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

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 small group market rules. The ACA’s small group rules, including guaranteed issue, community rating, essential health benefit mandates, and actuarial value requirements, do not apply to large group plans. An AHP structured as a large group plan gives small employer members access to the pricing and plan design flexibility available to large employers without the ACA’s protective restrictions. That logic is both the appeal of AHPs and the reason 12 state attorneys general challenged the 2018 expansion rule.

The regulatory history that followed defined what is currently operable, what was struck down, what was subsequently repealed, and what the remaining framework supports. Understanding the sequence is necessary for any TPA or benefits advisor evaluating AHPs as a market.

The Pre-2018 Framework

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Before 2018, the DOL’s assessment of which associations could sponsor ERISA plans followed a facts-and-circumstances framework articulated through advisory opinions and sub-regulatory guidance. Three criteria applied. First, business purpose: the association must have organizational purposes and functions unrelated to the provision of benefits. An association created primarily to offer insurance does not qualify. Second, commonality of interest: the employers must share a genuine commonality of interest based on their employment relationships, not merely their desire for coverage. A trade association whose members share an industry or profession satisfies this. An ad hoc group of small employers from different industries pooled for insurance purposes does not. Third, control: the employers participating in the benefit program must exercise control over the program, both in form and in substance.

Under this framework, bona fide trade associations, professional societies, chambers of commerce with established membership bases, and industry guilds could sponsor AHPs that covered their member employers’ employees. These associations offered group health plans as a member benefit alongside their primary organizational activities. The plans were subject to large group or small group market rules depending on how individual states classified them and how many employees they covered.

The 2018 Expansion and Its Legal Reversal

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On June 21, 2018, the DOL issued a final rule that substantially expanded the definition of employer under ERISA Section 3(5) for AHP purposes. The rule was issued in response to President Trump’s October 2017 executive order directing the DOL to expand access to AHPs by allowing small employers to band together through geographic or industry associations, even when those associations existed primarily to offer insurance. The rule created two pathways to qualify: employers could associate based on a common trade, industry, line of business, or profession, or based on a common principal place of business in the same geographic region, regardless of any other common interest. The rule also allowed self-employed individuals without employees to participate as employers, extending AHP access to sole proprietors.

In July 2018, a coalition of 11 states and the District of Columbia sued the DOL in the U.S. District Court for the District of Columbia. The case was State of New York et al. v. United States Department of Labor, Civil Action No. 18-1747. On March 28, 2019, Judge John D. Bates vacated the key provisions of the 2018 rule. The court held that the rule’s expansion of commonality of interest to include geographic or industry association without any genuine employment nexus was an unreasonable interpretation of ERISA’s definition of employer. The rule failed, the court found, to set meaningful limits on the types of associations that could qualify. The court also rejected the working owner provision as inconsistent with ERISA’s purpose. The rule’s bona fide association and working owner provisions were vacated. The nondiscrimination provision survived.

The Biden DOL completed the legal resolution in April 2024 by formally rescinding the 2018 rule in its entirety. According to the DOL’s fact sheet accompanying the rescission, the agency was unaware of any groups or associations still relying on the 2018 rule at the time of repeal. The D.C. Circuit voluntarily dismissed the DOL’s appeal following the rescission, closing the litigation. The 2018 rule is gone.

What Currently Operates

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The pre-2018 advisory opinion framework governs AHPs today. Bona fide associations with a genuine purpose beyond offering insurance, whose member employers share a meaningful commonality of employment interest, and whose members exercise substantive control over the benefit program can sponsor ERISA-covered group health plans. These plans are MEWAs for regulatory purposes and must file Form M-1 with the DOL annually and before operating in any state. The Form M-1 must be filed no later than March 1 following any calendar year of operation, with a one-time 60-day extension available by request. Failure to file exposes the administrator to civil penalties of up to $1,746 per day as of current inflation-adjusted limits.

Trade associations covering established industries continue to operate AHPs within this framework. The National Roofing Contractors Association, state bar associations, state medical societies, and chamber of commerce associations with genuine member-service histories beyond insurance are examples of association types that have operated plans under the pre-2018 framework. These associations provide coverage to their members’ employees at rates and with plan designs that the individual small employer members could not negotiate independently.

The coverage reach is modest relative to the AHP concept’s theoretical potential. The 2018 rule was designed to expand AHP formation dramatically. Its repeal returned the market to the narrower framework the advisory opinions supported. The TPAs who built AHP administration capability anticipating the 2018 rule’s persistence found the expansion foreclosed.

The Structural Merit of the Model

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The micro-employer pooling problem, the actuarial failure below approximately 10 lives where individual group variance is too high for stable stop loss underwriting, has a logical solution: aggregate enough small employers into a pool where the combined membership is large enough for the actuarial math to work. AHPs accomplish this through association membership. When a trade association pools 200 employers with an average of 8 employees each, the combined pool covers 1,600 employees. At that scale, the variance characteristics of the pool support conventional underwriting and stop loss pricing. The individual employers’ groups are too small. The aggregated pool is not.

The ACA rules create the regulatory friction. Small group market rules, which apply to employers with 50 or fewer full-time equivalents, include guaranteed issue, community rating with limited rating factors, and essential health benefit mandates. Large group market rules, which apply to plans covering employees of larger employers, do not include these requirements. An AHP that qualifies for large group treatment escapes the ACA’s small group restrictions. Critics of the 2018 rule, including the state coalition that sued, argued this was precisely the problem: AHPs were being used to route small employers into a regulatory framework that allowed discrimination against employees with high health costs and excluded benefits the ACA’s small group rules would have required.

The debate over AHP regulation reflects a genuine policy tension. Consumer protection advocates who see value in the ACA’s small group protections view AHP expansion with concern. Small employer advocates who see those protections as cost drivers that exclude employers from offering coverage at all view AHP expansion as access policy. The legal resolution since 2019 has favored the consumer protection position through the courts and the Biden DOL’s rescission.

The Conditions for Return

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What would need to change for AHPs to reach the potential the 2018 rule contemplated?

Regulatory action is the first path. The Trump administration’s DOL could issue a new rulemaking that addresses the court’s objections to the 2018 rule. The core objection was that the 2018 rule’s commonality standard was insufficiently constraining. A new rule that tightens the commonality requirements while retaining broader eligibility than the pre-2018 advisory opinion framework might survive judicial review, particularly under a post-Chevron framework where administrative deference to agency statutory interpretation is narrower following the Supreme Court’s Loper Bright Enterprises v. Raimondo decision in 2024. Without Chevron deference, DOL’s new interpretation would need to be the best reading of the statute rather than a reasonable one.

Legislative action is the second path. Congress could amend ERISA to explicitly define which association structures qualify for large group treatment under what conditions. A statutory foundation would remove the deference question and provide clearer authority than the 2018 rule had. Legislative proposals have been introduced without passage. The political dynamics around ACA protections make legislative movement on AHPs difficult.

State-level action is the third path. States are not required to wait for federal framework clarity. A state can enact its own AHP legislation creating a state-law framework for association health plans within that state’s insurance regulatory domain. Several states have pursued this. State-law AHPs operate under state insurance regulations rather than ERISA’s preemption framework when they are structured as fully insured arrangements, limiting their usefulness for self-funded designs but making them available in states with supportive regulatory environments.

Until one of these paths materializes in enforceable form, AHPs operate within the pre-2018 advisory opinion framework. The structural argument for the model remains. The regulatory condition for the model’s expansion does not currently exist.