Association Health Plans (AHPs) have been around for years, but rule changes are affecting the way small businesses and working owners can access healthcare. As of March 28, 2019, Judge John Bates of the District of Columbia found major provisions of the Trump administration and Department of Labor’s (DOL’s) final rule on AHPs to be unlawful. Here, we’ll walk you through the history of AHPs and explain the details of the District Court’s decision.


Small businesses and trades have long benefited from AHPs. Since the late 1980s, policymakers have tried to address the problem of the uninsured and help small businesses cope with rising premiums by offering coverage through associations via the Employee Retirement Income Security Act (ERISA).

For a single small business, offering health benefits to employees is often expensive and not nearly as comprehensive as large corporations are able to offer. However, when small businesses band together through an association, these businesses can leverage the bargaining power of a large group for more affordable and comprehensive healthcare. Without AHPs as an option, many small businesses wouldn’t be able to afford health insurance for their employees.

Historically, AHPs enforced limitations, including:

  • AHP members must share a common interest.

  • AHP members must be in the same location.

  • AHP members cannot be sole proprietors (Businesses comprised of one working owner and their spouse/dependents).

Affordable Care Act

Enter the Obama administration’s Affordable Care Act (ACA), signed into law March 2010. While the ACA didn’t outlaw AHPs, it simply defined large group, small group, and individual plans, without reference to how they were offered, allowing AHPs to continue under the ACA.

The ACA also required all individuals to have health insurance, whether it was through an employer, AHP, or federal government. This meant sole proprietors could no longer decline health insurance altogether. Instead, they would have to seek health insurance from a government-sponsored plan.

The Final Rule

In June 2018, the Trump administration worked with the Department of Labor (DOL) to update the existing AHP rules and limitations. Under what’s commonly known as “final rule” Association Health Plans:

  • AHP members don’t have to share a common interest, allowing for non-same trades or businesses to form bona fide associations.

  • AHP members don’t have to be in the same location, allowing for national associations.

  • AHP members can be sole proprietors, allowing working owners to join associations.

The final rule provided greater access for small businesses and opened the door to AHPs for sole proprietors and Chambers of Commerce. Thomas Donohue, president and CEO of the U.S. Chamber of Commerce, called its enactment "a major step in the right direction for small businesses and the millions of Americans who will now be able to buy lower-cost health insurance plans."

State of New York v. U.S. Department of Labor

In July 2018, a coalition of 12 Democratic attorney generals, led by New York and Massachusetts, filed a lawsuit against the DOL for unlawfully and unreasonably stretching the definition of “employer” as the entity that can sponsor an employee benefits plan beyond what the ERISA would bear. Bates characterized the final rule as “clearly an end run around the ACA,” designed to let employers “avoid the most stringent requirements of the ACA.”

While businesses had welcomed the final rule, the attorneys general challenged the final rule as a result of sole proprietors and small businesses leaving their government-sponsored healthcare plans and joining AHPs, which often left only the ill, retired, and unemployed on government-sponsored plans. As a result, these government-sponsored plans were forced to increase their rates for these individuals.

In March 2019, in State of New York v U.S. Department of Labor, the court concluded that the DOL failed to reasonably interpret ERISA and that major provisions of the final rule—bona fide associations and sole proprietors—must be set aside. For existing AHPs that adhere to the pre-Trump rules, business will continue as usual. However, AHPs that were formed under the new guidelines of the final rule should not be marketing to new enrollees or sole proprietors going forward, as these AHPs no longer qualify as ERISA plans, at least until a final determination is made.

What Now?

In response to the ruling, the DOL filed an appeal on April 26, 2019, to the District Court ruling that struck down the final rule expanding sole proprietors’ and small businesses’ access to AHPs. The Q&A guidance notes, “We disagree with the District Court’s ruling and are considering all available options in consultation with the Department of Justice. The Administration will continue to fight for sole proprietors and small businesses so that they can have the freedom to band together to obtain more affordable, quality healthcare coverage.”

FormFire is actively awaiting the federal court’s response to the appeal, which is projected to take place in the fall of 2019. In the meantime, FormFire is actively working with existing AHPs and MEWAs. With more Association Health Plan experience than any other vendor in the industry, FormFire’s comprehensive Association Benefit Manager has solutions to help your existing AHP succeed. Contact FormFire today to learn more or request a free demo of our Association Benefit Manager™.