United States: Association Health Plan Perspectives (Part 1): Determining The Status Of An AHP As "Fully-Insured"

Last Updated: July 25 2018
Article by Alden J. Bianchi

This is the first post in a blog series exploring the U.S. Department of Labor's recently issued final regulation governing Association Health Plans (AHPs). While AHPs can be either fully-insured or self-funded, the final regulation provides rules that are generally more useful to the former than the latter. Because of the preemptive force of ERISA, fully-insured arrangements are more lightly regulated under state law than their self-funded counterparts. This post addresses the question of what certification is needed, if any, to establish that an AHP is fully-insured.

Background on the Final Regulation

The final regulation was adopted in response to Executive Order 13813, wherein the Trump Administration sought, among other things, to facilitate "the adoption and administration of AHPs and expand access to affordable health coverage, especially for employees of small employers and certain self-employed individuals." The final regulation seeks to expand access to employer-sponsored health insurance coverage, particularly for small businesses, by allowing these employers to band together to purchase health coverage. According to the preamble to the final regulation:

By participating in AHPs, employees of small employers and working owners are able to obtain coverage that is not subject to the regulatory complexity and burden that currently characterizes the market for individual and small group health coverage and, therefore, can enjoy flexibility with respect to benefit package design comparable to that enjoyed by large employers.

The purpose of the final regulation is to remove "undue restrictions on the establishment and maintenance of Association Health Plans (AHPs)," which it does by modifying prior law definitions, thereby enlarging the number of employer groups and associations that may qualify as AHPs. The principal, though not only, beneficiaries are plans maintained by Chambers of Commerce and farm bureaus. For the first time, these groups will have the option to be subject to the more flexible underwriting and plan design rules that apply to large groups.

We described the prior law and explained the details of the final regulation in an article published by Bloomberg Tax available here.

ERISA Preemption: Fully-insured vs. Self-funded

ERISA preempts or renders unenforceable state laws that "relate to" employee benefit plans. This provision of ERISA represents a broad exercise of federal power under the Supremacy Clause of the U.S. Constitution that swept aside state laws to encourage uniform, nationwide standards governing the regulation of all manner of employee benefit programs. Congress saved state laws governing insurance, banking and securities from preemption, however.

Following ERISA's enactment, promoters of self-funded multi-employer welfare arrangements, or MEWAs, routinely (though not always legitimately) claimed categorical immunity from state regulation based on ERISA preemption. In 1983, Congress clarified the authority of states to regulate MEWAs. An amendment to ERISA enacted in 1983 established the following rules:

  • In the case of a self-funded MEWA, any state law that regulates insurance may apply to the extent it is not inconsistent with ERISA; and
  • In the case of a fully-insured MEWA, a state could only enforce those state laws that provide standards requiring the maintenance of specified levels of reserves and provisions to enforce such standards. Thus, in the case of a fully-insured MEWA, a state's regulatory power is limited to mandating and enforcing reserve requirements.

The more generous rules governing fully-insured MEWAs apply only if the AHP itself is an employee welfare benefit plan. That is, the plan must be sponsored by an employer or an association of employers. This was relatively uncommon under prior law, which construed the terms "employer" and "association of employers" narrowly. An AHP-sponsored local business group, for example, was subject to all applicable state laws irrespective of whether it was fully-insured or self-funded because it was not deemed to be sponsored by an employer or an association of employers. The final regulation changes this. Such a plan, if fully-insured, may now qualify as an association, thereby enabling the plan to be free from state regulation other than with respect to the setting or reserves, etc.

There is, however, a separate, prior legal requirement that the final regulation left undisturbed relating to an AHP's status as "fully-insured." The requirement is found in ERISA § 514(b)(6)(D), which provides as follows:

[An AHP] shall be considered fully-insured only if the terms of the arrangement provide for benefits the amount of all of which the Secretary determines are guaranteed under a contract, or policy of insurance, issued by an insurance company, insurance service, or insurance organization, qualified to conduct business in a State.

Simply put: no determination by the Secretary of Labor, no fully-insured AHP. The Department of Labor has not established a mechanism for applying and obtaining the Secretary's determination. It has, however, issued advisory opinions on the subject (e.g., Ad. Op. 2005-20A).

Before the issuance of the final regulation, few AHPs had to worry about the Department of Labor's determination of a plan's status as fully-insured, since coverage was provided on a "look-through" approach. Small groups and individuals were covered under the state's small group and individual markets, respectively. So, the plan's status as fully-insured for federal purposes was of little interest to the states. As a practical matter, only a handful of single-ERISA-plan AHPs found it necessary to request a determination from the Department of Labor.

Going forward, the calculus has changed. Now, any AHP that seeks to combine small groups into a single, large-group plan will need a determination from the Department of Labor of its status as "fully-insured" if the AHP wants to limit state regulation. Without such a determination, the arrangement remains subject to the full panoply of state laws. With such a determination in hand, however, only state laws governing "the maintenance of specified levels of reserves, and provisions to enforce such standards" are permitted. For example, absent a Department of Labor determination of an AHP's status as fully-insured, a state could require the AHP itself to register as an insurance company.

Fully-insured Status under the Final Regulation

It is possible that the Department or Labor will be inundated with advisory opinion requests from applicants seeking to establish their association's status as fully-insured. One wonders whether this is a good use of the Department of Labor's resources. There may be another way: might the Department of Labor instead issue a rule adopting a "notice" approach under which AHPs would be required to register with the Department of Labor and provide (by way of example):

  • A certification from a licensed actuary to the effect that all the AHP's benefits are guaranteed under a contract, or policy of insurance, issued by an insurance company, insurance service, or insurance organization, qualified to conduct business in a state; and
  • An attestation by the applicant (perhaps backed-up by, or in the form of, an opinion of counsel) that the requirements of the final regulation have been satisfied.

The Department of Labor could then respond with a "no-action" letter of some sort, or it could presume that the application is approved unless denied within a specified period of time.

Whether the Department of Labor will need to make any change to its current practices for the determination of fully-insured MEWA status will depend on the demand for AHPs under the new rules. That demand will, in turn, be driven by the level of states' resistance to AHPs—a topic we will explore in our next post.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions