Association Health Plans (AHPs) are health plans sponsored by groups of employers with a common purpose to provide health care coverage to their employees. They are one alternative for small businesses to give health care coverage to their employees.
Many small businesses can’t afford to pay for health insurance for employees, leaving many U.S. workers without coverage. The U.S. Department of Labor (DOL) says that up to 11 million people nationwide who work for small businesses or are self-employed don’t have employer-sponsored insurance for health care.
Learn how you may be able to offer AHPs to your employees and more.
What Is an Association Health Plan?
An Association Health Plan (AHP) is a health plan formed by a group of employers to give health care coverage for their employees. The group is considered an association (a group organized for a common purpose).
AHPs are considered multiple employer welfare arrangements (MEWAs) under the Employee Retirement Income Security Act (ERISA). A multiple employer welfare plan is set up to offer benefits to employees of two or more employers or their beneficiaries, but the plan can’t be set up by a union contract, or by a rural electric or telephone cooperative.
- Alternate Names: Multiple Employer Welfare Arrangement (MEWA)
- Acronym: AHP
An AHP is not a group health plan, which is defined as an employee benefit plan of an employer or by an employee organization (like a union) that gives medical care to employees and their dependents.
How Does an Association Health Plan Work?
To see how an AHP works, look at Land O’Lakes’ Cooperative Farmer Member Health Plan. Land O’Lakes is a member-owned agricultural cooperative association, with farmers as members. Farmers/members can join one of the AHPs, depending on the state where they do business. Then, the member can offer the AHP health benefits to their employees.
AHPs are organized and managed under ERISA and they must follow regulations of the Affordable Care Act (ACA) that protects employees in employment-based group health plans.
In June 2018, the DOL published a new rule expanding the types of groups that could form an AHP, relaxed some requirements for health plan coverage, and allowed self-employed individuals without employees to join AHPs. However, in April 2019, a federal judge blocked the new DOL rule and the DOL appealed the decision. After the court ruling, the DOL published a statement relating to the court ruling to give information to then-current AHPs about their status.
State insurance regulations also apply to AHPs. To complicate the issue, individual state insurance commissions have weighed in on the AHP situation, with some states approving the new DOL rule and other states rejecting it. To find out more about your state’s requirements, see this list of state insurance commissions.
AHP Regulations—Current Situation
Several parts of the AHP regulations were at issue in the court case, including:
- Expanding the definition of employer to including groups organized for insurance purposes without a previous commonality of interest
- Allowing AHPs to cut costs by not requiring them to provide all essential health benefits as required by the ACA
- Allowing self-employed individuals to join an AHP (since the original intent was coverage for “employees”)
- Allowing AHPs to be classified as large group plans, avoiding some state regulations
To help associations that have already formed and that want to form AHPs, the DOL has allowed health plans to operate on one of two sets of rules, called “Pathway 1” (the old rule) and “Pathway 2” (the new rule).
- Pathway 1 AHPs continue as before, including not allowing self-employed individuals without employees to join and not allowing associations based solely on geography.
- Pathway 2 AHPs can’t sign up new employer members, but they can continue to enroll new hires and current employees on special enrollment events (like marriage, birth, etc.)
ERISA Rules for AHPs
ERISA standards for AHPs include:
- Giving participants reports and disclosures, including a summary plan description
- Claims procedure rules
- Non-discrimination rules
- Consumer health care protections, including the Health Insurance Portability and Accountability Act (HIPAA) and ACA
- Fiduciary rules for those who manage plans, making sure plan assets are handled correctly
This Guide to Health Benefits Coverage Under Federal Law from the DOL includes information about consumer protections and general compliance information for all laws affecting health benefit plans.
Pros and Cons of Association Health Plans
Lower administrative costs to employers
Lower premium costs for employees
Shared liability for employers
Potentially fewer benefits for employees
AHPs may be subject to scams
New rule may reduce state protections for members and employees
Pros of AHPs Explained
- Lower administrative costs to employers: Joining together to form an AHP means cutting the costs of administrative fees as a group rather than trying to negotiate with insurers individually.
- Lower premium costs for employees: Having a larger group of people in the plan can result in lower premiums for members.
- Shared liability for employers: The plan allows employers to share fiduciary responsibilities, lessening the burden on each employer.
Cons of AHPs Explained
- Fewer benefits for employees: Being exempt from providing all essential health benefits means that some AHPs may cut out some benefits for employees—like maternity health care or mental health services—and charge more for some employees based on health status and gender.
- AHPs may be subject to scams: AHP scams (phony AHPs) have been common in the past, and there’s some confusion with the new DOL regulation about whether these plans are subject to state regulation.
- New rule may reduce state protections for members and employees: Decreased state regulation could also mean less focus on the financial standards of AHPs, possibly increasing the risk that an AHP would become insolvent and not be able to pay benefits. (However, according to the DOL, the final rule “does not diminish state oversight, which remains in place. States will share enforcement authority with the federal government.”)
How to Join an Association Health Plan
Find an AHP by checking with your trade organization to see if they have a plan.
Some other places to check:
- Your college alumni organization
- Industry, trade, or professional groups
- Existing associations like the International Franchise Association
In addition to AHPs, the DOL allows small businesses to band together to offer Association Retirement Plans (ARPs) to their employees.
- Association health plans (AHPs) help small businesses give their employees health coverage at reasonable costs to members and at lower rates to employees.
- Groups of businesses with a common purpose, like a trade association or franchise organization, can form an AHP.
- Before your company joins an AHP, research the plan to make sure it is legitimate.