Federal Register, Volume 89 Issue 84 (Tuesday, April 30, 2024)

[Federal Register Volume 89, Number 84 (Tuesday, April 30, 2024)]
[Rules and Regulations]
[Pages 34106-34127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08985]

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2510

RIN 1210-AC16

Definition of ``Employer''--Association Health Plans

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Final rule, rescission.

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SUMMARY: This document rescinds the Department of Labor's (Department
or DOL) 2018 rule entitled ``Definition of Employer Under Section 3(5)
of ERISA--Association Health Plans'' (2018 AHP Rule). The 2018 AHP Rule
established an alternative set of criteria from those set forth in the
Department's pre-2018 AHP Rule (pre-rule) guidance for determining when
a group or association of employers is acting ``indirectly in the
interest of an employer'' under section 3(5) of the Employee Retirement
Income Security Act of 1974 (ERISA) for purposes of establishing an
association health plan (AHP) as a multiple employer group health plan.
The 2018 AHP Rule was a significant departure from the Department's
longstanding pre-rule guidance on the definition of ``employer'' under
ERISA. This departure substantially weakened the Department's
traditional criteria in a manner that would have enabled the creation
of commercial AHPs functioning effectively as health insurance issuers.
The Department now believes that the core provisions of the 2018 AHP
Rule are, at a minimum, not consistent with the best reading of ERISA's
statutory requirements governing group health plans.

DATES: Effective date: This rule is effective on July 1, 2024.

FOR FURTHER INFORMATION CONTACT: Suzanne Adelman, Office of Regulations
and Interpretations, Employee Benefits Security Administration, U.S.
Department of Labor, (202) 693-8500 (this is not a toll-free number).

SUPPLEMENTARY INFORMATION:

I. Executive Summary

This document rescinds the Department's 2018 rule entitled
``Definition of Employer Under Section 3(5) of ERISA--Association
Health Plans.'' The 2018 AHP Rule established an alternative set of
criteria from those set forth in the Department's pre-rule guidance for
determining when a group or association of employers is acting
``indirectly in the interest of an employer'' under section 3(5) of
ERISA for purposes of establishing an AHP as a multiple employer group
health plan. The 2018 AHP Rule was a significant departure from the
Department's longstanding pre-rule guidance on the definition of
``employer'' under ERISA. This departure substantially weakened the
Department's traditional criteria in a manner that would have enabled
the creation of commercial AHPs functioning effectively as health
insurance issuers. The 2018 AHP Rule's alternative criteria were, in
large part, held invalid by the U.S. District Court for the District of
Columbia in New York v. United States Department of Labor. The district
court found the bona fide association and working owner provisions in
the 2018 AHP Rule were based on an unreasonable interpretation of ERISA
that was inconsistent with congressional intent that ERISA applies to
employment-based benefit relationships. The Department, after further
review of the relevant statutory language, judicial decisions, and
longstanding pre-rule guidance, and further consideration of ERISA's
statutory purposes and related policy goals, as well as the public
comments received on the Department's proposed rule, now rescinds in
full the 2018 AHP Rule in order to resolve and mitigate any uncertainty
regarding the status of the criteria that were set under the 2018 AHP
Rule, allow for a reexamination of the criteria for a group or
association of employers to be able to sponsor an AHP, and ensure that
guidance being provided to the regulated community is in alignment with
ERISA's text, purposes, and policies. The Department now believes that
the provisions of the 2018 AHP Rule that the district court held
invalid are, at a minimum, not consistent with the best reading of
ERISA's statutory requirements governing group health plans.

[[Page 34107]]

II. Background

A. Definition of Employer Under Section 3(5) of ERISA

ERISA regulates ``employee benefit plans'' (classified as
``employee welfare benefit plans'' and ``employee pension benefit
plans''), and generally preempts State laws that relate to or have a
connection with such plans, subject to certain exceptions. An
``employee welfare benefit plan'' is defined in section 3(1) of ERISA
to include, among other arrangements, ``any plan, fund, or program . .
. established or maintained by an employer or by an employee
organization, or by both, to the extent that such plan, fund or program
was established or is maintained for the purpose of providing for its
participants, or their beneficiaries, through the purchase of insurance
or otherwise . . . medical, surgical, or hospital care or benefits, or
benefits in the event of sickness, accident, disability, [or] death.''
Thus, to be an employee welfare benefit plan, the plan, fund, or
program must, among other criteria, be established or maintained by an
employer, an employee organization, or both an employer and an employee
organization.
Section 3(5) of ERISA generally defines the term ``employer'' as
``any person acting directly as an employer, or indirectly in the
interest of an employer, in relation to an employee benefit plan.''
Thus, ERISA defines the term ``employer'' to include the ``direct'' (or
common-law) employer of the covered employees or ``any person acting .
. . indirectly in the interest of'' the common-law employer, in
relation to an employee benefit plan. Section 3(5) of ERISA also
expressly identifies ``a group or association of employers acting for
an employer in such capacity'' as falling within the definition of
``employer.'' A group or association may establish an employee welfare
benefit plan only when it is acting as an ``employer'' within the
meaning of section 3(5) of ERISA. The Department's regulation at 29 CFR
2510.3-5, published in its 2018 AHP Rule,\1\ which is the subject of
this rescission, sought to define circumstances under which a group or
association of employers constitutes an ``employer'' within the meaning
of section 3(5) of ERISA with respect to sponsorship of a group health
plan and the provision of health benefits.
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\1\ 83 FR 28912 (June 21, 2018). The 2018 AHP Rule included an
amendment to the Department's regulation at 29 CFR 2510.3-3, which
excludes ``plans without employees'' from the definition of employee
benefit plans covered by Title I of ERISA. Under the amendment, a
working owner with no common law employees would have been treated
as both an ``employer'' member of the employer group or association
and an ``employee'' participant in the AHP, notwithstanding the lack
of any employment relationship with any other person. This amendment
to 29 CFR 2510.3-3 is also rescinded by this final rule.
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B. Historical Guidance Prior to the 2018 AHP Rule--``Bona Fide'' Group
or Association of Employers

Based on definitions in Title I of ERISA, and because Title I's
overall structure contemplates employment-based benefit arrangements,
the Department has long recognized that, even absent the involvement of
an employee organization, a group or association of employers may
sponsor a single ``multiple employer'' plan if certain criteria are
satisfied. If a group or association satisfies these criteria, then it
is generally referred to as a ``bona fide'' employer group or
association according to the Department's pre-rule guidance first
issued more than forty years ago.\2\ Under that pre-rule guidance,
health coverage sponsored by a bona fide employer group or association
can be structured as a single, multiple employer plan covered by ERISA.
The criteria specified in the pre-rule guidance are intended to
distinguish bona fide groups or associations of employers that provide
coverage to their employees and the families of their employees from
arrangements that more closely resemble State-regulated private health
insurance coverage.The Department's pre-rule guidance is consistent
with the criteria articulated and applied by every Federal appellate
court, in addition to several Federal district courts, that have
considered whether an organization was acting in the interests of
employer members.\3\ Moreover, to the Department's knowledge, no court
has found, or even suggested, that the pre-rule guidance criteria too
narrowly construed the meaning of acting ``indirectly in the interest
of an employer'' under section 3(5) of ERISA.
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\2\ An information letter from the Employee Benefits Security
Administration (EBSA)--previously known as the Pension and Welfare
Benefits Administration (PWBA)--explained that ``[t]he question of
whether or not an association is an employer within the meaning of
section 3(5) rests upon the dual questions of whether or not a bona
fide employer association exists and, if so, whether it is acting in
the interest of an employer in relation to an employee benefit
plan,'' and also noted that ``a number of factors must be
considered'' to determine ``whether a bona fide employer association
exists.'' Letter from Helene Benson, PWBA, to David Peters, 1979 WL
169912 (Aug. 22, 1979); Advisory Opinion No. 80-15A (March 14, 1980)
(``The Department has taken the position that, in order for any
group or association to satisfy this definition [association acting
for its employer members], it must be a bona fide association of
employers, subject, in both form and substance, to the control of
its employer members.'')
\3\ Gruber v. Hubbard Bert Karle Weber, Inc., 159 F.3d 780, 786-
87 (3d Cir. 1998) (endorsing the Department's historical approach to
determining whether an organization is acting in the interests of
employer members); MDPhysicians & Assocs., Inc. v. State Bd. of
Ins., 957 F.2d 178, 185-86 (5th Cir. 1992) (consistent with the
Department's pre-rule guidance, requiring that, to act in the
interests of employer members, an organization must not be a
commercial, ``entrepreneurial venture'' but must instead represent
members with ``a common economic or representation interest''
unrelated to the provision of benefits and who established or
maintained the plan); Wisconsin Educ. Ass'n Ins. Tr. v. Iowa State
Bd. of Pub. Instruction, 804 F.2d 1059, 1062-65 (8th Cir. 1986)
(hereinafter WEAIT); Int'l Ass'n of Entrepreneurs of Am. Ben. Tr. v.
Foster, 883 F. Supp. 1050, 1056-62 (E.D. Va. 1995); Assoc. Indus.
Mgmt. Servs. v. Moda Health Plan, Inc., No. 3:14-CV-01711-AA, 2015
WL 4426241, at *2-*5 (D. Or. July 16, 2015); Smith v. Prudential
Health Care Plan Inc., No. CIV. A. 97-891, 1997 WL 297096, at *3-*4
(E.D. Pa. May 27, 1997).
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Historically, the Department has taken a facts-and-circumstances
approach to determine whether a group or association of employers is a
bona fide employer group or association that may sponsor an ERISA group
health plan on behalf of its employer members. The Department's
longstanding pre-rule guidance, largely taking the form of a collection
of advisory opinions issued over more than four decades, has expressed
the Department's view regarding whether, based on individual
circumstances, a particular group or association was able to sponsor a
multiple employer welfare plan.\4\ While the language in the
Department's pre-rule advisory opinions was tailored to the issues
presented in the specific arrangements involved, the Department's
interpretive guidance has consistently focused on three criteria: (1)
whether the group or association has business or organizational
purposes and functions unrelated to the provision of benefits (the
``business purpose'' standard); (2) whether the employers share a
commonality of interest and genuine organizational relationship
unrelated to the provision of benefits (the ``commonality'' standard);
and (3) whether the employers that participate

[[Page 34108]]

in a benefit program, either directly or indirectly, exercise control
over the program, both in form and substance (the ``control''
standard).
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\4\ See, e.g., Advisory Opinions Nos. 94-07A (Mar. 14, 1994),
95-01A (Feb. 13, 1995), 96-25 (Oct. 31, 1996), 2001-04A (Mar. 22,
2001), 2003-13A (Sept. 30, 2003), 2003-17A (Dec. 12, 2003), 2007-06A
(Aug. 16, 2007), 2012-04A (May 25, 2012), and 2019-01A (July 8.
2019). See also Department of Labor Publication, ``Multiple Employer
Welfare Arrangements Under ERISA, A Guide to Federal and State
Regulation,'' at www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/mewa-under-erisa-a-guide-to-federal-and-state-regulation.pdf. Judicial decisions tended to take
approaches consistent with that followed by the Department. See also
Wisconsin Educ. Assn. Ins. Trust v. Iowa State Bd. of Public
Instruction, 804 F.2d 1059, 1063-1064 (8th Cir. 1986); MDPhysicians
& Associates, Inc. v. State Bd. of Ins., 957 F.2d 178, 183-186 (5th
Cir. 1992) [hereinafter MDPhysicians]; National Business Assn. Trust
v. Morgan, 770 F. Supp. 1169 (W.D. Ky. 1991).
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A variety of factors were set forth in the Department's
longstanding pre-rule guidance as relevant when applying these three
general criteria to a particular group or association. These factors
include how members are solicited; who is entitled to participate and
who actually participates in the group or association; the process by
which the group or association was formed; the purposes for which it
was formed; the preexisting relationships, if any, of its members; the
powers, rights, and privileges of employer members that exist by reason
of their status as employers; who actually controls and directs the
activities and operations of the benefit program; and the extent of any
employment-based common nexus or other genuine organizational
relationship unrelated to the provision of benefits.\5\
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\5\ See Gruber, 159 F.3d at 788 fn. 5 (listing the Department's
criteria); Int'l Ass'n of Entrepreneurs of Am. Ben. Tr. v. Foster,
883 F. Supp. at 1061 (same); Hall v. Maine Mun. Emps. Health Tr., 93
F. Supp. 2d 73, 77 (D. Me. 2000); Assoc. Indus. Mgmt. Servs. v. Moda
Health Plan, Inc., 2015 WL 4426241, at *3.
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C. Association Coverage Under the Public Health Service Act

The Public Health Service Act (PHS Act) establishes health coverage
requirements in Title XXVII that generally apply to group health plans
and health insurance issuers offering group or individual health
insurance coverage. The provisions of Title XXVII of the PHS Act have
been amended by the Affordable Care Act (ACA) \6\ and other Federal
laws. These PHS Act provisions are administered by the Department of
Health and Human Services (HHS), Centers for Medicare & Medicaid
Services (CMS). With respect to health insurance issuers, States are
the primary enforcers of these PHS Act provisions, and if a State fails
to substantially enforce them, CMS enforces them.
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\6\ The Patient Protection and Affordable Care Act, Public Law
111-148, was enacted on March 23, 2010; the Health Care and
Education Reconciliation Act of 2010, Public Law 111-152, was
enacted on March 30, 2010. These statutes are collectively referred
to as the Affordable Care Act (ACA). The ACA reorganized, amended,
and added to the provisions of part A of title XXVII of the PHS Act
relating to group health plans and health insurance issuers in the
group and individual markets.
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Under Title XXVII of the PHS Act, ``individual market coverage'' is
any health insurance coverage that is not offered in connection with a
group health plan.\7\ Conversely, the term ``group health insurance
coverage'' refers to health insurance coverage offered in connection
with a group health plan.\8\ The PHS Act derives its definitions of
``group health plan'' and ``employer'' from the ERISA definitions of
``employee welfare benefit plan'' and ``employer.'' \9\ Thus, reference
to ERISA is needed when determining whether a group health plan exists
for PHS Act purposes and determining whether an ERISA-covered health
arrangement is properly treated as a single plan operating on behalf of
multiple employers or, instead, a collection of separate and discrete
employer-sponsored plans.
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\7\ Section 2791(b)(5) and (e)(1)(A) of the PHS Act.
\8\ Section 2791(b)(4) of the PHS Act.
\9\ Section 2791(a)(1) and (d)(6) of the PHS Act.
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In guidance issued in 2002 and 2011, CMS explained how the
requirements of Title XXVII of the PHS Act apply to health insurance
coverage sold to or through associations.\10\ Specifically, as stated
in the guidance, the test for determining whether association coverage
\11\ is individual or group market coverage for purposes of Title XXVII
of the PHS Act is the same test as that applied to health insurance
coverage offered directly to individuals or employers. In other words,
CMS will generally ignore--``look through''--the association to
determine whether each association member must receive coverage that
complies with the requirements arising out of its status as an
individual, small employer, or large employer.
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\10\ See Centers for Medicare & Medicaid Services, Application
of Individual and Group Market Requirements under Title XXVII of the
Public Health Service Act when Insurance Coverage Is Sold to, or
through Associations, Insurance Standards Bulletin Series--
INFORMATION (Sept. 1, 2011), available at https://www.cms.gov/cciio/resources/files/downloads/association_coverage_9_1_2011.pdf. See
also CMS Insurance Standards Bulletin Transmittal No. 02-02 (August
2002), available at https://www.cms.gov/regulations-and-guidance/health-insurance-reform/healthinsreformforconsume/downloads/hipaa-02-02.pdf.
\11\ For this purpose, the term ``association coverage'' means
health insurance coverage offered to collections of individuals and/
or employers through entities that may be called associations,
trusts, multiple employer welfare arrangements, purchasing
alliances, or purchasing cooperatives.
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Consequently, coverage that is issued to or through an association,
but not in connection with a group health plan, is not considered group
health insurance coverage for purposes of the PHS Act. Under the PHS
Act, such coverage is considered coverage in the individual market,
regardless of whether it is considered group coverage under State
law.\12\
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\12\ See 45 CFR 144.102(c).
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In situations involving employment-based association coverage where
coverage is offered in connection with a group health plan, the
coverage is considered group health insurance coverage under the PHS
Act. In cases where an association is not considered an employer under
ERISA, each employer member of the association is considered to sponsor
its own group health plan under the PHS Act. In those cases where an
association is determined to be an employer that is ``acting indirectly
in the interest of its employer members'' and sponsors a plan under
ERISA, the association coverage is considered a single group health
plan under the PHS Act.
Under the PHS Act, the number of employees of the employer
sponsoring the group health plan determines whether the employer is a
small employer \13\ or large employer \14\ and thus whether health
insurance coverage provided in connection with a group health plan
sponsored by the employer falls into the small group market or large
group market. In the situation where each employer member of the
association is considered to sponsor its own group health plan, the
size of each employer participating in the association determines
whether that employer's coverage is subject to the small group market
or large group market rules. In those instances where the group or
association of employers is, in fact, sponsoring the group health plan
and the association itself is deemed the ``employer,'' the number of
employees employed by all the employers participating in the
association determines whether the coverage is subject to the small
group market or large group market rules. Accordingly, the status of an
association as a single ``employer'' within the meaning of section 3(5)
of ERISA, and of the AHP as a single plan has important legal
consequences. As a general matter, small group and individual market
coverage is subject to Federal protections not applicable to large
group market coverage, such as the ACA's premium rating requirements,
single risk pool, and essential health benefit (EHB) requirements.
Thus, to the extent the arrangement is not a single plan, but rather an
aggregation of individual plans (or individuals), the participants
covered by the arrangement are subject

