Captives can still benefit Association Health Plans despite DOL final rule

Association Health Plans (AHPs) have been of significant interest to the captive insurance industry but have not taken off due to the US Department of Labour’s final rule disincentivising their use due to conflicts at a state and federal level.

This is according to Skip Myers, attorney at Morris, Manning & Martin, speaking to Captive International at the CICA annual conference.

“They are not off to the boom that some were hoping,” said Myers.

In 2018, the US Department of Labour (DOL) introduced legislation for businesses seeking to create AHPs, in order to create more affordable healthcare plans for smaller employers. An AHP is a grouping of small employers that have come together to replicate the profile of a much larger single entity.

“It allows smaller businesses to take advantage of what had previously been the benefit of being the insured of a larger company,” said Myers.

According to Congressional Budget Office estimates, 4 million Americans, including 400,000 who otherwise would lack insurance, will join an AHP by 2023.

In August 2018, however, the DOL introduced a final rule for AHPs which does not definitively pre-empt state law governing associations and health plans, resulting in dual regulation at both a state and federal level - which has massively disincentivised their use.

The final rule has received a lot of criticism, and 12 states and the District of Columbia have filed a lawsuit challenging the authority of the DOL to issue it.

“It’s a huge disincentive when you think you’ve got a good plan going and yet you’ve got a state here or a state there that has association rules that might come into play. It’s just the fact that it’s not known,” added Myers. “And there’s always a fear of the unknown, which acts as a great undermining of the process.”

He suggested that setting up a captive as a reinsurance vehicle for an AHP can still be attractive, and the final rule does not affect that.“It just makes using an AHP more difficult in the sense it may not be as predictable as it could have been should the rule have been more definitive,” he explained.

He also noted that the final rule can make it easier for an association to sponsor an AHP and treats an AHP as a single large employer plan under the Affordable Care Act, which he said can be quite beneficial.

“An AHP is not subject to ACA rating requirements and the ACA mandate to provide ‘essential health benefits’,” he said.

Myers spoke at a CICA panel, ‘The Political Climate and the Future of Captives’, which discussed AHPs. Other speakers included: Steve Kinion, Delaware captive director, Delaware Insurance Department; and Paul Owens, CEO of Willis Global Captive Management.