurance arrangement, to virtually any employer
in the region. The other factors the Bend Chamber cites do not
directly relate to a connection between the member employers, the
association, and the covered employees; instead, such factors are
characteristics that evidence the reliability of the Bend Chamber's
operations (e.g., cash assets of $100,000 or more, physical office
space, years in operation, etc.).'').
---------------------------------------------------------------------------
The preamble of the 2018 AHP Rule focused on the desired goal of
the rule, to spur AHP formation, but did not adequately address the
fundamental question of how geography alone provided for a commonality
of interest. The preamble to 2018 AHP Rule did not dispute the
importance of commonality. Indeed, the 2018 AHP Rule rejected
suggestions that commonality could be established by shared ownership
characteristics (all women-owned businesses; all minority-owned
businesses; all veteran-owned businesses), shared business models
(e.g., all non-profit businesses), shared religious/moral convictions,
or shared business size.\62\ DOL did so because it concluded that a
standard this lax
[[Page 87977]]
would be ``impossible to define or limit'' and would ``eviscerate'' the
commonality requirement.\63\ The AHP rule concluded that, as a policy
matter, these line-drawing concerns did not apply to groups with
geographical commonality, but the discussion was incomplete at best
because it focused mostly on the benefits of having more AHPs, without
providing any convincing explanation of how geographic commonality was
an employment-based commonality that was different from the shared
ownership, shared business models, shared religious/moral convictions,
and shared business size criteria that the Department rejected. Upon
further consideration, DOL now agrees that a commonality requirement
based on common geography alone (same State or multi-State area) is not
adequate as a means for making sure that commonality exists. The same
reasons why DOL rejected other expansions of the commonality
requirement militate against adopting geographic commonality as well.
Although it is true that the existence of state-wide chambers of
commerce demonstrates that certain statewide groups might have shared
interests such that they could create an association, this form of
commonality is too loose and undermines the commonality requirement's
ability to ensure that AHP status is restricted to bona fide
associations.
---------------------------------------------------------------------------
\62\ 83 FR 28912, 28926 (June 21, 2018).
\63\ Id.
---------------------------------------------------------------------------
While the Department acknowledges that employers within the same
geographic locale can share other factors that rise to the level of
sufficient economic and representational interest, the Department is
now concerned that the 2018 AHP Rule did not articulate an appropriate
basis for treating common geography alone as a shared interest with
respect to the employment relationship. Just as would be the case for
associations consisting of employers whose membership is based on
common business size, the Department is concerned that recognizing
under ERISA section 3(5) an association composed of unrelated employers
all operating in any specific State with no other commonality also
would not sufficiently respect the genuine commonality of interest
requirement under ERISA, which is intended to ensure that AHPs are
operating in the interest of employers and are not merely operating as
traditional health insurance issuers in all but name.\64\
---------------------------------------------------------------------------
\64\ The preamble of the 2018 AHP Rule explained that a test
that would treat all nationwide franchises, all nationwide small
businesses, or all nationwide minority-owned businesses, as having a
common employment-based nexus--no matter the differences in their
products, services, regions, or lines of work--wouldn't be
sufficient to establish commonality of interest for a national group
or association and AHP because it would be impossible to define or
limit (e.g., business owners who support democracy) and, ``in the
Department's view, would effectively eviscerate the genuine
commonality of interest required under ERISA.'' 83 FR 28912, 28926
(June 21, 2018).
---------------------------------------------------------------------------
3. Working Owners
The 2018 AHP Rule allowed certain self-employed persons without any
common-law employees to participate in AHPs as ``working owners.'' \65\
The 2018 AHP Rule established wage, hours of service, and other
conditions for when a working owner would be treated as both an
``employer'' and ``employee'' for purposes of participating in, and
being covered by, an AHP.\66\ The 2018 AHP Rule treated persons as
employers even though they had no employment relationship with anybody
other than themselves. Thus, a group or association could become an
employer by virtue of its working owner members being classified as
both an employer and an employee, even though the working owners had no
employees and also were not employed by another person or entity.
