Executive Summary: Association Health Plans After the 2018 Rule and Its Repeal: What Remains and What Could Return

LFP-08.03, The Hybrid Frontier

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Association health plans represent the most contested regulatory battleground in the small employer benefits market. The structural logic is sound: aggregate enough small employers through a common association to create a pool large enough for favorable underwriting, then extend large group treatment to the pool rather than regulating each employer separately under ACA small group market rules, guaranteed issue, community rating, essential health benefit mandates, and actuarial value requirements. That logic is both the appeal of AHPs and the reason 12 state attorneys general challenged the DOL’s 2018 expansion rule.

The pre-2018 DOL advisory opinion framework required three criteria for an association to sponsor an ERISA plan: an organizational purpose beyond offering insurance, genuine commonality of interest among member employers based on employment relationships, and substantive member control over the benefit program. On June 21, 2018, the DOL issued a final rule that substantially expanded the definition of employer under ERISA Section 3(5), allowing employers to associate based on common industry or common geography regardless of any other nexus, and extending access to self-employed individuals without employees. In March 2019, Judge John D. Bates vacated the key provisions in State of New York v. United States Department of Labor, Civil Action No. 18-1747, finding the rule’s expansion of commonality of interest to be an unreasonable statutory interpretation. The Biden DOL formally rescinded the 2018 rule in April 2024, closing the litigation.

The pre-2018 advisory opinion framework governs today. Bona fide trade associations, professional societies, and chambers of commerce with established histories and genuine member-service purposes can sponsor ERISA-covered group health plans within this framework. These plans are MEWAs for regulatory purposes and must file Form M-1 with the DOL annually. The practical reach of this framework is narrower than the 2018 rule contemplated.

Two paths to expansion exist. A new DOL rule faces a harder deference standard after the Supreme Court’s June 2024 decision in Loper Bright Enterprises v. Raimondo (603 U.S. 369), which requires courts to find the agency’s interpretation the best reading of the statute rather than merely a permissible one. The legislative path is cleaner: Senator Rand Paul’s Association Health Plans Act of 2025 (S. 1847), introduced alongside a portable benefits package with Senators Cassidy and Scott, amends ERISA directly to allow small business employees and sole proprietors to aggregate through membership-based associations, with a two-year association existence requirement addressing the 2019 court’s core objection. Companion House legislation (H.R. 2528) had 13 Republican co-sponsors as of mid-2025.

For TPAs, the practical decision now is identifying which bona fide associations currently operating under the pre-2018 framework represent defensible relationships, and monitoring S. 1847 specifically rather than AHP rulemaking generally.