[[Page 34109]]

to these more robust protections applicable to plans in the small group
market (or to individual coverage, when the insured parties are simply
individuals purchasing insurance coverage outside the group
market).^{15 16}
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\13\ The term ``small employer'' generally means an employer who
employed an average of at least 1 but not more than 50 employees on
business days during the preceding calendar year, and who employed
at least 1 employee on the first day of the plan year. Section
2791(e)(4) of the PHS Act.
\14\ The term ``large employer'' generally means an employer who
employed an average of at least 51 employees on business days during
the preceding calendar year and who employs at least 2 employees on
the first day of the plan year. Section 2791(e)(2) of the PHS Act.
\15\ There are other provisions of the PHS Act that apply to
individual but not large group market coverage. For example, section
2746 of the PHS Act requires health insurance issuers offering
individual health insurance coverage or short-term limited duration
insurance coverage to make disclosures to enrollees in such coverage
and provide reports to the Secretary of HHS regarding direct and
indirect compensation provided by the issuer to an agent or broker
associated with enrolling individuals in such coverage.
\16\ See section 2701 of the PHS Act (premium rating), section
1312(c) of the ACA (single risk pool), and section 2707(a) of the
PHS Act (EHB requirements). The ACA requires non-grandfathered
health plans in the individual and small group markets to cover
EHBs, which include items and services in the following ten benefit
categories: (1) ambulatory patient services; (2) emergency services;
(3) hospitalization; (4) maternity and newborn care; (5) mental
health and substance use disorder services including behavioral
health treatment; (6) prescription drugs; (7) rehabilitative and
habilitative services and devices; (8) laboratory services; (9)
preventive and wellness services and chronic disease management; and
(10) pediatric services, including oral and vision care. 42 U.S.C.
18022(b).
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D. The 2018 AHP Rule

On June 21, 2018, the Department published the 2018 AHP Rule,\17\
which was intended to broaden the types of employer groups and
associations that may sponsor a single group health plan under ERISA.
The Department issued the 2018 AHP Rule in response to a 2017 Executive
Order (E.O.) that was rescinded in 2021.\18\ Relative to the
longstanding pre-rule guidance, the 2018 AHP Rule substantially
loosened the requirements for groups or associations to be considered
bona fide groups or associations that were eligible to establish
employee welfare benefit plans or to otherwise meet the definition of
``employer'' under section 3(5) of ERISA.\19\ As published, the 2018
AHP Rule altered many of the guardrails in pre-rule guidance, which had
been intended to distinguish bona fide employer associations united by
common employment-based relationships from mere commercial ventures
aimed at marketing insurance to employers and individuals.
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\17\ 83 FR 28912, 28962 (June 21, 2018).
\18\ E.O. 13813, 82 FR 48385 (rescinded by E.O. 14009, 86 FR
7793 (Jan. 28, 2021)).
\19\ See generally 83 FR 28912 (June 21, 2018). But the
Department expressly noted in the 2018 AHP Rule that the rule ``does
not invalidate any existing advisory opinions, or preclude future
advisory opinions, from the Department under section 3(5) of ERISA
that address other circumstances in which the Department will view a
person as able to act directly or indirectly in the interest of
direct employers in sponsoring an employee welfare benefit plan that
is a group health plan.'' 83 FR 28912, 28962 (June 21, 2018).
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Thus, paragraph (b)(1) of the 2018 AHP Rule abandoned the
requirement in pre-rule guidance that the group or association acting
as an employer must exist for purposes other than providing health
benefits. Instead, the 2018 AHP Rule only required that the group or
association must have at least one substantial business purpose
unrelated to offering and providing health coverage or other employee
benefits to its employer members and their employees. In a significant
departure from pre-rule guidance, the rule specifically stated that
``the primary purpose of the group or association'' could be ``to offer
and provide health coverage to its employer members and their
employees.'' \20\
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\20\ 83 FR 28912, 18 (June 21, 2018).
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Similarly, paragraph (c) of the 2018 AHP Rule provided for a looser
commonality standard than the pre-rule guidance, which had insisted on
a genuine commonality of interests between employer members. Under the
2018 AHP Rule, a group or association of employers satisfied the
commonality of interest requirement if either: (1) its employer members
were in the same trade or business; or (2) the principal places of
business for its employer members were located within a region that did
not exceed the boundaries of the same State or metropolitan area, such
as the Washington Metropolitan Area of the District of Columbia (which
also includes portions of Maryland and Virginia). No other common
interests were required.\21\ Under the pre-rule guidance, geography
alone would not have been sufficient to establish commonality between
businesses. For example, barbers, mechanics, and lawyers would not have
been treated as having the requisite commonality of interest merely
because they all have a principal place of business in the State of New
York.
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\21\ 29 CFR 2510.3-5(c); see 83 FR 28912, 28924 (June 21, 2018).
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In a particularly striking departure from ERISA's employment-based
structure, paragraph (e) of the 2018 AHP Rule specifically allowed
working owners without any common-law employees to participate in AHPs,
stating that the working owner would be treated as both an ``employer''
and ``employee'' for purposes of participating in, and being covered
by, an AHP, notwithstanding the absence of any employment relationship
with any common-law employees.\22\ Under the pre-rule guidance, working
owners without common-law employees generally were not permitted to be
treated as employers for the purpose of participating in a bona fide
employer group or association,\23\ or as employees who could be
participants in an ERISA-covered employee welfare benefit plan.
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\22\ Id. at 28929-33.
\23\ Id. at 28928, n. 40.
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In part because the 2018 AHP Rule had relaxed the standards for
treating arrangements as single group plans--making it easier for small
employers and working owners to purchase coverage in the large group
market which is not subject to all the legal protections applicable to
coverage in the individual and small group markets--the 2018 AHP Rule
expressly added nondiscrimination standards as an additional safeguard
against abuse.\24\ These standards aimed to reduce the danger that the
new AHPs would abuse their status by cherry-picking groups of
relatively healthy participants, such as by charging one participating
business more for premiums than it charges other members because that
business employs several individuals with chronic illness, and
excluding others at the expense of the broader insurance market, which
would cover a relatively sicker and more expensive population. In
particular, the 2018 AHP Rule incorporated and adapted existing health
nondiscrimination provisions already applicable to group health plans,
including AHPs, under the Health Insurance Portability and
Accountability Act of 1996 (HIPAA).\25\
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\24\ Under the 2018 AHP Rule, in addition to the bona fide group
or association, the underlying health coverage offered by the bona
fide group or association must also meet these requirements for the
bona fide group or association to qualify as an employer under the
2018 AHP Rule. 84 FR 28912, 28926-29.
\25\ Id. at 28926-27.
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In applying the HIPAA health nondiscrimination rules for defining
similarly situated individuals under the 2018 AHP Rule, the group or
association could not treat employer members as distinct groups of
similarly situated individuals if it wished to qualify as a bona fide
group or association for purposes of sponsoring an AHP.\26\ For
example, a group or association could not separately experience-rate
each employer member of the association based on the health factors of
their employees and meet the criteria to be a bona fide group or
association of employers under the 2018 AHP Rule. The pre-rule guidance
does not incorporate nondiscrimination requirements in the definition
of employer, although plans must comply with all applicable laws,
including the

[[Page 34110]]

HIPAA nondiscrimination rules. As the Department noted in the preamble
to the 2018 AHP Rule, the HIPAA nondiscrimination rules apply to group
health plans, including AHPs, and therefore AHPs, like any other group
health plan, cannot discriminate in eligibility, benefits, or premiums
against an individual within a group of similarly situated individuals
based on a health factor.
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\26\ Id. at 28927, 28929, 28955.
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E. Decision Finding Core Provisions of the 2018 AHP Rule Invalid

In July 2018, eleven States and the District of Columbia
(collectively, the States) sued the Department in the U.S. District
Court for the District of Columbia. They argued that the 2018 AHP Rule
violates the Administrative Procedure Act (APA), 5 U.S.C. 551 et seq.,
because it exceeds the Department's statutory authority and is
arbitrary or capricious. The States moved for summary judgment, and the
Department moved to dismiss the lawsuit for lack of standing and cross-
moved in the alternative for summary judgment. On March 28, 2019, the
Federal district court denied the Department's motions and granted the
States' motion for summary judgment. In granting the States' motion,
the district court held invalid the 2018 AHP Rule's definition of bona
fide group or association of employers and the language permitting
working owners without common-law employees to be treated as employees
when participating in an AHP.\27\ Specifically, the district court
concluded that the 2018 AHP Rule's criteria for establishing AHPs
unreasonably construed ERISA's requirement that the association act
``indirectly in the interest of an employer'' because the 2018 AHP
Rule's ``substantial business purpose'' and ``geographic commonality''
requirements were not drawn narrowly enough to limit AHPs to those that
act in the interest of employers, thus unreasonably expanding the
definition of ``employer.'' \28\ In addition, the district court ruled
that the 2018 AHP Rule's expansion of the term ``employer'' under ERISA
to include working owners without common-law employees (when members of
an association) was unreasonable because it was contrary to ERISA's
text and central purpose of regulating employment-based
relationships.\29\ Regarding ERISA's text and purpose, the district
court held that Congress did not intend for working owners without
common-law employees to be included within ERISA--either as individuals
or when joined in an employer association.\30\ In conclusion, the
district court held that the 2018 AHP Rule was inconsistent with ERISA
and the APA because the provisions unlawfully failed to limit bona fide
associations to those acting ``in the interest of'' their employer
members, within the meaning of ERISA, thus exceeding the Department's
statutory authority.\31\ The district court remanded the 2018 AHP Rule
to the Department to consider how the severability provision of the
2018 AHP Rule affects any of its remaining provisions.\32\ The
Department's longstanding pre-rule guidance was not affected by the
district court's decision.
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\27\ New York v. United States Department of Labor, 363 F. Supp.
3d 109 (D.D.C. 2019).
\28\ Id. at 131-34.
\29\ Id. at 136-40.
\30\ Id. at 137. The district court concluded that the provision
was contrary to ERISA and the APA and that it relied on ``a tortured
reading'' of the ACA. Id. at 141. The court described the defense of
the working owner test as ``pure legerdemain,'' noting that ``DOL's
feat of prestidigitation transforms two individuals, neither of whom
works for the other, into a total of three employers and two
employees.'' Id. at 139. The court understood ERISA to require a
different approach to counting employees, noting that ``when one
counts the employees employed by two self-employed persons without
employees, the sum is zero.'' Id.
\31\ Id. at 128.
\32\ Id. at 141.
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In 2019, the Department appealed the district court's decision.\33\
Thereafter, the U.S. Court of Appeals for the District of Columbia
Circuit granted the Department's request to stay the appeal.\34\
Subsequently, the Department informed the appeals court that it would
undertake notice and comment rulemaking on a proposal to rescind the
2018 AHP Rule. The appeal pending before the D.C. Circuit remains
stayed.
---------------------------------------------------------------------------

\33\ New York v. United States Department of Labor, 363 F. Supp.
3d 109, appeal docketed, No. 19-5125 (D.C. Cir. May 31, 2019).
\34\ New York v. United States Department of Labor, No. 19-5125
(D.C. Cir. Feb. 8, 2021) (order granting consent motion to hold case
in abeyance).
---------------------------------------------------------------------------

The Department considered the severability clause issue raised by
the district court and concluded that, without the core provisions that
the district court found invalid, the 2018 AHP Rule could not be
operationalized and would provide no meaningful guidance. To minimize
consequences of the district court's decision on AHP participants, the
Department announced a temporary safe harbor from enforcement on April
29, 2019.\35\ Specifically, the Department announced that it would not
pursue enforcement actions against parties for potential violations
stemming from actions taken prior to the district court's decision and
in good faith reliance on the 2018 AHP Rule, as long as parties met
their responsibilities to association members and the AHP's
participants and beneficiaries to pay health benefit claims as
promised.\36\ In addition, the Department announced that it would not
take action against existing AHPs for continuing, through the remainder
of the applicable plan year or contract term that was in force at the
time of the district court's decision, to provide health benefits to
members who enrolled in good faith reliance on the 2018 AHP Rule before
the district court's order.\37\ Because the 2018 AHP Rule ceased being
an alternative pathway for entities to be treated as bona fide employer
groups or associations after the district court's decision in 2019, the
Department anticipated that parties who established AHPs in reliance on
the 2018 AHP Rule would wind them down and that no new AHPs would be
formed in reliance on the 2018 AHP rule until the judicial process
ended. The Department's temporary safe harbor from enforcement expired
long ago, and the Department is not aware of any AHPs that currently
exist in reliance on the 2018 AHP Rule.\38\
---------------------------------------------------------------------------

\35\ Press Release, Employee Benefits Security Administration,
U.S. Department of Labor Statement Relating to the U.S. District
Court Ruling in State of New York v. United States Department of
Labor (Apr. 29, 2019), available at https://www.dol.gov/newsroom/releases/ebsa/ebsa20190429.
\36\ Id.
\37\ In addition, as explained in the April 29, 2019 statement,
HHS had advised the Department that HHS would not pursue enforcement
against nonfederal governmental plans or health insurance issuers
for potential violations of Title XXVII of the PHS Act caused by
actions taken before the district court's decision in good faith
reliance on the rule's validity, through the remainder of the
applicable plan year or contract term that was in force at the time
of the district court's decision. HHS had also advised the
Department that HHS would not consider States to be failing to
substantially enforce applicable requirements under Title XXVII of
the PHS Act in cases where the State adopted a similar approach with
respect to health insurance coverage issued within the State. Id.
\38\ The non-enforcement policy ended at the end of the plan
year or contract term that was in effect at the time of the district
court's decision on March 28, 2019. Id. at 38.
---------------------------------------------------------------------------

III. Rescission of 2018 AHP Rule

This final rule rescinds the 2018 AHP Rule in its entirety.
Accordingly, the 29 CFR 2510.3-5 regulation established by the 2018 AHP
Rule and the related amendment to the 29 CFR 2510.3-3 regulation made
by the 2018 AHP Rule are rescinded.
The 2018 AHP Rule reflected a substantial departure from the
Department's longstanding pre-rule guidance on the definition of
``employer'' under ERISA. The 2018 AHP Rule struck the wrong balance
between ensuring a sufficient

[[Page 34111]]

employment nexus and enabling the creation of AHPs. The employment
relationship is at the heart of what makes an entity a bona fide group
or association of employers capable of sponsoring an AHP, and of what
separates bona fide employer associations from commercial ventures
aimed at selling insurance to unrelated individuals and employers. The
approach taken in the 2018 AHP Rule does not comport with the better
reading of the statute because it goes too far in disregarding ERISA's
focus on employment-based relationships. The pre-rule guidance rightly
insisted on the existence of an employment relationship and on a common
employment nexus between entities participating in a bona fide employer
association. By departing from these standards, in the 2018 AHP Rule,
the Department undermined ERISA's employment-based focus and wrongly
treated as ``employers'' entities whose primary purpose was the
marketing of health benefits to unrelated employers and individuals.
As explained in detail below, the Department is no longer of the
view that the business purpose standard, geography-based commonality
standard, and working owner provision in the 2018 AHP Rule, even as
bolstered by the nondiscrimination standards in paragraph (d)(4), are
sufficient to distinguish between meaningful employment-based
relationships and commercial insurance-type arrangements whose purpose
is principally to market benefits, and to identify and manage risk. The
Department's rescission of the 2018 AHP Rule makes clear that this
significant departure from pre-rule guidance no longer represents the
Department's interpretation of when a group or association can
constitute an ``employer'' for purposes of sponsoring a group health
plan under ERISA. The rescission leaves in place the longstanding pre-
rule guidance that has been consistently supported and relied upon in
numerous judicial decisions because it fosters a sufficient employer-
employee nexus and proper oversight of AHPs, while remaining consistent
with ERISA's text and purpose.

A. Authority To Define ``Employer'' in Section 3(5) of ERISA

Congress tasked the Department with administering ERISA.\39\ The
Department has clear authority to interpret the term ``employer,''
including defining when a ``group or association of employers'' may act
``indirectly in the interest of an employer'' in establishing an
employee benefit plan, and has done so in numerous advisory
opinions.\40\ The courts and the Department have consistently stressed
that ERISA's definition of ``employee benefit plan,'' including the
definition's reference to arrangements ``established or maintained by
an employer or employee organization, or both,'' envisions employment-
based arrangements. No court decision or guidance from the Department,
including the 2018 AHP Rule, has suggested the ``employer group or
association'' provision in the section 3(5) of ERISA definition of
``employer'' extends the concept of an ``employee benefit plan'' to
commercial insurance-type arrangements.
---------------------------------------------------------------------------

\39\ 29 U.S.C. 1135 (delegating authority to the Secretary of
Labor to ``prescribe such regulations as he finds necessary or
appropriate to carry out the provisions of [ERISA]''); see Black &
Decker Disability Plan v. Nord, 538 U.S. 822, 831 (2003) (deferring
to the Department's interpretation of an ERISA provision).
\40\ See Advisory Opinions Nos. 94-07A (Mar. 14, 1994), 95-01A
(Feb. 13, 1995), 96-25A (Oct. 31, 1996), 2001-04A (Mar. 22, 2001),
2003-13A (Sept. 30, 2003), 2003-17A (Dec. 12, 2003), 2007-06A (Aug.
16, 2007), 2012-04A (May 25, 2012), and 2019-01A (July 8. 2019); see
also 2018 AHP Rule, 83 FR 28912, 28914 (June 21, 2018) and New York
v. United States Department of Labor, 363 F. Supp. 3d 109, 128
(D.D.C. 2019) (recognizing the Department's authority to interpret
ERISA).
---------------------------------------------------------------------------

As described above, the Department's longstanding pre-rule
guidance, as expressed in advisory opinions, has traditionally applied
a facts-and-circumstances approach to determine whether a group or
association of employers is a bona fide employer group or association
capable of sponsoring an ERISA plan on behalf of its employer members.
This pre-rule guidance focuses on three general criteria: (1) whether
the group or association has business or organizational purposes and
functions unrelated to the provision of benefits; (2) whether the
employers share some commonality of interest and genuine organizational
relationship unrelated to the provision of benefits; and (3) whether
the employers that participate in a benefit program, either directly or
indirectly, exercise control over the program, both in form and
substance. While there are many organizations of employers, the
Department's pre-rule guidance makes clear that only certain entities
consisting of more than one employer meet the definition of a bona fide
group or association of employers under ERISA.
Before the 2018 AHP Rule, the Department's approach to these
determinations had consistently focused on employment-based
arrangements, as contemplated by ERISA, rather than commercial
insurance-type arrangements that lack the requisite connection to the
employment relationship.\41\ The Department's longstanding pre-rule
guidance had also been informed by its extensive experience with
unscrupulous promoters, marketers, and operators of multiple employer
welfare arrangements (MEWAs).\42\ AHPs generally qualify as MEWAs under
ERISA. Although MEWAs can provide valuable coverage, historically
MEWAs, particularly self-funded MEWAs, have disproportionately suffered
from financial mismanagement or abuse, leaving participants and
providers with unpaid benefits and bills and putting small businesses
at financial risk.\43\ Because of this history of abuse by MEWA
promoters falsely claiming ERISA coverage and protection from State
regulation, Congress amended ERISA in 1983 to provide an exception to
ERISA's broad preemption provisions
---------------------------------------------------------------------------

\41\ This focus is supported by courts' interpretation of the
term ``employee benefit plan.'' See, e.g., Wisconsin Educ. Ass'n
Ins. Trust v. Iowa State Bd. of Public Instruction, 804 F.2d 1059,
1063-64 (8th Cir. 1986) (concluding that ``the statute and
legislative history will [not] support the inclusion of what amounts
to commercial products within the umbrella of the definition'' of
``employee benefit plan'' (citing H.R. Rep. No. 1785, 94th Cong., 2d
Sess. 48 (1977)).
\42\ Section 3(40)(A) of ERISA (defining MEWAs).
\43\ For discussions of this history, see: (1) U.S. Gov't
Accountability Office, GAO-92-40, ``States Need Labor's Help
Regulating Multiple Employer Welfare Arrangements.'', March 1992, at
https://www.gao.gov/assets/220/215647.pdf; (2) U.S. Gov't
Accountability Office, GAO-04-312, ``Employers and Individuals Are
Vulnerable to Unauthorized or Bogus Entities Selling Coverage.''
Feb. 2004, at https://www.gao.gov/new.items/d04312.pdf; and (3)
Kofman, M. and Jennifer Libster, ``Turbulent Past, Uncertain Future:
Is It Time to Re-evaluate Regulation of Self-Insured Multiple
Employer Arrangements?'', Journal of Insurance Regulation, 2005,
Vol. 23, Issue 3, pp. 17-33.