---------------------------------------------------------------------------
\65\ 29 CFR 2510.3-5(e).
\66\ See id.at Sec. 2510.3-3(c).
---------------------------------------------------------------------------
The Department believes that the 2018 AHP Rule struck the wrong
balance between ensuring a sufficient employment nexus and enabling the
creation of plan MEWAs and failed to appropriately account for the
consequences of the working owner provision. ERISA applies when there
is an employer-employee nexus. This employer-employee nexus is the
heart of what makes an entity a bona fide group or association of
employers capable of sponsoring an AHP. In other words, the standard is
meant to reflect genuine employment relationships. The Department is
now of the view that ERISA calls for a higher standard for what
constitutes a bona fide group or association of employers than is
evidenced in the 2018 AHP Rule. In the ERISA context, the bona fide
group or association of employers consists of actual employers who, as
of the time they join the group or association, hire, and pay wages or
salaries to other people who are their common-law employees working for
them. Under the 2018 AHP Rule, although working owners had to meet
requirements related to the number of hours devoted to providing
personal services to the trade or business or the amount of income
earned from the trade or business in order to participate in an AHP,
these requirements related to differentiating self-employed individuals
from individuals engaged in hobbies that generate income or other de
minimis commercial activities.\67\ They did not, however, reflect the
existence of an employer-employee relationship as in the exchange
between an employee and an employer of personal services for wages and
other compensation (such as health benefits offered through a group
health plan) that would be expected in a common-law employment
relationship.
---------------------------------------------------------------------------
\67\ 83 FR 28931 (June 21, 2018).
---------------------------------------------------------------------------
By removing the requirement for a genuine employer-employee nexus,
we now are concerned on further reflection that the 2018 AHP Rule
departs too far from ERISA's essential purpose and fails to take
appropriate account of the underlying basis for the bona fide group or
association of employers standard. As stated previously, this purpose
and basis require drawing appropriate distinctions between employers
and associations acting ``in the interest of an employer'' on the one
hand, and entrepreneurial ventures selling insurance on the other. A
strong employer-employee nexus condition also helps reduce the
vulnerability of MEWAs to fraudulent behavior and mismanagement.
Routinely treating people as ``employers'' when they have no employees
risks converting ERISA from an employment-based statute, as Congress
intended, to one that regulates the sale of insurance to individuals,
without regard to an employment relationship.
The Department, upon further review of relevant Supreme Court and
circuit court judicial decisions, and consistent with the Department's
reconsidered view of working owners (without common-law employees) for
purposes of ERISA section 3(5), has concluded that the better
interpretation of such case law, for purposes of furthering ERISA's
statutory purposes and related policy goals, is that a working owner
may act as an employer for purposes of participating in a bona fide
employer group or association under circumstances where there are also
common-law employees of the working owner. In the Supreme Court's
decision, Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon,
the Court held that a working owner and spouse were eligible to
participate in the corporation's ERISA plan, provided that at least one
common-law employee of the corporation participated in its plan.\68\
Several circuit court opinions
[[Page 87978]]
also emphasize the existence of an employment relationship when
determining if an owner is an employer and/or employee. As the Eleventh
Circuit stated in Donovan v. Dillingham, ``[t]he gist of ERISA's
definitions of employer, employee organization, participant, and
beneficiary is that a plan, fund, or program falls within the ambit of
ERISA only if the plan, fund, or program covers ERISA participants
because of their employee status in an employment relationship. . . .''
\69\ In Meredith v. Time Insurance Company, the Fifth Circuit held that
the Department could reasonably decline to treat a sole proprietor both
as an employer and employee under ERISA section 3(5) because the
``employee-employer relationship is predicated on the relationship
between two different people.'' \70\ Similarly, in Marcella v. Capital
Districts Health Plan, Inc., the Second Circuit found that working
owners without common-law employees are not employers.\71\ Further, as
indicated in Donovan, just as the statutory definition of ``employer''
under ERISA requires an employee, the statutory definition of
``employee'' under ERISA requires the employee to work for another.\72\
These holdings are consistent with the Department's traditional
interpretation of ``employee'' in 29 CFR 2510.3-3(b) and (c).\73\
---------------------------------------------------------------------------
\68\ Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon,
541 U.S. 1, 6 (2004).
\69\ Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982)
(emphasis added).
