Under federal regulations, employers with 20 or more employers are subject to COBRA requirements. This is nothing new – COBRA has been around since 1985. What is new, however, is the question being raised by new a new law that makes it easier for small employers to band together to qualify for Association Health Plan group rates. Does doing so mean that small employers are now subject to federal COBRA requirements?
It’s a tricky question with serious consequences, so we’ve put together some information to help you get to the bottom of it.
The New Association Health Plan Rules
The Department of Labor recently published a Final Rule regarding Association Health Plans (AHPs). According to the DOL Fact Sheet, the Final Rule impacts small business owners, as well as the employees of small businesses and the family members of working owners and employees. It expands upon previous AHP rules to create new options and is expected to impact millions of Americans.
According to the DOL’s Association Health Plans: ERISA Compliance Assistance, “AHPs and other covered group health plans must comply with health care continuation coverage provisions under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), and the health care protections provided in the Health Insurance Portability and Accountability Act (HIPAA), the Affordable Care Act, the Mental Health Parity and Addiction Equity Act, and other group health plan laws.”
An Association Health Plan allows a group or association of employers to collectively sponsor a group health plan to provide coverage to employees of the various member groups. This is considered an ERISA-covered plan, and it is simultaneously a group health plan and a multiple employer welfare arrangement (MEWA).
COBRA Compliance Issues
Federal COBRA regulations apply to employers with 20 or more employees. To determine whether an employer is subject to COBRA, part-time employees are included as a fraction of a full-time employee based on hours worked.
However, when employers combine forces to offer a group health plan, this gets more complicated.
The DOL clearly affirms that AHAs are considered MEWAs and are subject to ERISA compliance. So what does this mean for COBRA?
While MEWAs have advantages, they also have drawbacks. As Bloomberg BNA explains, various states have taken steps to regulate MEWAs and AHPs, and they don’t want the new rule to challenge that. An AHP’s status as a MEWA may have significant implications in states with strict regulations.
Additionally, if a MEWA is interpreted as a single plan, this could impact whether members – who may have fewer than 20 employees each but 20 or more employees total – are subject to COBRA.
This information is meant to raise awareness of emerging issues. It is not legal advice. Employers interested in pursuing AHP options should consult with legal counsel. We will keep you posted if and when more guidance is posted by the DOL.
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