Summary

The Biden administration has issued two sets of final regulations that overturn rules adopted during the Trump administration pertaining to association health plans and short-term, limited-duration insurance (STLDI). The regulations go into effect June 17, 2024.

The Upshot

• The new regulations, issued jointly by three federal agencies, restore the prior rules as to when a group or association of employers will be treated as a single employer for purposes of sponsoring a health plan, requiring a much closer connection among employers that belong to the association.
• The new regulations shorten the maximum duration of STLDI to three months with the option of extending an extra month.
• The new regulations—from the IRS, Employee Benefits Security Administration, and U.S. Department of Health and Human Services—also impose new notice requirements on STLDI and fixed indemnity plans to clarify their distinction from more comprehensive coverage.

The Bottom Line

The new rules come as no surprise, but employers considering entering into an association health plan and carriers marketing limited-duration policies should be mindful of the updated requirements.

As expected, the Biden administration has issued final rules that overturn regulations adopted under the prior administration on association health plans and short-term, limited-duration insurance (STLDI). The new rules restore rules that were in effect prior to the adoption of Trump administration initiatives.

Association Health Plans

ERISA’s definition of “employer” allows employers that share certain characteristics to band together and provide health coverage as if they are a single employer. Historically, the definition had been limited to employers that: form a group that has a business purpose unrelated to the provision of benefits; share a common interest and genuine organizational relationship unrelated to benefits; and exercise formal and actual control over the benefit program they establish.

The Trump administration loosened those rules to apply to employers that either: were in the same trade or business; or were in the same state or metropolitan area. The rule also allowed business owners with no other employees to participate in association health plans. These looser rules allowed a much broader range of small employers to join together to provide benefits under a large group plan and thus avoid certain requirements of the Affordable Care Act that apply only to smaller plans and individual insurance.

On challenge, a federal district court struck down the new definition, finding that it did not establish a sufficient employment-related nexus among the employer members to adequately distinguish the association from commercial insurance. Proceedings on appeal were stayed when the Biden administration announced its intent to revise the regulations.

The new rule issued by the Department of Labor rescinds the Trump administration’s regulation in its entirety, citing, among other things, the concerns that such plans would provide inadequate coverage and might foster abuse similar to the abuses that have occurred with certain multiple employer welfare arrangements.

As a result, employers seeking treatment as an association health plan should look to the historical definition of “employer” for guidance.

Short-Term, Limited-Duration Insurance (STLDI)

STLDI is health insurance that is exempt from various consumer protection requirements that otherwise apply to individual health insurance coverage. The rules governing the maximum length of STLDI have swung back and forth through the years, depending on whether the administration in office viewed the coverage as a temporary gap-filler between periods of more comprehensive coverage or a low-cost alternative to comprehensive coverage.

The new rules, issued jointly by the Departments of the Treasury, Labor, and Health and Human Services, shrink the maximum length of STLDI coverage with a particular insurer to three months. This coverage may be extended or renewed, but not beyond a total coverage period of four months. In issuing the new regulations, the departments cite to changes that have expanded access to affordable comprehensive health insurance coverage, lessening the significance of a low-cost alternative.

Under Trump administration rules, which were upheld in court, STLDI could last as long as 12 months with an option to renew twice, for a total of 36 months of coverage.

The new rules also revise the notice that must be provided with STLDI. The notice must alert consumers to the distinctions between STLDI coverage and traditional comprehensive medical coverage that is available. Without these warnings, coverage will not be regarded as STLDI and thus will no longer qualify for an exemption from various Affordable Care Act requirements.

For similar reasons, the new STLDI guidance contains rules revising the notice requirements for fixed indemnity insurance, which pays a fixed dollar amount based on a medical event, such as $100 per day of hospitalization. Fixed indemnity arrangements must now provide notice regarding their distinction from coverage that actually covers medical expenses rather than a specified dollar amount.

Administrations typically seek to bring regulatory projects to a close months before presidential elections. It shields them from being overturned by a new congress under the Congressional Review Act. As a result, we expect to see more final regulations issued in the coming weeks.

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