---------------------------------------------------------------------------

[[Page 34112]]

for the regulation of plan and non-plan MEWAs \44\ under State
insurance laws.\45\
---------------------------------------------------------------------------

\44\ A ``MEWA'' is a ``multiple employer welfare arrangement''
as defined in ERISA section 3(40). A MEWA can be a single ERISA-
covered plan (``plan MEWA''), or an arrangement comprised of
multiple ERISA-covered plans, each sponsored by unrelated employer
members that participate in the arrangement (``non-plan MEWA''). An
AHP is a plan MEWA. If an ERISA-covered plan is a MEWA, States may
apply and enforce their State insurance laws with respect to the
plan to the extent provided by ERISA section 514(b)(6)(A)--the
extent to which depends on whether the MEWA that is an ERISA-covered
plan is fully insured. If a MEWA is determined not to be an ERISA-
covered plan, the persons who operate or manage the MEWA may
nonetheless be subject to ERISA's fiduciary responsibility
provisions if such persons are responsible for, or exercise control
over, the assets of ERISA-covered plans. In both situations, the
Department would have concurrent jurisdiction with the State(s) over
the MEWA. See Department of Labor Publication, Multiple Employer
Welfare Arrangements Under ERISA, A Guide to Federal and State
Regulation, http://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/mewa-under-erisa-a-guide-to-federal-and-state-regulation.pdf.
\45\ Section 514(b)(6) of ERISA, 29 U.S.C. 1144(b)(6).
---------------------------------------------------------------------------

Employees and their dependents have too often become financially
responsible for medical claims they were promised would be covered by
the plan after paying premiums to fraudulent or mismanaged MEWAs, which
could include AHPs. Because these entities often become insolvent,
individuals and families bear the risk, and the impact can be
devastating as participants are left with large unpaid medical bills or
even lose access to critical medical services.\46\ Even when such MEWAs
are not insolvent, employees and their dependents may still become
financially responsible for health claims where the AHP failed to
adequately disclose the benefit limitations and exclusions under the
plan.\47\ The Department is concerned about the potential uptake and
expansion of fraudulent and mismanaged MEWAs.
---------------------------------------------------------------------------

\46\ Based on the Department's enforcement data, since 2001, the
Department has taken civil and criminal enforcement action, as
reflected in criminal indictments, civil complaints, temporary
restraining orders, and cease and desist orders involving 108
fraudulent and mismanaged MEWAs and their operators. Just since
2018, the Department was forced to take civil and criminal
enforcement action against 21 MEWAs in order to protect participants
and beneficiaries from fraud or mismanagement. Further, the
Department has civilly recovered over $95 million from mismanaged or
fraudulent MEWAs in the last five years alone. See EBSA National
Enforcement Project--Health Enforcement Initiatives at www.dol.gov/agencies/ebsa/about-ebsa/our-activities/enforcement#national-enforcement-projects; U.S. Department of Labor Files Complaint to
protect Participants and Beneficiaries of failing Medova MEWA
operating in 38 states, available at https://www.dol.gov/newsroom/releases/ebsa/ebsa20201218; Federal Court Appoints Independent
Fiduciary as Claims Administrator of Medova Arrangement, available
at https://www.dol.gov/newsroom/releases/ebsa/ebsa20210412; Federal
Court Orders Kentucky Bankers Association to Pay $1,561,818 In
Losses to Benefits Plan After U.S. Department of Labor Finds
Violations, available at https://www.dol.gov/newsroom/releases/ebsa/ebsa20201015; MEWA Enforcement Fact Sheet, available at https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/mewa-enforcement.pdf.
\47\ See 83 FR 28912, 28952 (June 21, 2018) (highlighting that
many of the Department's civil enforcement cases involving MEWAs
involved failure to follow plan terms or health care laws, failure
to provide plan benefits, or reporting and disclosure deficiencies).
---------------------------------------------------------------------------

ERISA's overarching purpose is to protect participants and
beneficiaries. The provisions of Title I of ERISA were initially
enacted primarily to address public concern that funds of private
pension plans were being mismanaged and abused. Over time, however,
ERISA's protections have dramatically expanded with respect to private
group health plans as well. Both Federal regulators and State insurance
regulators have devoted substantial resources to detecting and
correcting mismanagement and abuse, and in some cases, prosecuting
wrongdoers. Even the 2018 AHP Rule expressed concern about departing
too dramatically from its traditional interpretation of the term
``employer.'' \48\ While the Department sought to expand the scope of
covered entities, it recognized the danger that too broad an expansion
could result in ``associations'' masquerading as bona fide employer
groups or associations merely to promote the commercial sale of
insurance. For that reason, the Department in the 2018 AHP Rule adopted
and clarified the pre-rule guidance condition that the employers who
participate in the AHP must control the group or association and the
plan and added an express nondiscrimination requirement as a
counterweight to abuse.
---------------------------------------------------------------------------

\48\ 83 FR 28912 (``[T]he regulation continues to distinguish
employment-based plans, the focal point of Title I of ERISA, from
commercial insurance programs and other service provider
arrangements.'').
---------------------------------------------------------------------------

Because oversight resources are extremely limited and fraudulent
operations often resist detection until claims go unpaid, significant
damage can be done before State and Federal governmental entities even
receive a complaint about an arrangement, making it difficult for
regulators to mitigate damage and stop bad actors. The vulnerability of
the participants, beneficiaries, and employers whose employees receive
benefits through an AHP is further heightened when the standard for
becoming a bona fide group or association is weakened. A weakened
standard also can hinder efforts by States to regulate MEWAs, including
AHPs, within their borders.\49\
---------------------------------------------------------------------------

\49\ U.S. Gov't Accountability Office, GAO-92-40, ``States Need
Labor's Help Regulating Multiple Employer Welfare Arrangements.''
March 1992, pg. 2-3 at https://www.gao.gov/assets/220/215647.pdf.
---------------------------------------------------------------------------

The preamble of the 2018 AHP Rule implies as much in explaining the
importance of incorporating the nondiscrimination provision in
paragraph (d)(4) of the 2018 AHP Rule. As noted above, paragraph (d)(4)
of the 2018 AHP Rule sought to prohibit AHPs from treating member
employers as distinct groups in an effort to distinguish AHPs from
commercial insurance issuers. In discussing the importance of a
requisite connection or commonality to lessen concerns about fraud, the
preamble of the 2018 AHP Rule explained that because the final rule
relaxed the Department's pre-rule guidance on the groups or
associations that may sponsor a single ERISA-covered group health plan,
paragraph (d)(4) was especially important in the context of the new,
broader arrangements to distinguish a group or association-sponsored
AHP from commercial insurance-type arrangements, which lack the
requisite connection to the employment relationship and whose purpose
was, instead, principally to sell health coverage and to identify and
manage risk on a commercial basis.\50\
---------------------------------------------------------------------------

\50\ 83 FR 28912, 28928-29 (June 21, 2018).
---------------------------------------------------------------------------

The Department continues to be mindful of the unique potential
harms to participants, beneficiaries, small employers, and health care
providers in the context of AHPs and any other form of MEWAs. These
concerns underscore the need to limit ERISA-covered AHPs to true
employee benefit plans that are the product of a genuine employment
relationship and not artificial structures marketed as employee benefit
plans, often with an objective of attempting to sidestep otherwise
applicable insurance regulations or misdirect State insurance
regulators. Such artificial vehicles are not ``employee benefit plans''
as defined in section 3(3) of ERISA, nor, as explained above, would it
be consistent with the purpose of the statute to treat them as such. In
sum, upon further evaluation and consistent with the sound
administration of ERISA, the Department has concluded that it should
rescind the 2018 AHP Rule from the Code of Federal Regulations (CFR).
The Department now believes that the provisions of the 2018 AHP Rule
that the district court found inconsistent with the APA and in excess
of the Department's statutory authority under ERISA are, at a minimum,
not consistent

[[Page 34113]]

with the best reading of ERISA's statutory requirements governing group
health plans.

B. Discussion of Decision To Rescind

Under Supreme Court precedent, an agency has the discretion to
change a policy position provided that the agency acknowledges changing
its position, the new policy is permissible under the governing
statute, there are good reasons for the new position, the agency
believes that the new policy is better, as evidenced by the agency's
conscious action to change its policy, and the agency takes into
account any serious reliance interests in the prior policy.\51\
---------------------------------------------------------------------------

\51\ Encino Motorcars, LLC v. Navarro, 579 U.S. 211, 220-23
(2016); see id. at 225 (Ginsburg, J., concurring) (restating the
rule governing an agency's reversal in policy, as articulated in
F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009)).
---------------------------------------------------------------------------

The Department has further reviewed the relevant statutory
language, judicial decisions, and pre-rule guidance, and further
considered ERISA's statutory purposes and related policy goals. The
Department has also closely considered the comments submitted on the
proposed rescission. Based on this review, the Department has concluded
it is appropriate to rescind the regulatory provisions adopted in the
2018 AHP Rule.\52\ The rescission will ensure that the guidance being
provided to the regulated community is in alignment with ERISA's text
and purpose. In addition, the rescission aims to resolve and mitigate
any uncertainty regarding the status of the standards that were set
under the 2018 AHP Rule, and also to facilitate a reexamination of the
criteria required for a group or association of employers to be able to
sponsor an AHP. In reaching the decision to rescind the regulation, the
Department has also been mindful of the fact that the 2018 AHP Rule was
only briefly in effect, it represented a significant departure from
longstanding guidance, which the Department is leaving in place, and
that no commenter presented any claims of ongoing reliance on it. As a
result, the net effect of rescission is the continued implementation of
the Department's longstanding positions on the proper analysis of the
status of employer associations under ERISA, which positions are also
consistent with the district court's opinion in New York v. United
States Department of Labor.
---------------------------------------------------------------------------

\52\ Section 2(c) of Executive Order 14070, ``Continuing to
Strengthen Americans' Access to Affordable, Quality Health
Coverage,'' provides that ``agencies . . . with responsibilities
related to Americans' access to health coverage shall review agency
actions to identify ways to continue to expand the availability of
affordable health coverage, to improve the quality of coverage, to
strengthen benefits, and to help more Americans enroll in quality
health coverage. As part of this review, the heads of such agencies
shall examine . . . policies or practices that improve the
comprehensiveness of coverage and protect consumers from low-quality
coverage.'' 87 FR at 20689, 20690. This rescission comports with
E.O. 14070 because it acknowledges that health insurance coverage
offered through AHPs in the large group markets, or health coverage
offered through a self-insured AHP, is not subject to the ACA's EHB
requirements; consequently, individuals and small employers who
receive such coverage in lieu of individual and small group market
coverage subject to the ACA market reforms face the risk of becoming
underinsured if their AHP offers less than comprehensive coverage.
In addition, the rescission also acknowledges commenters' assertions
that the 2018 AHP Rule would have negatively affected the small
group and individual markets.
---------------------------------------------------------------------------

Part of the 2018 AHP Rule's purpose was to permit small employers
and working owners to purchase health coverage that did not have to
comply with the protections applicable to the small group and
individual markets. In this manner, the rule aimed to promote the
formation of AHPs for small employers and certain self-employed
individuals. As noted in the Regulatory Impact Analysis (RIA) below,
the 2018 AHP Rule hypothesized that small employers and their plan
participants would potentially benefit from the ability to band
together to offer less generous, and less costly, benefits. At the same
time, however, many comments on the proposed recission of the 2018 AHP
Rule expressed concerns that echoed public comments provided to the
Department during the 2018 AHP rulemaking process, which indicated that
implementation of the 2018 AHP Rule would increase adverse selection
against the individual and small group markets by drawing healthier,
younger people into AHPs, thus increasing premiums for those remaining
in those markets.\53\ The economic analysis for the 2018 AHP Rule
projected that those employers and participants that remained in the
small-group and individual markets could face premium increases between
0.5 and 3.5 percent, resulting in an increase in the number of
uninsured individuals caused by those that exited the individual market
due to higher premiums.
---------------------------------------------------------------------------

\53\ See 83 FR 28957 (June 21, 2018). By increasing premiums for
individual coverage, the expansion of AHPs may increase federal
spending on premium tax credits for coverage offered through an
Exchange but may be offset by reduced federal spending through
displacement of some Medicaid coverage for individuals who would
have transferred into AHPs under the 2018 AHP Rule.
---------------------------------------------------------------------------

Concerns about such adverse impacts on the health markets were
echoed in many comments submitted on the proposed rescission. As AHPs
tend to be large group plans, they generally are not subject to Federal
benefit mandates that apply to the individual and small group markets,
such as the requirement to cover EHBs. Consequently, AHPs can
potentially tailor plan benefits so that individuals with preexisting
conditions, or those who are otherwise anticipated to have higher
health care costs, are discouraged from joining AHPs (or are not
offered AHPs), causing further adverse selection, market segmentation,
and higher premiums in the individual and small group markets.\54\ The
Department acknowledged in the 2018 AHP Rule that the rule's
``increased regulatory flexibility'' would necessarily result in some
segmentation of risk that favors AHPs over individual and small group
markets and some premium increases for individuals and other small
businesses remaining in the individual and small group markets. The
Department concluded at that time, however, that practical
considerations and Federal nondiscrimination rules would limit such
segmentation, and that States could further limit risk segmentation
through regulation of AHPs as MEWAs. The Department also assumed some
premium protection for subsidy-eligible taxpayers with household
incomes at or below 400 percent of the Federal poverty level purchasing
coverage on Exchanges.
---------------------------------------------------------------------------

\54\ The American Medical Association noted that AHPs could
exclude benefits like coverage of insulin, maternity care, mental
health services and rehabilitative services that are particularly
important to certain workers in blue-collar professions. See, e.g.,
Brief for American Medical Association and Medical Society of the
State of New York as Amici Curiae in Support of Plaintiffs' Motion
for Summary Judgment, at *16, New York v. U.S. Department of Labor,
363 F. Supp. 3d 109 (D.D.C. 2019) (No. 1:18-CV-01747-JDB).
---------------------------------------------------------------------------

In the proposed rescission, however, the Department expressed the
view that it was appropriate to give greater attention to the long-term
impacts on market risk introduced by the 2018 AHP Rule, especially in
the small group and individual markets. After close review of the
comments, discussed below, the Department affirms its view that
rescission of the 2018 AHP Rule is warranted, not only because of these
market risks, but because the 2018 AHP Rule did not reflect the best
interpretation of section 3(5) of ERISA.
Additionally, as commenters noted, health insurance coverage
offered through AHPs in the large group markets is not subject to the
requirement to offer EHBs, which means that individuals who join these
AHPs may become underinsured if their AHP does not cover benefits that
non-grandfathered small group and individual market health insurance
coverage are required to cover, such as emergency services,
prescription drug benefits, or even inpatient hospital

[[Page 34114]]

coverage. Because AHPs generally can offer less than comprehensive
coverage, they are cheaper to purchase, but there is a significantly
greater likelihood that they will cover less than expected or needed.
As discussed in this final rule, the 2018 AHP Rule made it easier for
small employers, and possible for working owners, to band together to
avoid the requirements on small group and individual health insurance
coverage by qualifying as a single group health plan to purchase
coverage in the large group market. Such an AHP could offer
significantly less comprehensive plans, including ones that fail to
cover EHBs, resulting in participants and beneficiaries being
vulnerable to high out-of-pocket costs and potentially not having
access to benefits for care when they most need it.\55\
---------------------------------------------------------------------------

\55\ The Department notes concerns expressed by commenters that
low barriers to entry to become an AHP could result in groups or
associations with less of a connection to the member employer's
community and unscrupulous operators siphoning off members by
limiting their membership to healthier groups and offering lower
rates for health coverage to their members. Commenters to the 2018
AHP notice of proposed rulemaking (NPRM) also expressed the concern
that it could fragment the individual and small group markets,
resulting in increased premiums. Commenters further communicated
that organizations that form on the basis of offering health
benefits could increase the prevalence of unscrupulous promoters
that do not have strong incentives to maintain a credible
reputation. See 83 FR 28912, 28917, and 28943 (June 21, 2018).
---------------------------------------------------------------------------