\70\ Meredith v. Time Ins. Co., 980 F.2d 352, 358 (5th Cir.
1993); id. (``When the employee and employer are one and the same,
there is little need to regulate plan administration. . . . It would
appear axiomatic that the employee-employer relationship is
predicated on the relationship between two different people. . . .
We conclude that the power to so define the scope of ERISA has been
delegated by Congress to the Department of Labor, and find no reason
to disturb the Department's conclusion that ERISA does not intend to
treat the spouse of a sole proprietor as an employee.'').
\71\ Marcella v. Capital Districts Health Plan, Inc., 293 F.3d
42, 48 (2d Cir. 2002); id. at 49 (holding that ``a group or
association . . . that contains non-employers cannot be an
`employer' within the meaning of ERISA'').
\72\ Baucom v. Pilot Life Ins. Co., 674 F. Supp. 1175, 1180
(M.D.N.C. 1987). In Baucom, ``[r]eturning to ERISA's language, the
court observe[d] that, despite its limitations, the statutory
definition of `employee' mandates that an employee must work for
another.'' Id. (citation omitted).
\73\ In 1996, HIPAA added provisions of ERISA and the PHS Act,
which specified that for purposes of part 7 of title 1 of ERISA and
title XXVII of the PHS Act ``[a]ny plan, fund, or program which
would not be (but for this subsection) an employee welfare benefit
plan and which is established or maintained by a partnership, to the
extent that such plan, fund, or program provides medical care . . .
to present or former partners in the partnership . . . shall be
treated (subject to paragraph (2)) as an employee welfare benefit
plan which is a group health plan.'' ERISA section 732(d); PHS Act
section 2722(d). For a group health plan, the term employee also
includes any bona fide partner. 26 CFR 54.9831-1(d)(2); 29 CFR
2590.732(d)(2); 45 CFR 146.145(c)(2).
---------------------------------------------------------------------------
C. Alternatives To Complete Rescission of the 2018 AHP Rule
As part of its deliberations as to whether to propose rescission,
the Department considered several alternatives for this rulemaking. The
Department contemplated proposing rescission to remove only certain
provisions of the 2018 AHP Rule. For example, the Department considered
proposing to rescind the working owner provision, which represents the
most significant departure from the pre-rule guidance. Similarly, the
Department considered proposing to remove the geographic commonality
provision, another provision representing a dramatic departure from the
pre-rule guidance, since geography is not, on its own, an interest with
respect to an employment relationship. However, the Department decided
against proposing a rescission of just the specific provisions set
aside by the district court. The Department is concerned that the
provisions that would remain in the 2018 AHP Rule would not provide an
adequate definition of ``employer'' in ERISA section 3(5) that properly
reflect the limits of ERISA's definition of ``employer'' and Congress'
focus on employment-based arrangements, as opposed to the ordinary
commercial provision of insurance outside the employment context, and,
for the reasons discussed above, would be missing key elements
necessary for a comprehensive framework for a group or association to
demonstrate that it is acting ``indirectly in the interest of an
employer'' within the meaning of section 3(5) of ERISA.\74\
---------------------------------------------------------------------------
\74\ See, e.g., Gruber v. Hubbard Bert Karla Weber, Inc., 159
F.3d 780, 787 (3d Cir. 1988) (``[T]o qualify as an `employer' for
ERISA purposes, an employer group or association must satisfy both
the commonality of interest and control requirements.'').
---------------------------------------------------------------------------
The Department also considered a proposal to rescind the 2018 AHP
Rule and instead codify, in the CFR, the pre-rule guidance. The
Department recognizes that there could be benefits to codifying the
pre-rule guidance. The pre-rule guidance is largely in the form of
advisory opinions, which do not have the same applicability as
regulations and technically are not precedential.\75\ Application of
the Department's pre-rule guidance thus requires interested parties to
compare their specific circumstances to various opinions the Department
issued to determine whether the Department has addressed analogous
facts and circumstances. Nonetheless, the Department concluded that it
would be better to seek comment from interested parties on whether the
Department should first propose a rule either codifying the pre-rule
guidance or creating alternative criteria and then consider that input
as part of a comprehensive reevaluation of the definition of
``employer'' in the AHP context.
