Association Health Plans

[Guest JD698]

I need to find out information on any rules governing the creation of an Association Health Plan. I know that there have been numerous bills that have passed in the House which never became law because they were not passed in the Senate.

Specifically, I am looking for information as to whether forming such an association could present a problem for an ERISA fund.

If anyone has any information or can point me to some information I'd greatly appreciate it.

Thanks

[Don Levit]

While AHPs are not legal in all 50 states, they would be kosher, in my opinion, in 3 contiguous states.

If you would like to learn about this arrangement, known as a multiple employer Voluntary Employees' Beneficiary Association, you can go to the IRS web site at http://www.irs.gov/irm/part7/ch10s12.html.

And, yes, this would not only be an ERISA plan, but it would have some very strict fiduciary responsibilities, in order to better protect the participants. The employers would have to also be in the same line of business.

Don Levit

[GBurns]

What do you mean by "an Association Health Plan"? Who will be the participants etc? Will it be an Association that offers health coverage to individuals as a member benefit or will it be to employers? If employers, will they be small (under 50 employees) or will they be larger?

Although there is pending Federal legislation, there are existing Association Health Plans available in some states. What state are you in? California has PHA, Connecticut has CBIA, New York, Mass, Washington and others have similar Associations or allow "out of state" group health plans which are sometimes provided through "Associations". So a lot depends on what you mean by "an Association Health Plan".

A VEBA is not an Association Health Plan.

[leevena]

It sounds like JD698 is asking about the AHP legislation that has been around for a few years. This type of legislation has indeed passed in the House, but never in the Senate. As such, it has never been created. There is some confusion surrounding Association plans, which have been around for years, and AHP. Association plans have been the responsibility of the state (in about 45 or 46 states) and as such needed to operate under state rules and regulations. The current proposal for AHP include changing oversight to the federal govt and allowing associations to self-fund their benefits.

Hope this helps.

[Guest BenefitsLawyer]

And don't forget that an "association health plan" is probably going to be a MEWA (multiple employer welfare arrangement), with issues as to the scope of state regulation and whether the MEWA is an ERISA plan at the MEWA level or each individual employer that participates has established a separate ERISA plan, as well as an M-1 filing requirement.

[Don Levit]

BenefitsLawyer (and others):

Thanks for your comments.

Let us assume that the MEWA is in 3 contiguous states and also meets all the federal requirements of a VEBA.

Assume also this is one ERISA plan, in which the benefits, structure, and administration is consistent for each employer.

How do you see each state as regulating the MEWA?

Would their regulation need to be consistent, in order to minimize costs, while still adequately protecting the participants and beneficiaries?

Or, would the regulation be whatever the state's guidelines are, as if the MEWA was located in only one state?

Don Levit

[leevena]

Don

Sounds like there might be some confusion.

I replied that it sounds like JD698 is asking about Association Health Plan legislation, not Association plans that we are all use to. I assumed this is what he was asking from the sentencen in his question where he refers to the House passing bills, but that the Senate has not. If this is correct, than he is asking about a something that is not yet allowed.

Your questions/comments are many of the same we all have. If the AHP legislation is passed, there is great concern about it's impact on employers, insureds, agents, and carriers.

As I said in my first reply, I am assuming this is what JD698 is asking about. If I am wrong, than I am confused about the question.

[Guest JD698]

What I am asking about is what governs Association Health Plans now. I know that there is no Federal legislation at this time but I need to know what laws/rules/regs govern AHPs that are in effect now or in the process of being established and what implications there are for an ERISA fund.

[leevena]

Thanks for your post JD, I now understand the question.

These type plans are regulated by the states. For a more complete and comparative overview of this, go to the NAHU website (www.nahu.org). The first page has an "issues" section, and you will find Association there. I think this will help you.

Good luck.

Lee

[Larry M]

After you have read all the issues concerning laws and regulations, and BEFORE you proceed with the establishment of a plan, read Clarence Tookey's classic paper concerning Association Health Plans in the Society of Actuaries Transactions (my apologies, I do not have the exact issue - it was about 1950 1955).

Basically he explains why an association health plan will FAIL, unless

a. there is a strong, knowledgable administration firm handling the details of billing, collection, eligibility, claims administration (sometimes) and underwriting; AND

b. an insurance company with sound experience in association plans; AND

c. a cohesive group of employers in the association, who have joined the association for purposes other than getting insurance.

Notice, all three must be in place for the plan to have a hope to succeed, and even then, there is no guarantee that premiums and benefits will be able to be kept in balance for any length of time.

[GBurns]

To add to LarryM, ... These are some of the reasons why most states severely restrict MEWA and association plans.

Don,

So far each state regulates under its own laws regardless of what laws might exist in any contiguous state. That the "domicile" is in another state does not matter, just as it does not matter for any insurance product. For example, it does not matter that NY Life is domiciled in New York, if NYL wants to sell a product in Texas it has to get both a Certificate of Authority (or other insurer license) and get the various products filed and approved.

[Don Levit]

George:

I agree that the states regulate self funded MEWAs, as if they were located only in their particular state.

Much of the rationale is probably based on the 1983 federal legislation, which provided for states to regulate these entities.

The legislation provides much latitude, in that states may apply any and all laws to self funded MEWAs, as they apply to commercial insurers.

There are elements of complexity and conflict here, however, in relation to other federal laws.

For example, the trustees of ERISA plans must abide by the "exclusive purpose" rule. Trustees must discharge their duties for the exclusive purpose of providing benefits to participants and beneficiaries, and defray reasonable expenses of administering the plan.

There are many federal court cases, including those of the Supreme Court, in which consistency of state regulation is required, when more than one state is involved.

This consistency is more pertinent for self funded insurers, than for commercial insurers, for commercial insurers can more easily spread the costs, due to their larger number of policyholders.

Also, commercial insurers do not have similar fiduciary responsibilities to their policyholders, as ERISA plan trustees have to their participants and beneficiaries.

Don Levit