The Department is also concerned that the 2018 AHP Rule could
interfere with the goal of increasing affordable, quality coverage
because the rule increases the possibility that individuals who join
AHPs will be subject to mismanaged plans. As noted above, ERISA
generally classifies AHPs as MEWAs. Historically, MEWAs, especially
self-funded MEWAs, have disproportionately suffered from financial
mismanagement or abuse, leaving participants and providers with unpaid
benefits and bills.\56\
---------------------------------------------------------------------------

\56\ The 2018 AHP Rule acknowledged this risk. See 83 FR 28951,
28953 (June 21, 2018) (``[T]he Department anticipates that the
increased flexibility afforded AHPs under this rule will introduce
increased opportunities for mismanagement or abuse, in turn
increasing oversight demands on the Department and State
regulators.'') See 83 FR 28951, 28953 (June 21, 2018).
---------------------------------------------------------------------------

The 2018 AHP Rule reflected a significant departure from the
Department's longstanding pre-rule guidance. The Department's
rescission of the 2018 AHP Rule makes clear that this significant
departure from pre-rule guidance no longer represents the Department's
interpretation of when a group or association can constitute an
``employer'' for purposes of sponsoring a group health plan under
ERISA. The rescission leaves in place the longstanding pre-rule
guidance that has been consistently supported and relied upon in
numerous judicial decisions because it fosters a sufficient employer-
employee nexus and proper oversight of AHPs, while remaining consistent
with ERISA's text and purpose.
As explained further below, the rescission also reflects a
reexamination of the 2018 AHP Rule's ``business purpose'' standard and
viability safe harbor,\57\ the geography-based commonality alternative,
and the working-owner provisions, including the potential those
provisions have for encouraging abusive health care arrangements,
especially self-insured programs, that sell low quality or otherwise
unreliable health insurance products through MEWAs to unsuspecting
employers, particularly small businesses. Further, the Department does
not believe that there is a basis for reliance on the 2018 AHP Rule,
given that the temporary safe harbor from enforcement announced by the
Department immediately following the district court's decision has long
expired.\58\ The Department has thus concluded that it is appropriate
to rescind the 2018 AHP Rule.
---------------------------------------------------------------------------

\57\ The business purpose standard of the 2018 AHP Rule required
that a group or association must have at least one ``substantial''
business purpose unrelated to offering and providing health coverage
or other employee benefits to its employer members and their
employees, even if the primary purpose of the group or association
is to offer such coverage to its members. While the 2018 AHP Rule
did not include a definition of ``substantial,'' it did provide a
safe harbor for an association that would be a ``viable entity''
without sponsoring a health plan (``viability safe harbor''). 83 FR
28912, 28956 (June 21, 2018).
\58\ See supra note 31.
---------------------------------------------------------------------------

1. Business Purpose Standard
The courts of appeals have uniformly interpreted ERISA's definition
of ``employer'' to require common interests other than the provision of
welfare benefits, independent of any deference to the Department's
historical guidance.\59\ The decision of the Eighth Circuit Court of
Appeals in WEAIT is instructive; there, the court held that ``[t]he
definition of an employee welfare benefit plan is grounded on the
premise that the entity that maintains the plan and the individuals
that benefit from the plan are tied by a common economic or
representation interest, unrelated to the provision of benefits.'' \60\
---------------------------------------------------------------------------

\59\ Wisconsin Educ. Ass'n Ins. Trust v. Iowa State Bd. of Pub.
Instruction, 804 F.2d 1059, 1065 (8th Cir. 1986) (``Our decision is
premised on ERISA's language and Congress' intent. There is no need
to resort to the Department of Labor's interpretations.''); see
MDPhysicians & Assocs., Inc. v. State Bd. of Ins., 957 F.2d 178, 186
n.9 (5th Cir. 1992) (``Although we ground our decision on the
statutory language of ERISA and the intent of Congress, we recognize
that [Department of Labor] opinions `constitute a body of experience
and informed judgment to which courts and litigants may properly
resort for guidance.' '') (citation omitted).
\60\ 804 F.2d 1059, 1064 (8th Cir. 1986) (emphasis added);
accord MDPhysicians, 957 F.2d 178, 185 (5th Cir. 1992).
---------------------------------------------------------------------------

This requirement is reflected in longstanding pre-rule guidance
focusing on whether the group or association of employers has business
or organizational purposes and functions unrelated to the provision of
benefits. Although neither the courts nor the Department's pre-rule
guidance defined the outer limits of what could count as a sufficient
purpose, the employer groups or associations that have been treated as
``employer'' sponsors have well developed business purposes that are
unrelated to the provision of benefits.\61\ The pre-rule guidance

[[Page 34115]]

uniformly emphasized that a purpose unrelated to the provision of
benefits is a critical factor for any group or association of employers
to be treated as a bona fide group or association that can act as an
``employer'' within the meaning of section 3(5) of ERISA.
---------------------------------------------------------------------------

\61\ Compare, e.g., Advisory Opinion No. 2019-01A (July 8, 2019)
(``Ace is a hardware retailer cooperative and is the largest
cooperative, by sales, in the hardware industry. . . . Ace
facilitates access to materials, supplies and services, as well as
engages in activities that support Ace retail owners' operation of
their retail hardware businesses. Ace currently serves approximately
2,700 retail owners who operate approximately 4,400 Ace stores in
the U.S. In addition, approximately 120 corporate stores are owned
and operated as wholly-owned subsidiaries of Ace.''); Advisory
Opinion 2017-02AC (May 16, 2017) (``The First District Association
(FDA) has been operating as an independent dairy cooperative
organized under Minnesota Chapter 308A since 1921. . . . FDA's
articles of incorporation provide that, among other related
purposes, FDA's purposes and activities include the purchase, sale,
manufacture, promotion and marketing of its members' dairy and
agricultural products and engaging in other activities in connection
with manufacture, sale or supply of machineries, equipment or
supplies to its members.''); Advisory Opinion 2005-24A (Dec. 30,
2005) (``WAICU's purposes and activities include representing its
members at State and national forums, encouraging cooperation among
its members to utilize resources effectively, and encouraging
collaboration with other institutions of higher learning for the
benefit of Wisconsin citizens. WAICU's services to its members
include professional development for officers, research, public
relations, marketing, admissions support, and managing collaborative
ventures among the members (e.g., WAICU Study Abroad
Collaboration).''); and Advisory Opinion 2001-04A (Mar. 22, 2001)
(``The Association was incorporated in Wisconsin in 1935 for the
purpose of promoting automotive trade in the State of Wisconsin . .
. .''), with, e.g., MDPhysicians, supra note 3, at 185-87 (holding
that a MEWA that made health coverage available to `` `employers at
large' in the Texas panhandle'' did not have sufficient common
economic or representational interest) (citation omitted); Gruber v.
Hubbard Bert Karle Weber, Inc., 159 F.3d 780, 787 (3d Cir. 1998)
(endorsing district court's finding of no commonality of interest
``because `there was no nexus among the individuals benefitted by
the [p]lan and the entity providing those benefits, other than the
[p]lan itself' since [the association] `was comprised of disparate
and unaffiliated businesses' who [sic] had no relationship prior to
the inception of the [p]lan'') (citation omitted); Plog v. Colo.
Ass'n of Soil Conservation Dists., 841 F. Supp. 350, 353 (D. Colo.
1993) (rejecting claim that association was an ``employer'' under
ERISA because the association was open to any person who paid the
association fee).
---------------------------------------------------------------------------

While paragraph (b) of the 2018 AHP Rule also contained a business
purpose standard, it departed from the substance and intent of prior
guidance by providing both that the primary purpose of the group or
association could be to offer benefit coverage to the group's
members,\62\ and that an unrelated purpose would be sufficiently
substantial ``if the group or association would be a viable entity in
the absence of sponsoring an employee benefit plan.'' \63\ For the
reasons described in the proposal, the Department has concluded that
the business purpose standard and accompanying viability safe harbor
are too loose to ensure that the group or association sponsoring the
AHP is actually acting in the employers' interest or to effectively
differentiate an employee health benefit program offered by such an
association from a commercial insurance venture.\64\ Although the 2018
AHP Rule provided that the unrelated business purpose had to be
``substantial'' and that the entity should be independently viable, the
preamble discussion suggested that few posited purposes would be
treated as too insubstantial to pass muster. For example, the preamble
suggested that merely ``offering classes or educational materials on
business issues of interest to members'' was per se sufficient to
qualify as substantial.\65\
---------------------------------------------------------------------------

\62\ 29 CFR 2520.3-5(b)(1).
\63\ Id.
\64\ 88 FR 87968, 87975-76 (Dec. 20, 2023).
\65\ 83 FR 28912, 28918 (June 21, 2018).
---------------------------------------------------------------------------

In the preamble to the 2018 AHP rule, the Department posited that
this relaxation of the standard would nonetheless work to differentiate
employer groups or associations from commercial insurance ventures
because the rule's control requirement and its new nondiscrimination
requirement would ensure that only bona fide associations become AHPs.
But even if the possibility of employer control and nondiscrimination
were sufficient to warrant treating an entity as an employer
association for purposes of section 3(5) of ERISA, the rule treated
individual working owners as ``employers'' for this purpose even though
they neither employed nor were employed by anybody else. In addition,
under the rule's terms, promoters could set up arrangements with
separate contribution rates for ``employer'' members (including working
owners) based on a variety of non-health factors that correlate with
health risks, such as industry, occupation, or geography, in ways that
would make the arrangement look strikingly similar to a commercial
insurance venture, looking to minimize exposure to less healthy risk
pools.\66\ Indeed, the economic analysis for the rule projected that,
as a result of such risk selection, those employers and participants
that remained in the larger small group and individual markets could
face premium increases between 0.5 and 3.5 percent.\67\
---------------------------------------------------------------------------

\66\ Id. at 28929.
\67\ The reference to the potential premium increases of between
0.5 and 3.5 percent reflects a moderate range derived from the
figures cited in the cost analysis for the 2018 AHP Rule, which
referred to a 2018 report that modeled the impact on premiums and
source of insurance coverage under different AHP scenarios based on
initial availability of AHPs, generosity of coverage of AHP plans,
and projected level of risk selection by small businesses. 83 FR
28912, 28945 fn. 95 (citing Avalere Health, Association Health
Plans: Projecting the Impact of the Proposed Rule at 3, 5-7 (Feb.
28, 2018), available at https://avalere.com/wp-content/uploads/2018/06/1519833539_Association_Health_Plans_White_Paper.pdf).
---------------------------------------------------------------------------

The Department has concluded that the 2018 AHP Rule's test does not
sufficiently ensure a business purpose that advances the interest of
employer members of the group or association, nor does it prevent
abuse. Part of the rationale for insisting on a common business purpose
unrelated to the provision of benefits is to ensure that the entity is
a bona fide association acting in the interest and on behalf of
employer members, rather than merely a promoter of a commercial
arrangement with competing financial interests. Bona fide associations
with a common purpose and shared bonds unrelated to the provision of
benefits can serve as strong advocates for their employer members and
ensure that those members ultimately receive the benefits of the
association's advocacy for their common interests. The 2018 AHP Rule's
test falls short of providing that the employer members or their
association are united by much more than a common desire to obtain
health benefits and therefore does not ensure that associations act in
the interest of, or as strong advocates for, employer members.
In the Department's view, based on its long and significant
experience in this area as well as current concerns about abuse, the
2018 AHP Rule does not establish conditions that appropriately
distinguish an employer group sponsoring an employee benefit plan from
a commercial insurance venture. Under the rule's test, there is little
to distinguish the association from any other commercial benefits
promoter, except that, unlike commercial insurers, the AHP would be
subject to less stringent state regulations and safeguards. As a
result, the Department is concerned that the rule will unduly expose
participants, beneficiaries, and unsuspecting small employers to
unscrupulous operators looking to market health benefits without the
protective structure and supports that apply to state-regulated
insurance, such as funding and solvency requirements.\68\ As noted
elsewhere in this preamble, even under the current more stringent
standards, MEWAs, especially self-funded MEWAs, have been frequent
subjects of abuse, and in the worst cases have left participants and
beneficiaries with large unpaid claims or denials of treatment.\69\
These considerations reinforce the Department's conclusion that it
should not have departed from its previous approach to interpreting the
statutory text and its previous insistence on a strong common purpose
unrelated to the provision of benefits.
---------------------------------------------------------------------------

\68\ See supra note 39.
\69\ See supra notes 43, 46.
---------------------------------------------------------------------------

2. Geographic Commonality
There is a substantial body of case law interpreting ERISA's
definition of ``employer'' to require common interests other than the
provision of welfare benefits, independent of any deference to the
Department's historical pre-rule guidance. For example, in WEAIT, the
Eighth Circuit concluded that ``[t]he definition of an employee welfare
benefit plan is grounded on the premise that the entity that maintains
the plan and the individuals that benefit from the plan are tied by a
common economic or representation interest, unrelated to the provision
of benefits.'' \70\ The court further explained that ``[o]ur decision
is premised on ERISA's language and Congress' intent'' and that
``[t]here [wa]s no need to resort to the Department of Labor's
interpretations.'' \71\ Like the commonality of interest requirement
articulated by the Eighth Circuit in WEAIT--a requirement that court
explained was grounded in ERISA--in MDPhysicians, the Fifth Circuit
likewise found that ERISA required a commonality of interest among
employer members.\72\
---------------------------------------------------------------------------

\70\ 804 F.2d at 1063 (emphasis added).
\71\ Id. at 1065.
\72\ MDPhysicians, 957 F.2d at 186 n.9 (``Although we ground our
decision on the statutory language of ERISA and the intent of
Congress, we recognize that [Department of Labor] opinions
`constitute a body of experience and informed judgment to which
courts and litigants may properly resort for guidance.' '')
(citation omitted); id. at 185-87 (holding that a MEWA that made
health coverage available to `` `employers at large' in the Texas
panhandle'' did not have sufficient common economic or
representational interest).

---------------------------------------------------------------------------

[[Page 34116]]

The Department's pre-rule guidance requires a genuine commonality
of interests between employer members. Paragraph (c) of the 2018 AHP
Rule altered this standard by setting forth alternative ways an
association could be treated as having the requisite commonality of
interest necessary to constitute a bona fide group or association of
employers. The employers who participate in the group or association
could have had ``industry commonality,'' which means they were in the
same trade, industry, line of business, or profession. Alternatively,
the 2018 AHP Rule provided that participating employers could have
``geographic commonality'' if each employer had a principal place of
business in the same geographic region that did not exceed the
boundaries of a single State or metropolitan area (even if the
metropolitan area included more than one State). This represented a
significant departure from the Department's longstanding pre-rule
guidance because it treated otherwise unrelated employers in multiple
unrelated trades, industries, lines of business, or professions as
having the requisite commonality, simply because they resided within
the same geographic locale.\73\
---------------------------------------------------------------------------

\73\ But see Advisory Opinion No. 2008-07A (Sept. 26, 2008)
(``In the Department's view, however, the Bend Chamber [of
Commerce]'s structure is not the type of connection between employer
members that the Department requires for a group or association of
employers to sponsor a single `multiple employer plan.' Rather, the
Department would view the employers that use the Bend Chamber's
arrangement as each having established separate employee benefit
plans for their employees. Although we do not question the Bend
Chamber's status as a genuine regional chamber of commerce with
legitimate business and associational purposes, the primary economic
nexus between the member employers is a commitment to private
business development in a common geographic area. This would appear
to open membership in the Bend Chamber, and in turn participation in
the proposed health insurance arrangement, to virtually any employer
in the region. The other factors the Bend Chamber cites do not
directly relate to a connection between the member employers, the
association, and the covered employees; instead, such factors are
characteristics that evidence the reliability of the Bend Chamber's
operations (e.g., cash assets of $100,000 or more, physical office
space, years in operation, etc.).'').
---------------------------------------------------------------------------

The preamble of the 2018 AHP Rule focused on the desired goal of
the rule to spur AHP formation, but it did not adequately address the
fundamental question of how geography alone, without any other common
business nexus, could provide the requisite commonality of interest.
The preamble to the 2018 AHP Rule did not dispute the importance of
commonality. Indeed, the 2018 AHP Rule rejected suggestions that
commonality could be established by shared ownership characteristics
(all women-owned businesses; all minority-owned businesses; all
veteran-owned businesses), shared business models (for example, all
non-profit businesses), shared religious/moral convictions, or shared
business size.\74\ The Department rejected such broad categories as
falling within the common nexus standard because it had concluded that
a standard this lax would be ``impossible to define or limit'' and
would ``eviscerate'' the commonality requirement.\75\ The 2018 AHP Rule
concluded that, as a policy matter, these line-drawing concerns did not
apply to groups with geographic commonality. However, the discussion in
the 2018 AHP Rule was, at best, incomplete because it focused mostly on
the benefits of having more AHPs but did not explain how geographic
commonality was an employment-based commonality that was different from
the shared ownership, shared business models, shared religious/moral
convictions, and shared business size criteria that the Department
rejected.
---------------------------------------------------------------------------

\74\ 83 FR 28912, 28926 (June 21, 2018). The preamble of the
2018 AHP Rule explained that a test that would treat all nationwide
franchises, all nationwide small businesses, or all nationwide
minority-owned businesses, as having a common employment-based
nexus--no matter the differences in their products, services,
regions, or lines of work--would not be sufficient to establish
commonality of interest for a national group or association because
it would be impossible to define or limit (e.g., business owners who
support democracy) and, ``in the Department's view, would
effectively eviscerate the genuine commonality of interest required
under ERISA.''
\75\ Id.
---------------------------------------------------------------------------

As explained in the proposal, the Department is now of the view
that a commonality requirement based on common geography alone (same
State or multi-State area) does not adequately establish
commonality.\76\ The same reasons why the Department rejected other
expansions of the commonality requirement militate against adopting
geographic commonality as well. There is little basis for treating
disparate employers engaged in disparate enterprises with disparate
interests in different urban or rural settings as having a sufficient
common nexus merely because they are all in the same State.\77\
---------------------------------------------------------------------------

\76\ 88 FR 87968, 76-77 (Dec. 20, 2023).
\77\ In recent years, the case for relying on geography as a
basis for commonality has likely been further reduced by the
adoption of remote workplace flexibilities and virtual office
technologies, which reduce the tie between the worker and any
particular geographic location.
---------------------------------------------------------------------------