---------------------------------------------------------------------------
\75\ Advisory opinions are issued pursuant to ERISA Procedure
76-1, which in Section 10 describes the effect of advisory opinions
as follows: ``An advisory opinion is an opinion of the department as
to the application of one or more sections of the Act, regulations
promulgated under the Act, interpretive bulletins, or exemptions.
The opinion assumes that all material facts and representations set
forth in the request are accurate and applies only to the situation
described therein. Only the parties described in the request for
opinion may rely on the opinion, and they may rely on the opinion
only to the extent that the request fully and accurately contains
all the material facts and representations necessary to issuance of
the opinion and the situation conforms to the situation described in
the request for opinion.''
---------------------------------------------------------------------------
III. Requests for Public Comments
The Department seeks comments from interested parties on all
aspects of this proposal to rescind the 2018 AHP Rule in its entirety.
In the Department's view, ERISA's statutory purposes would be better
served by rescinding the 2018 AHP Rule and removing it from the
published CFR while the Department considers alternatives and engages
with interested parties. In addition to comments on rescission of the
2018 AHP Rule, the Department also seeks comments on whether the
Department should propose a rule for group health plans that codifies
and replaces the pre-rule guidance, issue additional guidance
clarifying the application of the Department's pre-rule guidance as it
relates to group health plans (including, for example, the HIPAA
nondiscrimination rule application to AHPs), propose revised
alternative criteria for multiple employer association-based group
health plans, or pursue some combination of those or other alternative
steps. The public comments will inform the Department's decision on
whether to finalize this proposal to rescind the 2018 AHP Rule and will
also assist the Department in determining if it should engage in future
rulemaking on AHPs under ERISA section 3(5). The Department intends
that its evaluation will focus on ensuring that the Department's
regulatory policy and actions in this area honor the Department's long
held view, reiterated in the preamble to the 2018 AHP Rule, that
Congress did not intend to treat commercial health insurance products
marketed by private entrepreneurs, who lack the close economic or
representational ties to participating employers and employees,
[[Page 87979]]
as ERISA-covered welfare benefit plans.\76\ Comments should be
submitted in accordance with the instructions at the beginning of this
document.
---------------------------------------------------------------------------
\76\ 83 FR 28912, 28928 (June 21, 2018); Advisory Opinions Nos.
94-07A (Mar. 14, 1994), available at <a href="http://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/advisory-opinions/1994-07a">www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/advisory-opinions/1994-07a</a>, and
2001-04A (Mar. 22, 2001), available at <a href="http://www.dol.gov/agencies/ebsa/employers-andadvisers/guidance/advisory-opinions/2001-04a">www.dol.gov/agencies/ebsa/employers-andadvisers/guidance/advisory-opinions/2001-04a</a>.
---------------------------------------------------------------------------
This proposal and solicitation of public comments is focused on
group health plans and does not include retirement plans and welfare
plans other than group health plans (e.g., disability plans). The
Department acknowledges that its final rule on association retirement
plans (ARPs), which was issued after the 2018 AHP Rule and after the
district court decision in New York v. United States Department of
Labor, includes commonality, business purpose, and working owner
provisions that parallel the provisions in the 2018 AHP Rule.\77\ In
addition, ERISA has parallel language in the definitions of pension and
welfare plan and does not explicitly provide a basis for distinguishing
between the two rules. However, there are specific retirement plan
considerations that involve issues beyond the scope of this rescission
proposal. The Department does not intend to address the ARP rule, which
was separately promulgated, in this rulemaking.
---------------------------------------------------------------------------
\77\ 29 CFR 2510.3-55; Definition of ``Employer'' Under Section
3(5) of ERISA--Association Retirement Plans and Other Multiple-
Employer Plans, 84 FR 37508 (July 31, 2019).
