This advisory examines the most innovative and controversial aspect of the new Association Health Plan (AHP) regulation: Allowing individual “working owners,” such as a self-employed person, partner, or independent contractor, to participate in an AHP and thus be covered by a “large employer” plan. Under previous U.S. Department of Labor (DOL) guidance, a “small employer” had to have at least one common law employee in addition to the owner to participate in an AHP. Therefore the key to the regulation is distinguishing AHP insurance for individuals in what DOL calls a “genuine work relationship” from traditional individual health insurance, which is subject to very different rules.

Part 1 of our advisory on the new AHP regulation deals with its application to the group insurance market.

Working Owner Criteria

With some modifications, the final regulation retains most of the criteria found in the proposed AHP regulation. The following criteria must all be met for an individual to be considered a “working owner” who can participate in an AHP. 

  • The individual must have an ownership interest in a trade or business, including self-employment. He or she must also receive a wage (if the business is a corporation) or self-employment income from the business. These requirements are unchanged from the proposed rule.
  • The “working owner” must work at least 20 hours per week (80 hours per month) in the business, or earn enough to pay for coverage of the owner and any covered beneficiaries. (The hours requirement was reduced from 30/120 hours.) Hours and earnings can be aggregated across contracts, for example, by a driver who works for more than one ride-hailing service.
  • The final rule dropped a proposed requirement that the individual have no other subsidized group coverage available, including through a spouse. The DOL decided this was not a good indicator of whether an individual was legitimately in business.
  • The AHP must have procedures to verify that the working owner meets these criteria at the time first covered, and to periodically monitor compliance. It gives AHPs flexibility as to how to achieve this, including the use of a sworn statement or other documentation from the individual.

Effect on Other Markets 

The preamble to the final rule rejects legal and policy arguments that allowing working owners into AHPs will undermine the stability of the individual health insurance market. DOL defended the final rule as a means to expand access and provide more flexible coverage options. However it also agreed with the Office of Management and Budget estimate that only about 10 percent of the four million people expected to enroll in new AHP plans will have been previously uninsured. The rest will presumably come from Medicaid and the individual and small employer markets. Some may even come from larger groups—for example the final criteria could allow partners in a law firm to obtain coverage as “working owners” through an AHP instead of in the firm’s group plan. But DOL declined requests to preempt state regulation of AHPs, so state insurance regulators will be key in determining how freely new AHPs are allowed to operate.

The rule takes effect September 1, 2018 for new fully insured AHPs. Existing AHPs can operate under the new rule, and thus expand to cover working owners, effective January 1, 2019, and new self-funded AHPs can be established after April 1, 2019 (if allowed by state law). Professional associations of self-employed persons, such as real estate agents, will probably be active in establishing AHPs for individual working owners. But many other companies rely heavily on “gig economy” workers who may meet the criteria above, and may also be interested in facilitating AHPs that can cover their workers.