While the Department acknowledges that employers within the same
geographic locale can share other common interests that result in a
sufficient common economic and representational interest, the
Department is now concerned that the 2018 AHP Rule did not articulate
an appropriate basis for treating common geography alone as a shared
interest with respect to the employment relationship. Just as would be
the case for associations consisting of employers whose membership is
based on common business size, the Department is concerned that
recognizing under section 3(5) of ERISA an association composed of
unrelated employers all operating in any specific State or multi-State
area with no other commonality also would not sufficiently respect the
genuine commonality of interest requirement under ERISA, which is
intended to ensure that AHPs are operating in the interest of employers
and are not merely operating as traditional health insurance issuers in
all but name.
3. Working Owners
The 2018 AHP Rule allowed certain self-employed persons without any
common-law employees to participate in AHPs as ``working owners.'' \78\
The 2018 AHP Rule established wage, hours of service, and other
conditions for when a working owner would be treated as both an
``employer'' and ``employee'' for purposes of participating in, and
being covered by, an AHP.\79\ The 2018 AHP Rule treated these self-
employed persons as employers even though they had no employment
relationship with anybody other than themselves. Thus, a group or
association could become an employer by virtue of its working owner
members being classified as both an employer and an employee, even
though the working owners had no employees and were not employed by
another person or entity.
---------------------------------------------------------------------------

\78\ 29 CFR 2510.3-5(e).
\79\ See id. at Sec. 2510.3-3(c).
---------------------------------------------------------------------------

The Department now believes that the 2018 AHP Rule gave too little
weight to ERISA's focus on the employment relationship in treating
working owners as both employees and employers notwithstanding the
absence of any employment relationship with anybody. While the 2018 AHP
Rule's approach promoted the creation of plan MEWAs, it came at the
expense of the better reading of the statute's references to employers
and employees. ERISA applies when there is an employer-employee
relationship. This relationship, as suggested by the very

[[Page 34117]]

title of the Act (the Employee Retirement Income Security Act), and the
Act's reliance on ``employer'' and ``employee'' to define what counts
as an ERISA-covered plan, is central to the statutory framework. ERISA
generally regulates employment-based relationships, not the sale of
insurance to individuals outside such relationships. This employer-
employee nexus is the heart of what makes an entity a bona fide group
or association of employers capable of sponsoring an AHP and is meant
to reflect genuine employment relationships. The Department is now of
the view that ERISA calls for a higher standard for determining what
constitutes a bona fide group or association of employers than is
evidenced in the 2018 AHP Rule. In the ERISA context, the bona fide
group or association of employers consists of actual employers who, as
of the time they join the group or association, hire, and pay wages or
salaries to other people who are their common-law employees working for
them. Under the 2018 AHP Rule, although working owners had to meet
requirements related to the number of hours devoted to providing
personal services to the trade or business or the amount of income
earned from the trade or business in order to participate in an AHP,
these requirements related to differentiating self-employed individuals
from individuals engaged in hobbies that generate income or other de
minimis commercial activities.\80\ These requirements did not, however,
reflect the existence of a genuine employer-employee relationship, as
in the exchange between an employee and an employer of personal
services for wages and other compensation (such as health benefits
offered through a group health plan) that would be expected in a
common-law employment relationship.
---------------------------------------------------------------------------

\80\ 83 FR 28931 (June 21, 2018).
---------------------------------------------------------------------------

Upon further reflection, the Department is now concerned that, by
removing the prior (and more stringent) employer-employee nexus
requirement, the 2018 AHP Rule departs too far from ERISA's essential
purpose and fails to take appropriate account of the underlying basis
for the bona fide group or association of employers standard. As stated
previously, upholding the purpose of the statute requires drawing
appropriate distinctions between employers and associations acting ``in
the interest of an employer'' on the one hand, and entrepreneurial
insurance-type ventures on the other. A strong employer-employee nexus
condition also helps reduce the vulnerability of MEWAs to fraudulent
behavior and mismanagement. Routinely treating people as ``employers''
when they have no employees risks converting ERISA from an employment-
based statute, as Congress intended, to one that regulates the sale of
insurance to individuals, without regard to an employment relationship.
The Department, upon further review of relevant Supreme Court and
circuit court judicial decisions, and consistent with the Department's
reconsidered view of working owners (without common-law employees) for
purposes of section 3(5) of ERISA, has concluded that the better
interpretation of such case law is that a working owner may act as an
employer for purposes of participating in a bona fide employer group or
association under circumstances where there are also common-law
employees of the working owner. In Raymond B. Yates, M.D., P.C. Profit
Sharing Plan v. Hendon, the Supreme Court held that a working owner and
spouse were eligible to participate in the corporation's ERISA plan,
provided that at least one common-law employee of the corporation
participated in its plan.\81\ Several circuit court opinions also
emphasize the existence of an employment relationship when determining
if an owner is an employer and/or employee. As the Eleventh Circuit
stated in Donovan v. Dillingham, ``[t]he gist of ERISA's definitions of
employer, employee organization, participant, and beneficiary is that a
plan, fund, or program falls within the ambit of ERISA only if the
plan, fund, or program covers ERISA participants because of their
employee status in an employment relationship . . . .'' \82\ In
Meredith v. Time Insurance Company, the Fifth Circuit held that the
Department could reasonably decline to treat a sole proprietor both as
an employer and employee under section 3(5) of ERISA because the
``employee-employer relationship is predicated on the relationship
between two different people.'' \83\ Similarly, in Marcella v. Capital
Districts Health Plan, Inc., the Second Circuit found that working
owners without common-law employees are not employers.\84\ Further, as
indicated in Donovan, just as the statutory definition of ``employer''
under ERISA requires an employee, the statutory definition of
``employee'' under ERISA requires the employee to work for another.\85\
These holdings are consistent with the Department's traditional
interpretation of ``employee'' in 29 CFR 2510.3-3(b) and (c).\86\
---------------------------------------------------------------------------

\81\ Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon,
541 U.S. 1, 6 (2004). See also Advisory Opinion 99-04A (Feb. 4,
1999) (outside of a bona fide group or association analysis under
section 3(5) of ERISA, concluding that nothing in the definitions of
Title I of ERISA precluded a working owner who had initially
participated in a multiemployer pension plan as an employee of a
contributing employer from continuing to participate in that plan)
and Advisory Opinion 2006-04A (April 27, 2006) (individual who
actively performed work for his own company that would otherwise be
covered by a collective bargaining agreement if he were not a
``supervisor'' under federal labor law may continue to participate
in multiemployer pension plan that he previously participated in as
a covered employee).
\82\ Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982)
(emphasis added).
\83\ Meredith v. Time Ins. Co., 980 F.2d 352, 358 (5th Cir.
1993); id. (``When the employee and employer are one and the same,
there is little need to regulate plan administration. . . . It would
appear axiomatic that the employee-employer relationship is
predicated on the relationship between two different people. . . .
We conclude that the power to so define the scope of ERISA has been
delegated by Congress to the Department of Labor, and find no reason
to disturb the Department's conclusion that ERISA does not intend to
treat the spouse of a sole proprietor as an employee.'').
\84\ Marcella v. Capital Dists. Health Plan, Inc., 293 F.3d 42,
48 (2d Cir. 2002); id. at 49 (holding that ``a group or association
. . . that contains non-employers cannot be an `employer' within the
meaning of ERISA'').
\85\ Baucom v. Pilot Life Ins. Co., 674 F. Supp. 1175, 1180
(M.D.N.C. 1987). In Baucom, ``[r]eturning to ERISA's language, the
court observe[d] that, despite its limitations, the statutory
definition of `employee' mandates that an employee must work for
another.'' Id. (citation omitted).
\86\ In 1996, HIPAA added provisions of ERISA and the PHS Act,
which specified that for purposes of part 7 of Title I of ERISA and
Title XXVII of the PHS Act ``[a]ny plan, fund, or program which
would not be (but for this subsection) an employee welfare benefit
plan and which is established or maintained by a partnership, to the
extent that such plan, fund, or program provides medical care . . .
to present or former partners in the partnership . . . shall be
treated (subject to paragraph (2)) as an employee welfare benefit
plan which is a group health plan.'' Section 732(d) of ERISA;
Section 2722(d) of PHS Act. For a group health plan, the term
employee also includes any bona fide partner. 26 CFR 54.9831-
1(d)(2); 29 CFR 2590.732(d)(2); 45 CFR 146.145(c)(2).
---------------------------------------------------------------------------

C. Alternatives To Complete Rescission of the 2018 AHP Rule

As part of its deliberations as to whether to rescind the 2018 AHP
Rule, the Department considered several alternatives to this
rulemaking. The Department contemplated removing only certain
provisions of the 2018 AHP Rule. For example, the Department considered
rescinding the working owner provision, which represents a significant
departure from the pre-rule guidance. Similarly, the Department
considered removing the geographic commonality provision, which also
represents a dramatic departure from the pre-rule guidance. However,
the Department decided against a rescission of only the specific
provisions invalidated by the district court. The

[[Page 34118]]

Department is concerned that the provisions that would remain in the
2018 AHP Rule would not provide an adequate definition of ``employer''
that properly reflect the limits of ERISA's definition of ``employer''
in section 3(5) and Congress' focus on employment-based arrangements,
as opposed to the ordinary commercial provision of insurance outside
the employment context, and, for the reasons discussed above, would be
missing key elements necessary for a comprehensive framework for a
group or association to demonstrate that it is acting ``indirectly in
the interest of an employer'' within the meaning of section 3(5) of
ERISA.\87\ Without the core provisions held invalid by the district
court, the 2018 AHP Rule could not be operationalized and would provide
no meaningful guidance.
---------------------------------------------------------------------------

\87\ See, e.g., Gruber v. Hubbard Bert Karla Weber, Inc., 159
F.3d 780, 787 (3d Cir. 1988) (``[T]o qualify as an `employer' for
ERISA purposes, an employer group or association must satisfy both
the commonality of interest and control requirements.'').
---------------------------------------------------------------------------

The Department also considered rescinding the 2018 AHP Rule and
codifying the pre-rule guidance. The Department recognizes that there
could be benefits to codifying its longstanding pre-rule guidance. The
pre-rule guidance is largely in the form of advisory opinions, which do
not have the same authority as regulations and technically are not
precedential.\88\ Application of the Department's pre-rule guidance
thus requires interested parties to compare their specific
circumstances to various opinions the Department issued to determine
whether the Department has addressed analogous facts and circumstances.
Nonetheless, the Department concluded that it would be better to seek
comment from interested parties on whether the Department should first
propose a rule either codifying the pre-rule guidance or creating
alternative criteria and then consider that input as part of a
comprehensive reevaluation of the definition of ``employer'' in the AHP
context. As discussed further below, the Department received comments
on the proposed rescission supporting codifying the pre-rule guidance,
supporting codifying the pre-rule guidance with modifications, and
opposing codification of the pre-rule guidance. The Department is
proceeding to fully rescind the 2018 AHP Rule without proposing any
additional guidance at this time. The Department takes the comments on
potential future guidance under advisement, and such comments will
inform the Department's decision regarding any future efforts on this
matter.
---------------------------------------------------------------------------

\88\ Advisory opinions are issued pursuant to ERISA Procedure
76-1, which in Section 10 describes the effect of advisory opinions
as follows: ``An advisory opinion is an opinion of the department as
to the application of one or more sections of the Act, regulations
promulgated under the Act, interpretive bulletins, or exemptions.
The opinion assumes that all material facts and representations set
forth in the request are accurate and applies only to the situation
described therein. Only the parties described in the request for
opinion may rely on the opinion, and they may rely on the opinion
only to the extent that the request fully and accurately contains
all the material facts and representations necessary to issuance of
the opinion and the situation conforms to the situation described in
the request for opinion.''
---------------------------------------------------------------------------

IV. Requests for Public Comments

In the proposal, the Department requested comments from interested
parties on all aspects of the proposal to rescind the 2018 AHP Rule in
its entirety. In the Department's view, ERISA's statutory purposes are
better served by rescinding the 2018 AHP Rule and removing it from the
published CFR while the Department considers alternatives and engages
with interested parties. In addition to comments on rescission of the
2018 AHP Rule, the Department also asked for comments on whether the
Department should propose a rule for group health plans that codifies
and replaces the pre-rule guidance, issue additional guidance
clarifying the application of the Department's longstanding pre-rule
guidance as it relates to group health plans (including, for example,
the HIPAA nondiscrimination rule's application to AHPs), propose
revised alternative criteria for multiple employer association-based
group health plans, or pursue some combination of those or other
alternative steps. The Department received 58 comment letters, all of
which are posted on the Department's website and on
Regulations.gov.\89\ An overwhelming majority of commenters support
rescission of the 2018 AHP Rule in whole or in part. Comments are
discussed below in Section V. Our evaluation focused on ensuring that
the Department's regulatory policy and actions in this area honor the
Department's long held view, reiterated in the preamble to the 2018 AHP
Rule, that Congress did not intend to treat commercial health insurance
products marketed by private entrepreneurs, who lack the close economic
or representational ties to participating employers and employees, as
ERISA-covered employee welfare benefit plans.\90\
---------------------------------------------------------------------------

\89\ To directly access the rulemaking docket, see https://www.regulations.gov/docket/EBSA-2023-0020.
\90\ 83 FR 28912, 28928 (June 21, 2018); Advisory Opinions Nos.
94-07A (Mar. 14, 1994), available at www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/advisory-opinions/1994-07a, and
2001-04A (Mar. 22, 2001), available at www.dol.gov/agencies/ebsa/employers-andadvisers/guidance/advisory-opinions/2001-04a.
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V. Discussion of Public Comments on NPRM

A. The 2018 AHP Rule and the Affordable Care Act

Many comments focused on the impact of the 2018 AHP Rule on the
ACA. These comments largely fell into two categories: (1) whether AHPs
formed under the 2018 AHP Rule (which generally were not subject to the
ACA's requirement to cover EHBs) would offer less comprehensive
coverage \91\ to working owners and small employers than coverage in
the individual and small group markets; and (2) whether the 2018 AHP
Rule would have affected the ACA individual and small group market risk
pools through risk segmentation. Other commenters noted that the 2018
AHP Rule's working owner provision conflicted with the ACA's
protections for individuals enrolling in individual market plans \92\
and with the definition of ``employer'' in the ACA.\93\
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\91\ Health plans that do not include benefits that non-
grandfathered small group and individual market health insurance
coverage are required to cover, such as emergency services or
prescription drug benefits, or even inpatient hospital coverage, are
sometimes referred to as ``less comprehensive coverage'' plans.
\92\ See supra notes 15, 16.
\93\ According to one commenter, under the 2018 AHP Rule, an AHP
could be comprised of participants who are common-law employees,
common-law employees and working owners, or comprised of only
working owners. In all cases, the working owner could be treated as
an employee and the business as the individual's employer for
purposes of being an employer member of the association and an
employee participant in the AHP which, according to the commenter,
violates both the ACA and ERISA. The commenter believes that
coverage offered to ``working owners'' fits squarely within the
ACA's and PHS Act's definition of ``individual health insurance
coverage'' and, therefore, coverage consisting of only working
owners cannot be considered group health insurance coverage. See
comment from Timothy Stoltzfus Jost (Feb. 15, 2024) last accessed at
https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00011.pdf.
---------------------------------------------------------------------------

With respect to comments raising the issue of AHPs offering less
comprehensive coverage, commenters stated that AHPs operating under the
2018 AHP Rule, unlike individual and small group market insurance
coverage that must offer certain benefits under the ACA, would not have
been required to provide EHBs, including emergency services,
prescription drug benefits, or

[[Page 34119]]

even inpatient hospital care. Because an AHP is generally self-funded
or funded through large group market insurance coverage and therefore
not subject to EHB requirements, several of these commenters stated
that AHPs could impose benefit design and association eligibility rules
to ``cherry pick'' healthier individuals. Other commenters countered
this assertion, stating that AHPs before the 2018 AHP Rule, as well as
those that briefly existed under it, covered many (if not all) of the
ACA's EHBs voluntarily if they were self-insured plans, or under State
law insurance mandates if they were insured plans. These commenters
also pointed to other Federal laws that would have restricted the
ability of AHPs formed under the 2018 AHP Rule to offer less than
comprehensive coverage.\94\
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\94\ The Federal laws mentioned include HIPAA, the Women's
Health and Cancer Rights Act of 1998, the Genetic Information
Nondiscrimination Act of 2008, and Title X of the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended (``COBRA'').
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Many commenters stated that the 2018 AHP Rule would have negatively
affected the health insurance markets. These commenters argued that
AHPs, which generally--as previously noted--are self-funded or funded
through large group market insurance coverage, would be permitted to
use rating factors such as age, gender, and industry that are
prohibited in the small group and individual markets.\95\ These
commenters asserted that the use of these rating factors would
negatively impact the individual and small group market risk pools.
They stated that AHPs formed under the 2018 AHP Rule would offer lower
premiums to healthier and younger enrollees, drawing those individuals
away from the small group and individual markets, thereby increasing
premiums for the individuals remaining in those markets, and eventually
reducing the availability of plan choices in those markets.\96\
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\95\ Section 2701 of the PHS Act, as added by the ACA,
implemented at 45 CFR 147.102, restricts variation in premium rates
based on age to a 3:1 ratio.
\96\ One commenter representing a State Exchange painted a more
severe outcome. This commenter stated that the 2018 AHP Rule would
have eventually caused the collapse of the private health insurance
markets across the nation, leading to higher premiums for small
businesses and individuals, leaving people who need comprehensive
coverage with no private options, and forcing people to become
uninsured. See comment from the District of Columbia Health Benefit
Exchange Authority (Feb. 20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00033.pdf.
---------------------------------------------------------------------------