---------------------------------------------------------------------------
IV. Regulatory Impact Analysis
A. Relevant Executive Orders for Regulatory Impact Analyses
Executive Orders (E.O.s) 12866 \78\ and 13563 \79\ direct agencies
to assess all costs and benefits of available regulatory alternatives
and, if regulation is necessary, to select regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety effects; distributive impacts; and equity).
E.O. 13563 emphasizes the importance of quantifying costs and benefits,
reducing costs, harmonizing rules, and promoting flexibility. E.O.
13563 directs agencies to propose or adopt a regulation only upon a
reasoned determination that its benefits justify its costs; the
regulation is tailored to impose the least burden on society,
consistent with achieving the regulatory objectives; and in choosing
among alternative regulatory approaches, the agency has selected those
approaches that maximize net benefits. E.O. 13563 recognizes that some
benefits are difficult to quantify and provides that, where appropriate
and permitted by law, agencies may consider and discuss qualitative
values that are difficult or impossible to quantify, including equity,
human dignity, fairness, and distributive impacts.
---------------------------------------------------------------------------
\78\ 58 FR 51735 (Oct. 4, 1993).
\79\ 76 FR 3821 (Jan. 21, 2011).
---------------------------------------------------------------------------
Under E.O. 12866 (as amended by E.O. 14094), the Office of
Management and Budget's (OMB) Office of Information and Regulatory
Affairs determines whether a regulatory action is significant and,
therefore, subject to the requirements of the E.O. and review by OMB.
As amended by E.O. 14094, section 3(f) of E.O. 12866 defines a
``significant regulatory action'' as a regulatory action that is likely
to result in a rule that may: (1) have an annual effect on the economy
of $200 million or more; or adversely affect in a material way the
economy, a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, Territorial, or
Tribal governments or communities; (2) create a serious inconsistency
or otherwise interfere with an action taken or planned by another
agency; (3) materially alter the budgetary impact of entitlements,
grants, user fees or loan programs or the rights and obligations of
recipients thereof; or (4) raise legal or policy issues for which
centralized review would meaningfully further the President's
priorities or the principles set forth in the Executive order.
OMB has designated this action a ``significant regulatory action''
within the meaning of section 3(f)(1) of E.O. 12866, as amended. Key to
this designation is that the Department is proposing to rescind a rule
that was itself significant under section 3(f)(1).
However, it should also be noted that the 2018 AHP Rule was never
fully implemented.\80\ While the Department gave AHPs established under
the 2018 AHP Rule a temporary safe harbor from enforcement after the
district court's decision setting aside the 2018 AHP Rule, that time
has long expired, and the Department is not aware of any AHPs that
currently exist under the framework of the 2018 AHP Rule.
---------------------------------------------------------------------------
\80\ The applicability date provision in the 2018 AHP Rule
allowed fully insured plans to begin operating under the rule on
September 1, 2018, existing self-insured AHPs could begin operating
under the rule on January 1, 2019, and new self-insured AHPs could
begin operating under the rule on April 1, 2019. The preamble
explained that this phased approach was intended to allot some
additional time for the Department and State authorities to address
concerns about self-insured AHPs' vulnerability to financial
mismanagement and abuse. See 83 FR 28912, 28953 (June 21, 2018).
---------------------------------------------------------------------------
Consequently, any costs and benefits that would have been
anticipated in response to the approach taken in the 2018 AHP Rule were
never fully experienced and have long since lapsed for those plans that
formed and briefly existed pursuant to the 2018 AHP Rule. The 2018 AHP
Rule hypothesized that plans serving small employers and their
participants potentially would have benefitted from the ability to band
together to offer less generous benefits, and thus reduce their costs.
