A rule finalized by the U.S. Department of Labor (DOL) will make it easier for credit unions to band together to buy health insurance without some of the regulatory requirements that individual states and the Affordable Care Act (ACA) impose on smaller employers.

The DOL said the final rule, titled Definition of “Employer” under Section 3(5) of ERISA–Association Health Plans and published in the Federal Register and June 21, 2018 will help small businesses afford better coverage for their employees.

The rule, overseen by the DOL’s Employee Benefits Security Administration, modifies the definition of “employer” under the Employee Retirement Income Security Act (ERISA) regarding entities—such as associations—that could sponsor group health coverage.

The broader interpretation of ERISA will let employers anywhere in the country that can pass a “commonality of interest” test, join together to offer health care coverage to their employees. An association could show a commonality of interest among its members on the basis of geography or industry, if the members are either:

• In the same trade, industry or profession throughout the United States.
• In the same principal place of business within the same state or a common metropolitan area, even if the metro area extends across state lines.

“AHPs are about more choice, more access and more coverage,” said Secretary of Labor Alex Acosta in a statement. “Many of our laws, particularly Obamacare, make health care coverage more expensive for small businesses than large companies,” he said, referring to the ACA.

AHPs could provide an option for small credit unions (<50 employees) to offer competitive and affordable health benefits to their employees, thereby increasing the number of Americans who receive coverage through their employer. For most midsize-to-large credit unions and their employees, however, the rule will likely result in no change in health coverage.

Large Group Treatment for Small Employers

The ACA requires that non-grandfathered insured health plans, offered in the individual and small group markets, provide a core package of health care services, known as essential health benefits. Large employer group plans and self-funded plans are not required to comply with the essential benefit requirements.

The AHP rule will let employers that currently can only purchase group coverage in their state’s small group market to join together to purchase insurance in the less-regulated large group market. The 50 states most often limit the large group market to employers with 50 or more employees, while a handful of states limit this market to employers with 100 or more employees.

By joining together, the DOL said, employers could:

• Avoid regulatory restrictions that pertain only to the small group market.
• Reduce administrative costs through economies of scale.
• Strengthen their bargaining position to obtain more favorable deals.
• Enhance their ability to self-insure.
• Offer a wider array of insurance options.

The final regulations level the playing field and allow small credit union employers to band together to purchase large group insurance policies. Large group plans are subject to fewer ACA mandates and have greater flexibility in plan design than small group plans, which must offer coverage in all 10 essential health benefit categories.  The regulations also enable AHPs to be partially self-funded, subject to state oversight.

The expansion of AHPs under the final rule is an exciting opportunity for smaller credit unions who have previously been unable to access the economies of scale in the large group market.

Whether AHPs will be an attractive and affordable option for credit unions may hinge on the various states and state laws regarding group size, rating rules and other factors. States will need to respond by modifying their existing laws and rules, making the advantages and disadvantages clearer.