Some commenters disputed that the 2018 AHP Rule would have resulted
in adverse selection and market segmentation. These commenters stated
that AHPs faced various restrictions or operated within various
parameters that would have prevented them from marketing coverage only
to healthier individuals, including that (1) AHP coverage is employer-
based, which means that AHPs could not seek out only healthy
individuals; (2) AHPs could not base plan rates on individual health
status or pre-existing conditions; (3) government subsidies would have
shielded most participants from any increases in individual health
insurance coverage costs; and (4) AHPs would have covered new lives
rather than draw individuals away from existing small group or
individual market plans.
After careful consideration of public comments on the proposal, the
Department acknowledges that health insurance coverage offered through
AHPs in the large group markets, or health coverage offered through a
self-insured AHP, is not subject to the ACA's EHB requirements;
consequently, individuals and small employers who receive such coverage
in lieu of individual and small group market coverage subject to the
ACA market reforms face the risk of becoming underinsured if their AHP
offers less than comprehensive coverage.\97\ In addition, the
Department also acknowledges the strength of arguments that the 2018
AHP Rule could have negatively affected the small group and individual
markets.\98\
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\97\ The Department is also cognizant that the district court in
New York v. United States Department of Labor, 363 F. Supp. 3d 109,
117-18 (D.D.C. 2019), referred to former President Trump's Executive
Order 13813 and comments by then Secretary of Labor Alexander Acosta
as evincing an intent--by way of the 2018 AHP Rule--to sidestep
major elements of the ACA. On October 12, 2017, President Trump
issued Executive Order 13813, ``Promoting Healthcare Choice and
Competition Across the United States,'' stating, in relevant part,
that ``[e]xpanding access to AHPs will also allow more small
businesses to avoid many of the PPACA's costly requirements.''
Executive Order 13813, 82 FR 48385 (Oct. 17, 2017). In remarks to
the National Federation of Independent Businesses, President Trump
further stated: ``Alex [Acosta] and the Department of Labor are
taking a major action that's been worked on for four months now--and
now it's ready--to make it easier for small businesses to band
together to negotiate lower prices for health insurance and escape
some of Obamacare's most burdensome mandates through association
health plans.'' See Remarks by President Trump at the National
Federation of Independent Businesses 75th Anniversary Celebration,
June 19, 2018 (emphasis added), available at
www.trumpwhitehouse.archives.gov/briefings-statements/remarks-president-trump-national-federation-independent-businesses-75th-anniversary-celebration/. In a Wall Street Journal op-ed, then
Secretary of Labor Alex Acosta wrote: ``Companies with 50 or fewer
employees are subject to the law's benefit mandates and rating
restrictions, while large companies are not. This is backward. Small
businesses should face the same regulatory burden as large
companies, if not a lighter one. AHPs will help level the playing
field.'' See Alexander Acosta, ``A Health Fix For Mom and Pop
Shops,'' June 18, 2018, available at www.wsj.com/articles/a-health-fix-for-mom-and-pop-shops-1529363643.
\98\ See supra note 52 (discussing the President's directive to
Federal agencies in E.O. 14070 ``to identify ways to continue to
expand the availability of affordable health coverage, to improve
the quality of coverage, to strengthen benefits, and to help more
Americans enroll in quality health coverage'').
---------------------------------------------------------------------------

At the same time, however, this rescission is ultimately based on
the Department's interpretation of ERISA, not the ACA. Also, because
the district court held certain provisions of the 2018 AHP Rule
invalid, the agency does not have strong data on the number and nature
of AHPs formed under the 2018 AHP Rule. Irrespective of these possible
negative impacts, however, the Department is rescinding the 2018 AHP
Rule based on its view that the geographic commonality, business
purpose and working owner provisions of the 2018 AHP Rule were
inconsistent with the best interpretation of the statutory language in
section 3(5) of ERISA.

B. Geographic Commonality

The 2018 AHP Rule provided that an association could be treated as
having the requisite commonality of interest necessary to constitute a
bona fide group or association of employers where the employers share
``geographic commonality,'' defined as each employer having a principal
place of business in the same geographic region that does not exceed
the boundaries of a single State or metropolitan area (even if the
metropolitan area included more than one State).
One commenter disagreed with the proposal's rejection of the 2018
AHP Rule's geography-based commonality standard.\99\ This commenter
argued that the proposal failed to offer good reasons for rejecting
this standard and that geography-based business groups have been a
feature of the American economy for many generations. The commenter
stated that businesses often share an interest in the existence of
prosperity, safety, a thriving economy, and a skilled and abundant
workforce within their shared State or urban area. While the proposal
mostly critiques the reasoning of the 2018 AHP Rule, according to this
commenter, in order to make this affirmative change, the Department
must offer its own reasons why

[[Page 34120]]

geographic commonality does not create the requisite commonality.
---------------------------------------------------------------------------

\99\ See comment from Paul J. Ray (Dec. 22, 2023) last accessed
at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00001.pdf.
---------------------------------------------------------------------------

Conversely, many commenters on this issue supported the rescission
of the geography-based commonality standard, with several of these
commenters noting that this standard is so broad that employers with no
common interests whatsoever, other than existing within the same
boundaries, could participate in an AHP, making such an AHP
indistinguishable from commercial insurance arrangements. These
commenters, for example, argued that mere shared existence within a
service area does not meaningfully correspond to a sufficient, or
necessarily any, employment-based nexus of the caliber required by
ERISA. In stark contrast, the commonality standards recognized in the
Department's longstanding pre-rule guidance (such as commonality based
on industry, trade, or occupation) effectively ensure common bonds that
mitigate the danger of discriminatory (and commercial) rating
practices, asserted the commenters.
Similarly, another commenter observed that the geography-based
commonality standard in the 2018 AHP Rule essentially allowed an AHP to
operate like an insurance company, rather than an association acting
``in the interest of'' participating employer members, except that
self-funded AHPs would not be subject to the protective insurance
market rules, including certain rating rules, that commercial insurance
is required to comply with.\100\ The commenter argued that this outcome
not only may negatively impact many consumers but is also hard to
square with the widely held view that ERISA requires a genuine
employment relationship to sponsor an AHP. Yet another commenter
observed that the 2018 AHP Rule would permit ``agglomerations of wildly
dissimilar businesses with different or even potentially conflicting
needs and priorities,'' whereas what is needed and required by ERISA is
commonality of interest among members to assure that the association
will act, employer-like, in the interest of the people whose coverage
it is sponsoring.\101\ Finally, many commenters expressed concern that
the inclusion of the State-based geography standard for commonality
would create uncertainty in enforcement for AHPs operating across State
lines; more specifically, these commenters asserted that loosening the
commonality standard in the way permitted by the rule (e.g., permitting
an AHP to establish commonality based on its employer members all
operating in a common metropolitan area that crosses State lines)
likely would lead to more fraud, abuse, and insolvencies.
---------------------------------------------------------------------------

\100\ See comment from the Center on Budget and Policy
Priorities (Feb. 20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00035.pdf.
\101\ See comment from the Partnership to Protect Coverage (Feb.
20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00044.pdf.
---------------------------------------------------------------------------

The Department shares the concerns of these commenters that the
geographic commonality test in the 2018 AHP Rule has significant
shortcomings in terms of meaningfully restricting coverage to
associations of employers with a sufficient employment nexus. Although
the Department acknowledges that employers within the same geographic
locale can share other factors that rise to the level of sufficient
economic and representational interest, the Department does not believe
that the 2018 AHP Rule articulated a sufficient basis for treating
common geography alone as a shared interest with respect to the
employment relationship. Just as would be the case for associations
consisting of employers whose membership is based on common business
size, recognizing an AHP as an association composed of unrelated
employers all operating in any specific State, with no other
commonality, does not go far enough in ensuring that AHPs are operating
in the interest of employers and are not merely operating as
traditional health insurance issuers in all but name without having to
meet the state regulatory standards that traditional health issuers are
subject to.\102\ Plumbers, social workers, seed companies, yoga
instructors, and mining companies are unlikely to share any special
common interest or bond merely because they are all located in a single
State like New York, California, or Pennsylvania (or in a single
metropolitan multi-state area).
---------------------------------------------------------------------------

\102\ The preamble of the 2018 AHP Rule states, ``[A] test that
would treat all nationwide franchises, all nationwide small
businesses, or all nationwide minority-owned businesses, as having a
common employment-based nexus--no matter the differences in their
products, services, regions, or lines of work--would not be
sufficient to establish commonality of interest for a national group
or association and AHP because it would be impossible to define or
limit (e.g., business owners who support democracy) and, in the
Department's view, would effectively eviscerate the genuine
commonality of interest required under ERISA.'' 83 FR 28912, 28926
(June 21, 2018).
---------------------------------------------------------------------------

Accordingly, after considering all of the comments, the view of the
Department in this final rule is that a commonality requirement based
on common geography alone (same State or multi-State area) does not
represent the best approach to interpreting the statutory definition of
employer because such commonality does not ensure that the AHP is not a
commercial health insurance entity in practice. Although it may be one
relevant factor to consider along with other factors, the Department's
reconsidered view is that geography alone should not be the sole test
for commonality under section 3(5) of ERISA.

C. Business Purpose Standard

The ``business purpose'' standard of the 2018 AHP Rule provided, in
relevant part, that a group or association of employers must have at
least one ``substantial'' business purpose unrelated to offering and
providing health coverage or other employee benefits to its employer
members and their employees, even if the primary purpose of the group
or association is to offer such coverage to its members. While the 2018
AHP Rule did not include a definition of ``substantial,'' it did
provide a safe harbor for an association that would be a ``viable
entity'' without sponsoring a health plan. Without addressing
substantiality, it also clarified that ``a business purpose'' includes
promoting common economic interests in a given trade or employer
community and is not required to be a for-profit activity. Thus,
regardless of the safe harbor, associations that merely sponsor
conferences or offer classes or educational materials on business
issues of interest to the association members would be deemed to pass
the business purpose test.
Several commenters explicitly supported the rescission of this
standard. One commenter argued that the 2018 AHP Rule's definition of
``employer'' is at odds with the text and purpose of ERISA, by
``hollowing out'' the longstanding business purpose standard under pre-
rule guidance such that the business purpose standard and viability
safe harbor would fail to ensure a sufficient employment nexus.\103\ A
State insurance regulator emphasized that an AHP rule should contain a
requirement that ties employer members together for business reasons
other than health care coverage, and eligibility should be legitimately
employment-based.\104\
---------------------------------------------------------------------------

\103\ See comment from the Partnership to Protect Coverage (Feb.
20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00044.pdf.
\104\ See comment from the Pennsylvania Insurance Department
(Feb. 20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00045.pdf.

---------------------------------------------------------------------------

[[Page 34121]]

A number of commenters strongly objected to the provision in the
2018 AHP Rule explicitly allowing the primary purpose of the group or
association to consist of offering health coverage to its members.
According to these commenters, this provision makes AHPs functionally
indistinguishable from health insurance issuers, invites unscrupulous
promoters to enter the market with mismanaged and inadequately funded
AHPs, and could increase the prevalence of fraudulent and abusive
practices. They registered their concern that permitting an AHP to be
created for the primary purpose of offering health coverage is
equivalent to setting up an insurance company, but without the
standards that apply to insurance issuers to ensure that promises are
kept, bills are paid, and consumers are protected. One commenter \105\
argued that such an outcome contradicts congressional intent
articulated with the addition to ERISA of section 514(b)(6) (referred
to as the ``Erlenborn amendment''): ``[C]ertain entrepreneurs have
undertaken to market insurance products to employers and employees at
large, claiming these products to be ERISA covered plans. For instance,
persons whose primary interest is in the profiting from the provision
of administrative services are establishing insurance companies and
related enterprises. . . . They are no more ERISA plans than any other
insurance policy sold to an employee benefit plan.'' \106\
---------------------------------------------------------------------------

\105\ See comment from the District of Columbia Health Benefit
Exchange Authority (Feb. 20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00033.pdf.
\106\ House Committee on Education and Labor, Activity Report of
Pension Task Force (94th Congress 2d Session, 1977) quoted in Cong.
Rec. (daily ed. May 21, 1982) (statement of Rep. Erlenborn). States,
prior to 1983, were effectively precluded by ERISA's broad
preemption provisions from regulating any employee benefit plan
covered by Title I of ERISA. As a result, a State's ability to
regulate MEWAs was often dependent on whether the particular MEWA
was not an ERISA-covered plan. In an effort to address this problem,
the U.S. Congress amended ERISA in 1983 (Sec. 302(b), Pub. L. 97-
473, 96 Stat. 2611, 2613 (29 U.S.C. 1144(b)(6); ``Erlenborn-Burton
Amendment'') to establish an exception to ERISA's preemption
provisions for MEWAs. This exception was intended to eliminate
claims of ERISA-plan status and Federal preemption as an impediment
to State regulation of MEWAs by permitting States certain regulatory
authority over MEWAs that are ERISA-covered employee welfare benefit
plans.
---------------------------------------------------------------------------

While no commenter explicitly defended the 2018 AHP Rule's business
purpose standard, one commenter suggested it could be revised to
require that members have a ``shared business and economic purpose,''
provided the group or association was organized for purposes unrelated
to the provision of benefits.\107\ Examples provided include ``a common
interest in promoting a vibrant local economy'' or having ``a common
interest in local, state, and federal regulations of business
practices.'' \108\
---------------------------------------------------------------------------

\107\ See comment from The Coalition to Protect and Promote
Association Health Plans (Feb. 19, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00019.pdf.
\108\ Id.
---------------------------------------------------------------------------

The Department shares the commenters' concerns that the business
purpose standard and accompanying viability safe harbor are too loose
to ensure that the group or association sponsoring the AHP is actually
acting in the employers' interest or to effectively differentiate an
employee health benefit program offered by such an association from a
commercial insurance venture. Although the rule provided that a
business purpose had to be ``substantial,'' the preamble's discussion
of what counts as ``substantial'' was confusing and in some tension
with the word's ordinary meaning. At one point, the preamble suggested
that merely ``offering classes or educational materials on business
issues of interest to members'' was per se sufficient to qualify as
substantial.\109\ In addition, a weakened business purpose standard
also can hinder efforts by States to regulate MEWAs, including AHPs,
within their borders. On reexamination, the Department's reconsidered
view is that the 2018 AHP Rule's relaxed business purpose test,
especially when combined with the rule's other loosened standards on
commonality of interest and working owners, cannot be counted on to
sufficiently differentiate bona fide employer groups or associations
acting as an employer from commercial insurance ventures despite the
rule's control and nondiscrimination standards.
---------------------------------------------------------------------------

\109\ 83 FR 28912, 28918 (June 21, 2018).
---------------------------------------------------------------------------

D. Working Owners

The 2018 AHP Rule allowed certain self-employed persons without any
common-law employees to participate in AHPs as ``working owners.'' It
did this by establishing wage, hours of service, and other conditions
for when a working owner would be treated as both an ``employer'' and
``employee'' for purposes of participating in, and being covered by, an
AHP.\110\ Commenters on the proposed recission of the 2018 AHP Rule
disagreed on whether to rescind the ``working owner'' provision, with
most commenters in favor of rescission.
---------------------------------------------------------------------------

\110\ 29 CFR 2510.3-5(e).
---------------------------------------------------------------------------

Commenters opposing the rescission offered little reasoning as to
why the working owner provision, specifically, should be retained. One
commenter suggested that the provision should be retained and clarified
to include interns and apprentices of trades regardless of whether such
individuals work a full-time schedule or are paid for their work.\111\
---------------------------------------------------------------------------

\111\ See comment from the National Association of Home Builders
(Feb. 20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00056.pdf.
---------------------------------------------------------------------------

Most commenters on the working owner provision, however, supported
its full rescission. Several commenters, for example, pointed to the
inclusion of ``working owners'' in an AHP comprised only of working
owners as clearly inconsistent with ERISA. One of these commenters
added that such inclusion also is inconsistent with court decisions
interpreting the terms ``employer'' and ``employee'' under ERISA.
Further, according to the commenter, the Department's regulation at 29
CFR 2510.3-3, which provides that an ERISA plan does not include a
program under which no employees are participants covered under the
plan, and the decision in Yates v. Hendon, recognize the longstanding
position of Federal agencies that an ERISA plan must have at least one
employee participant other than the owner to be a group health
plan.\112\ Indeed, a couple of commenters observed that one person
cannot be in an employment relationship with themselves, and that AHPs
should not include working owners that do not have common-law
employees. Some commenters stated that allowing an AHP comprised only
of sole proprietors will necessarily lead to more fraud and
insolvencies. Acknowledging that the 2018 AHP Rule included some
``minimal standards'' for AHPs--for example, that AHPs have a formal
organizational structure, and that participating employers have some
level of control over the AHP--one of the commenters argued that sole
proprietors are not in a position to exert meaningful control over an
AHP because they are not in a position to determine whether the person
setting up and running the AHP has the needed skills and

[[Page 34122]]

experience or to provide adequate oversight of the AHP's
operations.\113\
---------------------------------------------------------------------------

\112\ See comment from Timothy Stoltzfus Jost (Feb. 15, 2024)
last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00011.pdf.
\113\ See comment from the District of Columbia Health Benefits
Exchange Authority (Feb. 20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00033.pdf.
---------------------------------------------------------------------------

The Department has reexamined the 2018 AHP Rule's treatment of
working owners and determined, as suggested by many commenters, that
ERISA's text, fundamental purpose, and pre-rule guidance counsel
against the appropriateness of the alternative criteria codified by the
2018 AHP Rule. In this regard, the Department has concluded that the
better reading of the statute requires a consistent focus on
employment-based relationships, as distinct from commercial ventures
formed to market health benefits to unrelated parties, including
individuals who are not even in an employment relationship. The pre-
rule guidance rightly insisted on the existence of an employment
relationship and on a common employment nexus between entities
participating in a bona fide employer association. By departing from
these standards, the 2018 AHP Rule undermined ERISA's employment-based
focus and wrongly treated as ``employers'' entities whose primary
purpose was the marketing of health benefits to unrelated employers and
individuals.