At the same time, however, other plans and participants were assumed to
bear the costs, with the 2018 AHP Rule's economic analysis projecting
that those employers and participants that remained in the small-group
and individual markets could face premium increases between 0.5 and 3.5
percent, resulting in an increase in the number of uninsured
individuals caused by those that exited the individual market due to
higher premiums. The Department's regulatory impact analysis
accompanying the 2018 AHP Rule did not anticipate the litigation or the
district court's decision, which largely nullified the assumed costs
and benefits. Accordingly, the Department assumes that the costs of
this proposal, the rescission of the 2018 AHP Rule, would effectively
be zero, while the benefits would be limited to settling any
uncertainty caused by the litigation surrounding the regulation and the
Department's reexamination of the appropriate criteria for a group or
association of employers to sponsor an AHP.
In accordance with E.O. 12866, this proposed rule was reviewed by
OMB.
B. Background
An AHP is a health plan formed by a group or association of
employers to provide health care coverage for their employees. AHPs
have been in existence for some time and are a subset of MEWAs. Under
the pre-rule guidance, to qualify as a bona fide employer group or
association capable of establishing a single group health plan under
ERISA, the group or association had to satisfy the business purpose
standard, commonality standard, and control standard, which, along with
factors that may be considered in applying these standards, are
described above in section II.B. of this preamble. If these standards
are not satisfied, a health care arrangement sponsored by the group or
association is not treated as a single group health plan. Rather, in
general, unless health insurance coverage issued through a group or
association constitutes a single group health plan, the group or
[[Page 87980]]
association is disregarded in determining whether the coverage offered
to an individual or employer member of the association is individual,
small group, or large group market coverage. The scope of these
standards, additional nondiscrimination and working owner provisions,
and how treatment of AHPs is different under the 2018 AHP Rule are
discussed in section I.C. of the preamble.
As noted in section I.E. of this preamble, on March 28, 2019, the
U.S. District Court for the District of Columbia set aside the 2018 AHP
Rule's definition of bona fide employer groups or associations and the
language equating working owners with employees. In response, the
Department announced its temporary enforcement policy designed to
minimize undue consequences of the district court's decision on AHP
participants.\81\
---------------------------------------------------------------------------
\81\ See supra note 25.
---------------------------------------------------------------------------
C. Need for Regulatory Action
As discussed in section I.E. of this preamble, the district court
set aside the 2018 AHP Rule as inconsistent with ERISA's definition of
``employer'' and of persons ``acting in the interest of an employer.''
The district court concluded that the 2018 AHP Rule's standards for
determining ``employer'' status were overbroad and inconsistent with
Congress' intent to draw a distinction between genuine employers and
persons standing in the shoes of employers, on the one hand, and
commercial entities marketing benefits to unrelated employers, on the
other.\82\ After further consideration, the Department has concluded
that the 2018 AHP Rule does not comport with the best interpretation of
ERISA's text and animating purposes in the context of AHPs and should
be rescinded while the Department reconsiders its specific provisions
and possible different regulatory approaches. The Department is
proposing to rescind the 2018 AHP Rule in its entirety to provide
clarity to entities that wish to sponsor an AHP about the need to rely
upon the criteria in the Department's pre-rule guidance and court
decisions on the ERISA section 3(5) definition, as opposed to the terms
of the 2018 AHP Rule.
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\82\ See supra at section II.E. of this preamble for a
discussion of the decision in New York v. United States Department
of Labor.
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D. Affected Entities
The Department does not believe that any entities currently rely
upon the 2018 AHP Rule, now that the district court has set aside most
of the 2018 AHP Rule and the temporary enforcement policy period has
long expired. Rescinding the 2018 AHP Rule would simply maintain the
status quo. At the time the Department first promulgated the 2018 AHP
Rule, the Department identified 153 entities as potential ``early
adopters'' that had signaled their intent to form an AHP under the 2018
AHP Rule. Of these early adopters, 112 of these entities ultimately
submitted the required Form M-1, one other entity advised the
Department that it intended to file a Form M-1, two indicated they were
not required to file a Form M-1, 15 told the Department that they were
not pursuing an AHP, one was under investigation for reasons unrelated
to the early adopter program, and the remainder were unresponsive to
further Department outreach.
