On June 19, the U.S. Department of Labor (DOL) finalized a rule that makes it easier for small businesses and sole proprietors to band together as a single group to buy health insurance, and lifts some of the restrictions on small employers imposed by the Affordable Care Act (ACA). Their plan will help make health coverage in the small business sector both less expensive and more widely available.

The Rule

The Employee Retirement Income Security Act (ERISA) is the federal law that governs health benefits and retirement plans offered by large employers. Under the DOL’s 2011 guidance on Association Health Plans (AHPs) under the ACA, insurers are required to “look through” AHPs to determine if any participants are small employers or individuals. The size of each individual employer determines whether the AHP is subject to large-group market or small-group market rules, not the size of the AHP as a whole. This means that associations could not offer small employer or individual members different coverage options or pricing than was already available to them in the small group or individual markets in their area.

The new DOL rule broadens the definition of “employer” under ERISA to include small business employers or sole proprietors who can form an association to provide group health coverage. New AHPs can form and elect to follow either the old DOL guidance or the new rules; the new regulations do not affect previously existing AHPs that are allowed under prior guidance.

The broader interpretation of ERISA lets employers across the United States join together to obtain health care coverage for their employees as if they were a large group or single large employer. It will allow employers that can currently only purchase group coverage in their state’s small group market to join together to purchase insurance in the less-regulated large group market.

An association can be formed for the sole purpose of offering an AHP to its members. However, it is only allowed if the group, or association, can pass a “commonality of interest” test. An association can show a commonality of interest on the basis of geography or industry if the members are either:

  • In the same trade, industry or profession throughout the United States; or
  • 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.

This means, for example, local bakeries and fishing supply shops in St. Josephs, Michigan could come together and purchase a plan for their employees. This also means companies in the same industry like bowling could band together to form an AHP regardless of their location in the United States. For example, the National Restaurant Association (NRA) has teamed up with UnitedHealthcare to create the Restaurant & Hospitality Association Benefit Trust Health Plan. The program offers operators more than 120 insurance plans with medical and specialty benefits flexibly priced to suit all budgets.

The new rule would allow sole proprietors to join Small Business Health Plans, clearing a path to access health insurance for the millions of uninsured Americans who are sole proprietors or the family of sole proprietors.

Additionally, the new rule permits working owners, including sole proprietors, who meet the requirements to participate in an AHP even if they do not have other employees working in their business.

Restrictions and Considerations

Associations and the employers participating in them must consider whether the plan’s benefits align with their employees’ needs. A recent study by national polling firm Research Now (on behalf of Randstad US) found that 39 percent of U.S. workers are satisfied with the benefits their employers offer, and 42 percent of employees say they are considering leaving their current jobs because their benefits packages are inadequate. If the AHP has limited benefits, it may have the unintended consequence of causing employee turnover.

Given the new rule does not change or limit existing state authority to regulate AHPs, AHPs should consider their ability to be compliant with the patchwork of state regulations. Insurance issued to fully-insured AHPs is regulated by state law. States can also regulate self-funded AHPs to the extent the state regulation is not inconsistent with ERISA. ERISA does not preempt these state laws. Experts expect the states to respond to this measure by the DOL with their own modifications to existing laws and rules.

To note, several groups oppose this new rule claiming that it will drive up costs in the small group and individual insurance markets. Opponents also claim these new AHPs will lead to fraud and mismanagement of AHPs. On June 21, the attorneys generals of New York and Massachusetts indicated that they would sue the administration to attempt to block the new rule.


From the outset, the greatest benefit for small businesses is their ability to enter into the health insurance market on the same terms as larger employers, which could create substantial benefits for their workers. Insurance sold nationwide through associations of small employers would have to comply with far fewer standards than they do currently. By creating larger purchasing groups, this will enhance their negotiating power, allowing employers to bargain for better deals and create ways to bring more people into the market. In turn, this would bring down costs for everyone. Associations can also spread administrative costs which can help with the burden of implementing and maintaining the AHP.

Some of the benefits highlighted by the DOL include:

  • Employers can avoid regulatory restrictions that pertain only to the small group market.
  • Employers can offer a wider array of insurance options.
  • AHPs reduce administrative costs for employers through economies of scale.
  • AHPs strengthen an employer’s bargaining position to obtain more favorable deals.
  • AHPs may not charge higher premiums or deny coverage to people because of pre-existing conditions, or cancel coverage because an employee becomes ill. Consumer protections and healthcare anti-discrimination protections apply to large businesses and will also apply to AHPs organized under this rule.

The changes will take effect in three phases beginning September 1, 2018, for fully-insured association plans, January 1, 2019, for existing self-funded association plans, and April 1, 2019, for new self-funded association plans.