E. Total Rescission Versus Partial Rescission

An overwhelming majority of commenters support rescission of the
2018 AHP Rule in some fashion. A few commenters discussed whether, if
the Department decides to rescind the 2018 AHP Rule, the Department
should rescind the rule in whole or in part. One commenter asserted
that the Department should not rescind the entire 2018 AHP Rule, but
instead should rescind only the provisions that the court held
invalid.\114\ This commenter suggested that a total rescission would
provide a less comprehensive framework than a partial rescission.
Further, this commenter argued that a total rescission would cause a
reversion to the prior body of applicable law, composed entirely of
guidance documents issued over many decades and restricted by their
terms to the parties and specific factual scenarios at issue. A
different commenter suggested that the rule should stand at least with
respect to AHPs meeting the same trade, industry, line of business or
profession test.\115\ Another commenter urged the Department not to
rescind the rule but rather work to improve it.\116\
---------------------------------------------------------------------------

\114\ See comment from Paul J. Ray (Dec. 22, 2023) last accessed
at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00001.pdf.
\115\ See comment from Bernstein, Shur, Sawyer & Nelson, P.A.
(Feb. 20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00041.pdf.
\116\ See comment from the Council for Affordable Health
Coverage and Health Benefits Institute (Feb. 20, 2024) last accessed
at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00037.pdf.
---------------------------------------------------------------------------

By contrast, many commenters favored a total rescission of the 2018
AHP Rule. Some reasoned that the rule would be nonsensical if codified
without the sections that were held invalid by the district court.
Others reasoned that the remaining portions would not be sufficient to
prevent mismanagement, underinsurance, and potential harm to consumers.
A number of commenters argued that only a full rescission would restore
the status quo ante, which aligns with judicial precedent, is supported
by State regulatory infrastructure, respects the ACA, and has created
an effective regulatory framework to support legitimate AHPs for the
past 30 years.
The Department agrees that a full rescission, as proposed, is the
best course of action. If the Department simply eliminated the
provisions that the district court held invalid in its decision in New
York v. United State Department of Labor, the provisions remaining
would not provide an adequate definition of ``employer'' that properly
reflects the limits of ERISA's definition of ``employer'' in section
3(5) and Congress' focus on employment-based arrangements, as opposed
to the ordinary commercial provision of insurance outside the
employment context. The remaining provisions also would be missing key
elements necessary for a comprehensive framework for a group or
association to demonstrate that it is acting ``indirectly in the
interest of an employer'' within the meaning of section 3(5) of ERISA.
Following the district court's decision, described above, the
Department considered the severability clause issue raised by the
district court and concluded that, without the core provisions that the
district court held invalid, the 2018 AHP Rule could not be
operationalized and would provide no meaningful guidance.
Even if considered imperfect to some commenters, the pre-rule
guidance establishes criteria intended to distinguish bona fide groups
or associations of employers that provide coverage to their employees
and the families of their employees from arrangements that more closely
resemble State-regulated private health insurance coverage. This
rescission does not affect the ability to operate or form an AHP
pursuant to the pre-rule guidance. The Department's pre-rule guidance
is consistent with the criteria articulated and applied by every
appellate court, in addition to several Federal district courts, that
considered whether an organization was acting in the interests of
employer members.\117\ Moreover, to the Department's knowledge, no
court has found, or even suggested, that its longstanding pre-rule
guidance criteria too narrowly construe the meaning of acting
``indirectly in the interest of an employer'' under section 3(5) of
ERISA.
---------------------------------------------------------------------------

\117\ See supra note 2.
---------------------------------------------------------------------------

F. Defense of the 2018 AHP Rule in Court

A few commenters in favor of the 2018 AHP Rule asserted that the
Department should abandon or withdraw the proposed rescission, leave
the 2018 AHP Rule in place, and defend the rule in the U.S. Court of
Appeals for the D.C. Circuit. However, the Department is no longer of
the view that the business purpose standard, geography-based
commonality standard, and working owner provision in the 2018 AHP Rule,
even as bolstered by the nondiscrimination standards in paragraph
(d)(4) and the control requirements, are sufficient to distinguish
between meaningful employment-based relationships and commercial
insurance-type arrangements whose purpose is principally to market
benefits and identify and manage risk. The Department continues to be
mindful of the unique risks to individuals, small employers, and health
care providers in the context of AHPs and any other form of MEWAs.
These concerns underscore the need to limit ERISA-covered AHPs to true
employee benefit plans that are the product of a genuine employment
relationship and not artificial structures marketed as employee benefit
plans, often with an objective of attempting to sidestep otherwise
applicable insurance regulations or Federal law applicable to the
individual and small group markets. Such arrangements are not
``employee benefit plans'' as defined in section 3(3) of ERISA, nor, as
explained above, would it be consistent with the purpose of the statute
to treat them as such.
In sum, upon further evaluation and consistent with the sound
administration of ERISA, the Department has concluded that it

[[Page 34123]]

should rescind the 2018 AHP Rule in its entirety. The Department now
believes that the provisions of the 2018 AHP Rule that the district
court found inconsistent with the APA and in excess of the Department's
statutory authority under ERISA are, at a minimum, not consistent with
the best reading of section 3(5) of ERISA. As the court noted in
Wisconsin Educ. Ass'n Ins. Trust v. Iowa State Board of Public
Instruction, ``[t]he definition of an employee welfare benefit plan is
grounded on the premise that the entity that maintains the plan and the
individuals that benefit from the plan are tied by a common economic or
representation interest, unrelated to the provision of benefits.''
\118\
---------------------------------------------------------------------------

\118\ Wisconsin Educ. Assn. Ins. Trust v. Iowa State Bd. of
Public Instruction, 804 F.2d 1059, 1063 (8th Cir. 1986)
---------------------------------------------------------------------------

G. Effect of Rescission on the 2019 Association Retirement Plan Rule

The proposal addressed only the 2018 AHP Rule. It did not solicit
comments on whether to simultaneously rescind the Department's final
rule on association retirement plans (2019 ARP Rule).\119\ However, the
proposal acknowledged the existence of the 2019 ARP Rule; that it was
issued after the 2018 AHP Rule and after the district court decision in
New York v. United States Department of Labor; and that it includes
commonality, business purpose, and working owner provisions that
parallel the provisions in the 2018 AHP Rule.\120\ The proposal also
acknowledged that ERISA has parallel language in the definitions of
pension and welfare plan and does not explicitly provide a basis for
distinguishing between the AHP and ARP rules.\121\ However, the
proposal stated that because there are specific retirement plan
considerations that involve issues beyond the scope of the proposed
rescission, the Department decided not to address the 2019 ARP Rule in
the proposal.
---------------------------------------------------------------------------

\119\ 29 CFR 2510.3-55; Definition of ``Employer'' Under Section
3(5) of ERISA--Association Retirement Plans and Other Multiple-
Employer Plans, 84 FR 37508 (July 31, 2019).
\120\ 88 FR 87968, 87978-79.
\121\ Id. See also 29 U.S.C. 3(1) (defining ``welfare plan''),
3(2) (defining ``pension plan''), and 3(5) (defining ``employer'').
---------------------------------------------------------------------------

A couple of commenters disagreed with this decision, asserting that
it would be arbitrary and capricious not to address the 2019 ARP Rule
given that the same applicable statutory text, the definition of
``employer'' in section 3(5) of ERISA, is the subject of both rules. In
support of this position, one of the commenters quoted the Department's
reasoning from the preamble to the 2019 ARP Rule, which stated as
follows: ``It makes sense to have consistent provisions for AHPs and
[ARPs], because the Department is interpreting the same definitional
provisions in both contexts and because many of the same types of
groups or associations of employers that sponsor AHPs for their members
will also want to sponsor [ARPs].'' \122\ Noting some take-up success
under the 2019 ARP Rule, one of the commenters implied that the
Department is being arbitrary and capricious by ignoring the
possibility of a similar level of success for AHPs absent the
rescission.\123\
---------------------------------------------------------------------------

\122\ 84 FR 37508, 37513.
\123\ See comment from Paragon Health Institute (Feb. 17, 2024)
last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00015.pdf.
---------------------------------------------------------------------------

That the Department has deliberately decided to proceed with the
rescission of the 2018 AHP Rule, while reserving judgment on the 2019
ARP Rule, is neither probative nor suggestive of an arbitrary and
capricious process either in the case of this final rule or with
respect to future action, if any, taken on the 2019 ARP Rule. In much
the same way that the Department exercised its discretion to promulgate
the two rules on separate timelines, it has similar discretion to
undertake additional regulatory action with respect to the 2019 ARP
Rule on a different timeline. Moreover, unlike the 2018 AHP Rule, the
2019 ARP Rule extends coverage to ``bona fide professional employer
organization'' arrangements in addition to association retirement
plans. Given the different scope, provisions, and policy considerations
associated with the two rules, and the fact that only the AHP Rule has
been held invalid in judicial proceedings, the Department believes it
is appropriate to initially proceed with rescission of the 2018 AHP
Rule, and to reserve judgment on any additional action with respect to
the 2019 ARP Rule for a separate rulemaking effort.
Also, as the Department explained in the preamble to the proposal,
retirement plans raise different issues from group health plans.
Retirement plans and group health plans are subject to an array of
different laws, regulators, and market forces. As just one example
highlighted by commenters on the proposal, group health plans generally
are subject to the ACA and retirement plans are not. Additionally,
multiple employer retirement plans do not have a history of financial
mismanagement or abuse to the same extent as multiple employer group
health plans.\124\ Although this final rule rescinds the 2018 AHP Rule,
the Department has made no decision on whether to rescind or modify the
2019 ARP Rule, which was promulgated through a separate notice and
comment process. However, if the Department decides to make changes to
the 2019 ARP Rule, it will do so separately and through a notice-and-
comment rulemaking process as was done with the final rule being
adopted today.
---------------------------------------------------------------------------

\124\ Supra note 41.
---------------------------------------------------------------------------

H. Effect of Rescission on Access to Health Coverage Through
Association Health Plans

Commenters are concerned that rescinding the 2018 AHP Rule will
undermine the use of AHPs as a means of gaining access to health
benefits. One commenter asserted that after the 2018 AHP Rule went into
effect, small businesses created new associations and offered health
coverage at premium rates significantly lower than previous small-group
plans.\125\ This commenter, however, did not address whether any of the
purported savings attributed to newly formed AHPs resulted from AHPs
that were formed following the 2018 AHP Rule but in accordance with
pre-rule guidance, from AHPs formed pursuant to the alternative
criteria under the 2018 AHP Rule, or some combination thereof, or
whether any AHPs formed pursuant to the alternative criteria would have
also satisfied the pre-rule criteria (and therefore could have
continued to operate under the pre-rule guidance, regardless of the
decision in New York v. United States Department of Labor). This
commenter also asserted that newly created AHPs produced savings of
nearly 30 percent for some employers. However, the Department is unable
to independently validate the savings asserted by this commenter, or
the extent to which those savings, if any, were attributable to less
generous benefits, risk selection or other practices that were
potentially harmful to the larger market for health benefits, or
individuals being covered by low-quality, limited plans.\126\
---------------------------------------------------------------------------

\125\ See comment from the Opportunity Solutions Project (Feb.
2, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00003.pdf.
\126\ The savings reported by the commenter was based on a 2019
study of 28 newly formed, active AHPs established under the 2018 AHP
Rule provisions. The savings claims are described as ``the maximum
savings'' though the term is not defined. The study compares each
business's current non-AHP plan to the business's AHP plan options
(the study also reported that the average number of plan options
(e.g. PPO, HMO, HDHP) was 11). The ``average maximum savings'' of
the 4 self-funded AHPs was 29 percent, and the average maximum
savings for the 24 fully insured AHPs was 23 percent. Association
Health Plans, First Phase of New Association Health Plans Revealing
Promising Trends. www.associationhealthplans.com/reports/new-ahp-study/ accessed on March 12, 2024. This finding is not the average
savings across all employers in the AHPs and does not account for
differences in insurance coverage richness.

---------------------------------------------------------------------------

[[Page 34124]]

The Department recognizes that a number of AHPs were established
and briefly existed as a result of the 2018 AHP Rule. However, after
the district court's decision holding the 2018 AHP Rule invalid, and
the Department's subsequent guidance that parties should cease
establishing AHPs (under the alternative criteria pursuant to the 2018
AHP Rule) and to wind down any that were in existence, commercial AHPs
permitted under the 2018 AHP Rule halted by the end of 2019. Therefore,
the rescission itself has no effect independent of the effects of the
district court's opinion and the expiration of the winding-down period
provided in the Department's long expired temporary safe harbor from
enforcement.

I. Costs of Rescinding the 2018 AHP Rule

A couple of commenters discussed potential costs associated with
rescinding the 2018 AHP Rule. One commenter stated that the proposal
does not acknowledge certain costs that such a rescission would
entail.\127\ This commenter suggests that the proposal overlooks the
investments made in dozens of new AHPs organized under the 2018 AHP
Rule and how their rescission ``materializes losses from investments
with delayed returns.'' This commenter also asserted that the
rescission limits the AHP market to AHPs established pursuant to the
Department's pre-rule guidance and suggested the uncertainties
attendant to that guidance may discourage new investments in AHP-
related technology and ventures, stifling innovations and the savings
they might produce. This commenter also suggested that the rescission
systemically reinforces higher than necessary health insurance costs
for small businesses, money that might otherwise be spent on new hiring
or raises. The commenter further suggested that higher premiums, in
turn, discourage small businesses from offering coverage, increasing
the Government's cost as more people must rely on ACA premium tax
credits. But a different commenter was of the view that, because AHPs
established under the 2018 AHP Rule had little opportunity to exist due
to the district court's opinion, there is little real-world evidence of
the effect the 2018 AHP Rule would have had on the market.\128\ In
addition, a significant number of commenters articulated a preference
for the pre-rule guidance.
---------------------------------------------------------------------------

\127\ See comment from Paragon Health Institute (Feb. 17, 2024)
last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00015.pdf.
\128\ See comment from AHIP (Feb. 20, 2024) last accessed at
https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00043.pdf.
---------------------------------------------------------------------------

After the district court invalidated the 2018 AHP Rule, the
Department gave AHPs established under the rule a temporary safe harbor
from enforcement to allow such existing AHPs to wind down and announced
that new AHPs should not be established in reliance on the rule. That
temporary safe harbor from enforcement has long expired, and the
Department is not aware of any AHPs that currently exist under the
framework of the 2018 AHP Rule. Because the 2018 AHP Rule was never
fully implemented and any AHPs established in reliance on the rule have
long since terminated, the Department is unable to definitively
determine any costs and benefits that would have been incurred in
response to the approach taken in the 2018 AHP Rule.

J. Need for Future Rulemaking

In addition to comments on rescission of the 2018 AHP Rule, the
proposal also solicited comments on whether the Department should
propose a rule for group health plans that codifies and replaces the
pre-rule guidance. This solicitation included a request for views on
whether to issue additional guidance clarifying the application of the
Department's longstanding pre-rule guidance as it relates to group
health plans (including, for example, the HIPAA nondiscrimination rule
application to AHPs), propose revised alternative criteria for multiple
employer association-based group health plans, or pursue some
combination of those or other alternative steps. The intent was that
the public comments would inform the Department's decision on whether
to finalize the proposal to rescind the 2018 AHP Rule and would also
assist the Department in determining if it should engage in future
rulemaking on AHPs under section 3(5) of ERISA. Overall, comments were
mixed on whether future rulemaking is necessary or appropriate, with no
clear consensus.
Many commenters expressed a preference for rescission but no future
rulemaking on AHPs under section 3(5) of ERISA. These commenters
suggested that the facts-and-circumstances approach of the pre-rule
guidance (buttressed with State regulatory infrastructure) is adequate,
has worked well to honor ERISA's employment-based nexus, and that no
formal notice-and-comment rulemaking is needed.\129\ Some of these
commenters were concerned that a future rulemaking effort might
negatively impact existing bona fide AHPs.\130\ Others cautioned that
the Department should not engage in rulemaking to create new and
separate requirements around rating practices within the AHP market,
suggesting that rulemaking of that type would be reaching beyond the
Department's statutory authority.
---------------------------------------------------------------------------

\129\ New rulemaking could, according to these commenters,
undermine the best practices built by employers over decades under
the pre-rule guidance and disrupt the balance upon which bona fide
associations, employers, and insurers rely. Some of these commenters
noted that attempting to codify pre-rule guidance issued over
several decades would likely result in gaps and ambiguities,
creating more confusion for small employers. One of these commenters
further asserted that the lengthy, formal rulemaking process would
hinder the Department from contemporaneously responding to industry
trends while also restricting industry exploration of new
arrangements that could pool employers' resources more efficiently
to maximize the healthcare benefits available to employees and their
dependents.
\130\ Several commenters argued that any future codification of
the pre-rule guidance must preserve the structure of existing MEWAs
that were set up in good faith in accordance with pre-rule guidance,
including the ability to use experience ratings of their employer
members consistent with State insurance law (which they say is
essential for them to offer affordable and comprehensive coverage),
without adding any new requirements that would necessitate expensive
restructuring of these MEWAs.
---------------------------------------------------------------------------

Other commenters, however, recommended that the Department give
serious consideration to codifying the core principles in the
Department's pre-rule guidance into the CFR through notice-and-comment
rulemaking following this rescission. These commenters focused on the
benefits and efficiencies of transparency and streamlining access to
these principles.
Still others suggested that future rulemaking could both
incorporate and expand upon the core principles in the Department's
pre-rule guidance. Ideas for expansion included provisions on more
effective MEWA enforcement, mandatory benefit levels (incorporating
provisions that mirror the ACA small group market requirements into any
future rulemaking), enhanced financial reporting by AHPs, restrictions
on alternative coverage arrangements that undermine and threaten
progress under the ACA, and disclosures by AHPs to participating
employers and enrollees regarding the extent to which the AHP coverage
includes the ACA's essential health benefits.

[[Page 34125]]

Other ideas for regulatory expansions in a future rulemaking
project under section 3(5) of ERISA included strong nondiscrimination
protections, provisions on working owners (some commenters recommended
prohibitions on working owners being able to join AHPs, but others
recommended including them), provisions requiring associations to
disclose compensation they receive from the AHPs they sponsor or from
the participating employers or enrollees obtaining coverage, provisions
delineating concurrent State and Federal enforcement roles, and
provisions codifying and enforcing the CMS ``look-through rule.'' \131\
---------------------------------------------------------------------------

\131\ Supra note 9.
---------------------------------------------------------------------------

The commenters' ideas and suggestions on a potential future
rulemaking project involving AHPs are not directly relevant to the
Department's rescission of the 2018 AHP Rule. Moreover, some of their
ideas for expansion are beyond the scope of a rulemaking project
defining ``employer'' under section 3(5) of ERISA. However, the
Department will take the recommendations for future rulemaking under
advisement.