E. Benefits
The proposed rule would rescind the 2018 AHP Rule and provide
clarity to parties about the continuing unavailability of the 2018 AHP
Rule as an alternative to the Department's pre-rule guidance. At the
time the 2018 AHP Rule was finalized, the Department also anticipated
that it would have to increase dramatically its MEWA enforcement
efforts and enhance its coordination with State regulators because of
the anticipated increase in the number of AHPs attributable to the new
2018 AHP Rule. Because the 2018 AHP Rule was set aside by the district
court, the Department has not had to address a dramatic increase in the
number of insolvent MEWAs, although existing fraudulent and mismanaged
MEWAs remain a significant challenge to the agency.
F. Costs
Although the 2018 AHP Rule was finalized, it was never fully
implemented, and no parties appear to currently rely on the 2018 AHP
Rule, given the district court's decision and the expiration of the
Department's temporary enforcement policy. As a result, the Department
does not believe that rescinding the 2018 AHP Rule would result in any
costs. The Department seeks comments on this assumption and any costs
interested parties anticipate related to this proposal.
V. Paperwork Reduction Act
The 2018 AHP Rule was not subject to the requirements of the
Paperwork Reduction Act of 1995 \83\ because it did not contain a
collection of information as defined in 44 U.S.C. 3502(3). Accordingly,
this proposal to rescind the 2018 AHP Rule also does not contain an
information collection as defined in 44 U.S.C. 3502(3).
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\83\ 44 U.S.C. 3501 et seq.
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VI. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) imposes certain requirements
on rules subject to the notice and comment requirements of section
553(b) of the APA or any other law.\84\ Under section 603 of the RFA,
agencies must submit an initial regulatory flexibility analysis (IRFA)
of a proposal that is likely to have a significant economic impact on a
substantial number of small entities, such as small businesses,
organizations, and governmental jurisdictions. However, because the
2018 AHP Rule was never fully implemented and the Department is not
aware of any existing AHP that was formed in reliance on the rule, this
proposed rescission of the 2018 AHP Rule would not have a significant
economic impact on a substantial number of small entities.
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\84\ 5 U.S.C. 551 et seq.
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Pursuant to section 605(b) of the RFA, the Assistant Secretary of
the Employee Benefits Security Administration hereby certifies that the
proposed rule, if promulgated, would not have a significant economic
impact on a substantial number of small entities. The Department
invites comments on this certification. As discussed above, at the time
the Department first promulgated the 2018 AHP Rule, the Department
identified only 153 entities as potential ``early adopters'' that had
signaled their intent to form an AHP under the 2018 AHP Rule.
Ultimately, 112 of these entities submitted the required Form M-1, one
other entity advised the Department that it intended to file a Form M-
1, two indicated they were not required to file a Form M-1, 15 told the
Department that they were not pursuing an AHP, one was under
investigation for reasons unrelated to the early adopter program, and
the remainder were unresponsive to further Department outreach. Since
the district court set aside the 2018 AHP Rule and the temporary
enforcement policy period has expired, any AHPs that formed before the
decision in reliance on the 2018 AHP Rule should have wound down, and
the Department is not aware of any new AHPs that have formed in
reliance on the 2018 AHP Rule. Accordingly, rescission of the 2018 AHP
Rule would not have an impact on existing AHPs formed in accordance
with the pre-rule guidance.
VII. Unfunded Mandates
Title II of the Unfunded Mandates Reform Act of 1995 requires each
[[Page 87981]]
Federal agency to prepare a written statement assessing the effects of
any Federal mandate in a proposed or final agency rule that may result
in an expenditure of $100 million or more (adjusted annually for
inflation with the base year 1995) in any one year by State, local, and
Tribal governments, in the aggregate, or by the private sector.\85\ In
2023, that threshold is approximately $177 million. For purposes of the
Unfunded Mandates Reform Act, as well as E.O. 12875, this proposal does
not include any Federal mandate that the Department expects would
result in such expenditures by State, local, or Tribal governments, or
the private sector.\86\
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\85\ 2 U.S.C. 1501 et seq. (1995).
\86\ 58 FR 58093 (Oct. 28, 1993).