VI. Regulatory Impact Analysis

A. Relevant Executive Orders for Regulatory Impact Analyses

Executive Orders (E.O.s) 12866 \132\ and 13563 \133\ direct
agencies to assess all costs and benefits of available regulatory
alternatives and, if regulation is necessary, to select regulatory
approaches that maximize net benefits (including potential economic,
environmental, public health and safety effects; distributive impacts;
and equity). E.O. 13563 emphasizes the importance of quantifying costs
and benefits, reducing costs, harmonizing rules, and promoting
flexibility. E.O. 13563 directs agencies to propose or adopt a
regulation only upon a reasoned determination that its benefits justify
its costs; tailor their regulations to impose the least burden on
society, consistent with obtaining regulatory objectives; and select,
in choosing among alternative regulatory approaches, those approaches
that maximize net benefits. E.O. 13563 recognizes that some benefits
are difficult to quantify and provides that, where appropriate and
permitted by law, agencies may consider and discuss qualitatively
values that are difficult or impossible to quantify, including equity,
human dignity, fairness, and distributive impacts.
---------------------------------------------------------------------------

\132\ 58 FR 51735 (Oct. 4, 1993).
\133\ 76 FR 3821 (Jan. 21, 2011).
---------------------------------------------------------------------------

Under E.O. 12866 (as amended by E.O. 14094), the Office of
Management and Budget's (OMB) Office of Information and Regulatory
Affairs determines whether a regulatory action is significant and,
therefore, subject to the requirements of the E.O. and review by OMB.
As amended by E.O. 14094, section 3(f) of E.O. 12866 defines a
``significant regulatory action'' as a regulatory action that is likely
to result in a rule that may: (1) have an annual effect on the economy
of $200 million or more; or adversely affect in a material way the
economy, a sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, Territorial, or
Tribal governments or communities; (2) create a serious inconsistency
or otherwise interfere with an action taken or planned by another
agency; (3) materially alter the budgetary impact of entitlements,
grants, user fees or loan programs or the rights and obligations of
recipients thereof; or (4) raise legal or policy issues for which
centralized review would meaningfully further the President's
priorities or the principles set forth in the Executive order.
OMB has designated this action a ``significant regulatory action''
within the meaning of section 3(f)(1) of E.O. 12866, as amended, and
reviewed the final rule in accordance with E.O. 12866. Key to this
designation is that the Department is rescinding a rule that was itself
significant under section 3(f)(1).
It should be noted that the 2018 AHP Rule was never fully
implemented.\134\ While the Department gave AHPs established under the
2018 AHP Rule a temporary safe harbor from enforcement after the
district court's March 28, 2019 decision holding invalid the core
provisions of the 2018 AHP Rule, that time has long expired, and the
Department is not aware of any AHPs that currently exist under the
framework of the 2018 AHP Rule.
---------------------------------------------------------------------------

\134\ Consistent with the applicability date provision in the
2018 AHP Rule, fully insured plans could begin operating under the
rule on September 1, 2018, existing self-insured AHPs could begin
operating under the rule on January 1, 2019, and new self-insured
AHPs could begin operating under the rule on April 1, 2019. The
preamble explained that this phased approach was intended to allot
some additional time for the Department and State authorities to
address concerns about self-insured AHPs' vulnerability to financial
mismanagement and abuse. See 83 FR 28912, 28953 (June 21, 2018).
---------------------------------------------------------------------------

Consequently, any costs and benefits that would have been
anticipated in response to the approach taken in the 2018 AHP Rule were
never fully experienced and have long since lapsed for those plans that
formed and briefly existed pursuant to the 2018 AHP Rule. The 2018 AHP
Rule hypothesized that plans serving small employers and their
participants potentially would have benefitted from the ability to band
together to offer tailored plans that omit certain benefits, and thus
reduce their costs. At the same time, however, other plans and
participants were assumed to bear the costs, with the 2018 AHP Rule's
economic analysis projecting that those employers and participants that
remained in the small-group and individual markets could face premium
increases between 0.5 and 3.5 percent, resulting in an increase in the
number of uninsured individuals caused by those that exited the
individual market due to higher premiums.
The Department's regulatory impact analysis accompanying the 2018
AHP Rule did not encompass the litigation or the district court's
decision, which largely nullified the assumed costs and benefits.
Accordingly, the Department assumes that the costs of this rulemaking,
the rescission of the 2018 AHP Rule, would effectively be zero, while
the benefits would be limited to settling any uncertainty caused by the
litigation surrounding the regulation and the Department's
reexamination of the appropriate criteria for a group or association of
employers to sponsor an AHP.
The Department, in response to the proposal, received a comment
arguing that in assessing the cost of the rulemaking, the Department
should have used partial implementation of the 2018 AHP Rule as its
baseline.\135\ The commenter argued that the Department should have
implemented those parts of the 2018 AHP Rule that the district court
did not hold invalid. The cost of rescinding the 2018 AHP Rule would
then be the foregone benefits for individuals who would have relied on
a scaled-down version of the 2018 AHP Rule.
---------------------------------------------------------------------------

\135\ See comment from Paul J. Ray (Dec. 22, 2023) last accessed
at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00001.pdf.
---------------------------------------------------------------------------

The Department has explained why it determined that full rescission
of the 2018 AHP Rule was appropriate, as discussed above in Section
V.E. Because of the district court's decision, and the fact that
parties are not relying on the 2018 AHP Rule to operate AHPs, the costs
and benefits of the 2018 AHP Rule assessed against the baseline
suggested by the commenter would be especially uncertain. Accordingly,
the Department's analysis mostly reflects the fact that the 2018 AHP
Rule was

[[Page 34126]]

never fully implemented and the Department, therefore, reiterates that
the costs of this rulemaking, the rescission of the 2018 AHP Rule,
would effectively be zero relative to the baseline projected from
current prevailing conditions, while the benefits would be limited to
settling any uncertainty caused by the litigation surrounding the 2018
AHP Rule and the Department's reexamination of the appropriate criteria
for a group or association of employers to sponsor an AHP.
Additionally, as observed in Section II.E. above, the district court
held invalid the core provisions of the 2018 AHP Rule. Without the
stricken provisions, the 2018 AHP Rule could not be operationalized and
would provide no meaningful guidance.

B. Background

An AHP is a health plan formed by a group or association of
employers to provide health care coverage for their employees. AHPs
have been in existence for some time and are a subset of MEWAs. Under
the pre-rule guidance, to qualify as a bona fide employer group or
association capable of establishing a single group health plan under
ERISA, the group or association had to satisfy the business purpose
standard, commonality standard, and control standard, which, along with
factors that may be considered in applying these standards, are
described above in Section II.B. of this preamble. If these standards
are not satisfied, a health care arrangement offered by the group or
association is not treated as a single group health plan, and the group
or association is disregarded in determining whether health insurance
coverage offered to an individual or employer member of the association
is individual, small group, or large group market coverage for purposes
of Title XXVII of the PHS Act. The scope of these standards, additional
nondiscrimination and working owner provisions, and how treatment of
AHPs is different under the 2018 AHP Rule are discussed in Section
II.D. of the preamble.
As noted in Section II.E. of this preamble, on March 28, 2019, the
U.S. District Court for the District of Columbia held invalid the 2018
AHP Rule's definition of bona fide employer groups or associations and
the working owner provisions. In response, the Department announced its
temporary enforcement policy designed to minimize undue consequences of
the district court's decision on AHP participants.\136\
---------------------------------------------------------------------------

\136\ See supra note 31.
---------------------------------------------------------------------------

C. Need for Regulatory Action

As discussed in Section II.E. of this preamble, the district court
held invalid the 2018 AHP Rule as inconsistent with ERISA's definition
of persons ``acting indirectly in the interest of an employer.'' The
district court concluded that the 2018 AHP Rule's standards for
determining ``employer'' status were overbroad and inconsistent with
Congress' intent to draw a distinction between employment-based
arrangements, on the one hand, and commercial entities marketing
benefits to unrelated employers, on the other.\137\ After further
consideration, the Department has concluded that the 2018 AHP Rule does
not comport with the best interpretation of ERISA's text and animating
purposes and should be rescinded while the Department reconsiders its
specific provisions and possible different regulatory approaches. The
Department's rescission of the 2018 AHP Rule in its entirety also
provides clarity to entities that wish to sponsor an AHP with respect
to the need to rely upon the criteria in the Department's longstanding
pre-rule guidance and court decisions on the ERISA section 3(5)
definition, as opposed to the terms of the 2018 AHP Rule.
---------------------------------------------------------------------------

\137\ See supra at Section II.E. of this preamble for a
discussion of the decision in New York v. United States Department
of Labor.
---------------------------------------------------------------------------

D. Affected Entities

The Department does not believe that any entities currently rely
upon the 2018 AHP Rule, given that the district court has held invalid
most of the 2018 AHP Rule and the temporary enforcement policy period
has long expired. Rescinding the 2018 AHP Rule simply maintains the
status quo. At the time the Department first promulgated the 2018 AHP
Rule, the Department identified 153 entities as potential ``early
adopters'' that had signaled their intent to form an AHP under the 2018
AHP Rule. Of these early adopters, 112 of these entities ultimately
submitted the required Form M-1,\138\ one other entity advised the
Department that it intended to file a Form M-1, two indicated they were
not required to file a Form M-1, 15 told the Department that they were
not pursuing an AHP, one was under investigation for reasons unrelated
to the early adopter program, and the remainder were unresponsive to
further Department outreach.
---------------------------------------------------------------------------

\138\ The Form M-1 is a report for MEWAs and Certain Entities
Claiming Exception (ECEs) that offer medical benefits, including
AHPs. MEWAs are required to file annual reports with the Department,
as well as special filings associated with certain events. In
particular, all MEWAs that provide medical benefits, including AHPs
that intend to begin operating, are required to file an initial
registration Form M-1 at least 30 days before engaging in any
activity. Such activities include, but are not limited to,
marketing, soliciting, providing, or offering to provide medical
care benefits to employers or employees who may participate in the
AHP. This filing alerts the Department and State insurance
regulators to new entrants into insurance markets, which can give
States and regulators time to communicate with these new entities
before they begin operation. For additional information on the Form
M-1 see https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/forms/m1-2023.pdf.
---------------------------------------------------------------------------

E. Benefits

The final rule rescinds the 2018 AHP Rule and provides clarity to
parties about the continuing unavailability of the 2018 AHP Rule as an
alternative to the Department's longstanding pre-rule guidance. At the
time the 2018 AHP Rule was finalized, the Department also anticipated
that it would have to increase dramatically its MEWA enforcement
efforts and enhance its coordination with State regulators because of
the anticipated increase in the number of AHPs attributable to the new
2018 AHP Rule. Because the 2018 AHP Rule was held invalid by the
district court, the Department has not had to address a dramatic
increase in the number of insolvent MEWAs, although existing fraudulent
and mismanaged MEWAs remain a significant challenge to the agency.

F. Costs

Although the 2018 AHP Rule was finalized, it was never fully
implemented, and no parties appear to currently rely on the 2018 AHP
Rule, given the district court's decision and the expiration of the
Department's temporary enforcement policy. As a result, the Department
does not believe that rescinding the 2018 AHP Rule would result in any
costs.

VII. Paperwork Reduction Act

The 2018 AHP Rule was not subject to the requirements of the
Paperwork Reduction Act of 1995 \139\ because it did not contain a
collection of information as defined in 44 U.S.C. 3502(3). Accordingly,
this final rule to rescind the 2018 AHP Rule also does not contain an
information collection as defined in 44 U.S.C. 3502(3).
---------------------------------------------------------------------------

\139\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

VIII. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) \140\ imposes certain
requirements on rules subject to the notice and comment requirements of
section 553(b)

[[Page 34127]]

of the APA or any other law.\141\ Under section 604 of the RFA,
agencies must submit a final regulatory flexibility analysis (FRFA) of
a final rule that is likely to have a significant economic impact on a
substantial number of small entities, such as small businesses,
organizations, and governmental jurisdictions. However, because the
2018 AHP Rule was never fully implemented and the Department is not
aware of any existing AHP that was formed in reliance on the rule, this
rescission of the 2018 AHP Rule will not have a significant economic
impact on a substantial number of small entities.
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\140\ 5 U.S.C. 601 et seq.
\141\ 5 U.S.C. 551 et seq.
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Pursuant to section 605(b) of the RFA, the Assistant Secretary of
the Employee Benefits Security Administration hereby certifies that the
final rule will not have a significant economic impact on a substantial
number of small entities. As discussed above, at the time the
Department first promulgated the 2018 AHP Rule, the Department
identified only 153 entities as potential ``early adopters'' that had
signaled their intent to form an AHP under the 2018 AHP Rule.
Ultimately, 112 of these entities submitted the required Form M-1, one
other entity advised the Department that it intended to file a Form M-
1, two indicated they were not required to file a Form M-1, 15 told the
Department that they were not pursuing an AHP, one was under
investigation for reasons unrelated to the early adopter program, and
the remainder were unresponsive to further Department outreach. Since
the district court held invalid the 2018 AHP Rule and the temporary
enforcement policy period has expired, any AHPs that formed before the
decision in reliance on the 2018 AHP Rule should have wound down, and
the Department is not aware of any new AHPs that have formed in
reliance on the 2018 AHP Rule. Accordingly, rescission of the 2018 AHP
Rule will not have an impact on existing AHPs formed in accordance with
the pre-rule guidance.

IX. Unfunded Mandates

Title II of the Unfunded Mandates Reform Act of 1995 requires each
Federal agency to prepare a written statement assessing the effects of
any Federal mandate in a proposed or final agency rule that may result
in an expenditure of $100 million or more (adjusted annually for
inflation with the base year 1995) in any one year by State, local, and
Tribal governments, in the aggregate, or by the private sector.\142\ In
2024, that threshold is approximately $183 million. For purposes of the
Unfunded Mandates Reform Act, this final rule does not include any
Federal mandate that the Department expects would result in such
expenditures by State, local, or Tribal governments, or the private
sector.\143\
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\142\ 2 U.S.C. 1501 et seq. (1995).
\143\ 58 FR 58093 (Oct. 28, 1993).
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X. Federalism

E.O. 13132 outlines the fundamental principles of federalism. It
also requires Federal agencies to adhere to specific criteria in
formulating and implementing policies that have ``substantial direct
effects'' on the States, the relationship between the National
Government and States, or on the distribution of power and
responsibilities among the various levels of government. Federal
agencies promulgating regulations that have these federalism
implications must consult with State and local officials and describe
the extent of their consultation and the nature of the concerns of
State and local officials in the preamble to the proposal. The preamble
to the 2018 AHP Rule included a discussion of federalism implications
of the rule, which largely focused on and confirmed that the 2018 AHP
Rule did not modify State authority under section 514(b)(6) of ERISA,
which gives the Department and State insurance regulators joint
authority over MEWAs, including AHPs, to ensure appropriate regulatory
and consumer protections for employers and employees relying on an AHP
for health care coverage. Because the 2018 AHP Rule was never fully
implemented and the Department is not aware of any entities currently
relying on the 2018 AHP Rule, the Department does not believe its
rescission will have a substantial direct effect on the States, on the
relationship between the National Government and the States, or on the
distribution of power and responsibilities among the various levels of
government that were discussed in the 2018 AHP Rule. Nonetheless, the
Department notes that the level and type of State regulation of MEWAs
vary widely. The Department is aware that some States have enacted or
are considering State laws modeled on the 2018 AHP Rule that are
intended to recognize AHPs as employee benefit plans for purposes of
State regulation.\144\
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\144\ For example, CMS, on behalf of HHS, issued a final
determination pursuant to section 2723(a)(2) of the PHS Act, section
1321(c)(2) of the ACA, and 45 CFR 150.219 that the Commonwealth of
Virginia has not corrected the failure to substantially enforce
certain Federal market reforms with respect to issuers offering
health insurance coverage through an association of real estate
salespersons under Virginia State law, specifically section 38.2-
3521.1 G of the Code of Virginia, as enacted by HB 768/SB 335
(2022). The CMS letter, dated September 6, 2023, is available at
www.cms.gov/files/document/letter-virginia-governor-and-insurnace-commissioner-hb-768sb-335-2022-final-determination.pdf.
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XI. Congressional Review Act

Pursuant to Subtitle E of the Small Business Regulatory Enforcement
Fairness Act of 1996 (also known as the Congressional Review Act, 5
U.S.C. 801 et seq.) OIRA has determined that this rule meets the
criteria set forth in 5 U.S.C. 804(2). Accordingly, this rule has been
transmitted to the Congress and the Comptroller General for review.

List of Subjects in 29 CFR Part 2510

Employee benefit plans, Pensions.

For the reasons stated in the preamble, the Department of Labor
amends 29 CFR part 2510 as follows:

PART 2510--DEFINITIONS OF TERMS USED IN SUBCHAPTERS C, D, E, F, G,
AND L OF THIS CHAPTER

0
1. The authority citation for part 2510 is revised to read as follows:

Authority: 29 U.S.C. 1002(1), 1002(2), 1002(3), 1002(5),
1002(16), 1002(21), 1002(37), 1002(38), 1002(40), 1002(42),
1002(43), 1002(44), 1031, and 1135; and Secretary of Labor's Order
No. 1-2011, 77 FR 1088. Secs. 2510.3-101 and 2510.3-102 also issued
under sec. 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App.
(E.O. 12108, 44 FR 1065, 3 CFR, 1978 Comp., p. 275) and 29 U.S.C.
1135 note.

0
2. Section 2510.3-3 is amended by revising paragraph (c) introductory
text to read as follows:

Sec. 2510.3-3 Employee benefit plan.

* * * * *
(c) Employees. For purposes of this section and except as provided
in Sec. 2510.3-55(d):
* * * * *

Sec. 2510.3-5 [Removed and Reserved]

0
3. Remove and reserve Sec. 2510.3-5.

Signed at Washington, DC, this 22nd day of April, 2024.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration, U.S.
Department of Labor.
[FR Doc. 2024-08985 Filed 4-29-24; 8:45 am]
BILLING CODE 4510-29-P