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VIII. Federalism
E.O. 13132 outlines the fundamental principles of federalism. It
also requires Federal agencies to adhere to specific criteria in
formulating and implementing policies that have ``substantial direct
effects'' on the States, the relationship between the National
Government and States, or on the distribution of power and
responsibilities among the various levels of government. Federal
agencies promulgating regulations that have these federalism
implications must consult with State and local officials and describe
the extent of their consultation and the nature of the concerns of
State and local officials in the preamble to the proposal. The preamble
to the 2018 AHP Rule included a discussion of federalism implications
of the rule, which largely focused on and confirmed that the 2018 AHP
Rule did not modify State authority under ERISA section 514(b)(6),
which gives the Department and State insurance regulators joint
authority over MEWAs, including AHPs, to ensure appropriate regulatory
and consumer protections for employers and employees relying on an AHP
for health care coverage. Because the 2018 AHP Rule was never fully
implemented and the Department is not aware of any entities currently
relying on the 2018 AHP Rule, the Department does not believe its
rescission would have a substantial direct effect on the States, on the
relationship between the National Government and the States, or on the
distribution of power and responsibilities among the various levels of
government that were discussed in the 2018 AHP Rule. Nonetheless, the
Department notes that the level and type of State regulation of MEWAs
vary widely. The Department is aware that some States have enacted or
are considering State laws modeled on the 2018 AHP Rule that are
intended to recognize AHPs as employee benefit plans for purposes of
State regulation. In fact, CMS on behalf of HHS recently issued a final
determination pursuant to section 2723(a)(2) of the PHS Act, section
1321(c)(2) of the ACA, and 45 CFR 150.219 that the Commonwealth of
Virginia has not corrected the failure to substantially enforce certain
Federal market reforms with respect to issuers offering health
insurance coverage through an association of real estate salespersons
under such a State law, specifically section 38.2-3521.1 G of the Code
of Virginia, as enacted by HB 768/SB 335 (2022).\87\ The Department is
interested in input from affected States, including State insurance
regulators and other State officials, regarding whether they see
potential federalism implications that might arise from rescission of
the 2018 AHP Rule.
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\87\ The CMS letter, dated September 6, 2023, is available at
<a href="http://www.cms.gov/files/document/letter-virginia-governor-and-insurnace-commissioner-hb-768sb-335-2022-final-determination.pdf">www.cms.gov/files/document/letter-virginia-governor-and-insurnace-commissioner-hb-768sb-335-2022-final-determination.pdf</a>.
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List of Subjects in 29 CFR Part 2510
Employee benefit plans, Pensions.
For the reasons stated in the preamble, the Department of Labor
proposes to amend 29 CFR part 2510 as follows:
PART 2510--DEFINITIONS OF TERMS USED IN SUBCHAPTERS C, D, E, F, G,
AND L OF THIS CHAPTER
0
1. The authority citation for part 2510 is revised to read as follows:
Authority: 29 U.S.C. 1002(1), 1002(2), 1002(3), 1002(5),
1002(16), 1002(21), 1002(37), 1002(38), 1002(40), 1002(42),
1002(43), 1002(44), 1031, and 1135; and Secretary of Labor's Order
No. 1-2011, 77 FR 1088. Secs. 2510.3-101 and 2510.3-102 also issued
under sec. 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App.
(E.O. 12108, 44 FR 1065, 3 CFR, 1978 Comp., p. 275) and 29 U.S.C.
1135 note.
0
2. Section 2510.3-3 is amended by revising paragraph (c) introductory
text to read as follows:
Sec. 2510.3-3 Employee benefit plan.
* * * * *
(c) Employees. For purposes of this section and except as provided
in Sec. 2510.3-55(d):
* * * * *
Sec. 2510.3-5 [Removed and Reserved]
0
3. Remove and reserve Sec. 2510.3-5.
Signed at Washington, DC, this 11th day of December 2023.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration, U.S.
Department of Labor.
[FR Doc. 2023-27510 Filed 12-19-23; 8:45 am]
BILLING CODE 4510-29-P
</pre></body>
</html>Indexed from Federal Register on December 20, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.