Definition of “Employer”-Association Health Plans, 34106-34127 [2024-08985]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 89, Number 84 (Tuesday, April 30, 2024)]
[Rules and Regulations]
[Pages 34106-34127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-08985]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2510

RIN 1210-AC16


Definition of ``Employer''--Association Health Plans

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Final rule, rescission.

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SUMMARY: This document rescinds the Department of Labor's (Department 
or DOL) 2018 rule entitled ``Definition of Employer Under Section 3(5) 
of ERISA--Association Health Plans'' (2018 AHP Rule). The 2018 AHP Rule 
established an alternative set of criteria from those set forth in the 
Department's pre-2018 AHP Rule (pre-rule) guidance for determining when 
a group or association of employers is acting ``indirectly in the 
interest of an employer'' under section 3(5) of the Employee Retirement 
Income Security Act of 1974 (ERISA) for purposes of establishing an 
association health plan (AHP) as a multiple employer group health plan. 
The 2018 AHP Rule was a significant departure from the Department's 
longstanding pre-rule guidance on the definition of ``employer'' under 
ERISA. This departure substantially weakened the Department's 
traditional criteria in a manner that would have enabled the creation 
of commercial AHPs functioning effectively as health insurance issuers. 
The Department now believes that the core provisions of the 2018 AHP 
Rule are, at a minimum, not consistent with the best reading of ERISA's 
statutory requirements governing group health plans.

DATES: Effective date: This rule is effective on July 1, 2024.

FOR FURTHER INFORMATION CONTACT: Suzanne Adelman, Office of Regulations 
and Interpretations, Employee Benefits Security Administration, U.S. 
Department of Labor, (202) 693-8500 (this is not a toll-free number).

SUPPLEMENTARY INFORMATION:

I. Executive Summary

    This document rescinds the Department's 2018 rule entitled 
``Definition of Employer Under Section 3(5) of ERISA--Association 
Health Plans.'' The 2018 AHP Rule established an alternative set of 
criteria from those set forth in the Department's pre-rule guidance for 
determining when a group or association of employers is acting 
``indirectly in the interest of an employer'' under section 3(5) of 
ERISA for purposes of establishing an AHP as a multiple employer group 
health plan. The 2018 AHP Rule was a significant departure from the 
Department's longstanding pre-rule guidance on the definition of 
``employer'' under ERISA. This departure substantially weakened the 
Department's traditional criteria in a manner that would have enabled 
the creation of commercial AHPs functioning effectively as health 
insurance issuers. The 2018 AHP Rule's alternative criteria were, in 
large part, held invalid by the U.S. District Court for the District of 
Columbia in New York v. United States Department of Labor. The district 
court found the bona fide association and working owner provisions in 
the 2018 AHP Rule were based on an unreasonable interpretation of ERISA 
that was inconsistent with congressional intent that ERISA applies to 
employment-based benefit relationships. The Department, after further 
review of the relevant statutory language, judicial decisions, and 
longstanding pre-rule guidance, and further consideration of ERISA's 
statutory purposes and related policy goals, as well as the public 
comments received on the Department's proposed rule, now rescinds in 
full the 2018 AHP Rule in order to resolve and mitigate any uncertainty 
regarding the status of the criteria that were set under the 2018 AHP 
Rule, allow for a reexamination of the criteria for a group or 
association of employers to be able to sponsor an AHP, and ensure that 
guidance being provided to the regulated community is in alignment with 
ERISA's text, purposes, and policies. The Department now believes that 
the provisions of the 2018 AHP Rule that the district court held 
invalid are, at a minimum, not consistent with the best reading of 
ERISA's statutory requirements governing group health plans.

[[Page 34107]]

II. Background

A. Definition of Employer Under Section 3(5) of ERISA

    ERISA regulates ``employee benefit plans'' (classified as 
``employee welfare benefit plans'' and ``employee pension benefit 
plans''), and generally preempts State laws that relate to or have a 
connection with such plans, subject to certain exceptions. An 
``employee welfare benefit plan'' is defined in section 3(1) of ERISA 
to include, among other arrangements, ``any plan, fund, or program . . 
. established or maintained by an employer or by an employee 
organization, or by both, to the extent that such plan, fund or program 
was established or is maintained for the purpose of providing for its 
participants, or their beneficiaries, through the purchase of insurance 
or otherwise . . . medical, surgical, or hospital care or benefits, or 
benefits in the event of sickness, accident, disability, [or] death.'' 
Thus, to be an employee welfare benefit plan, the plan, fund, or 
program must, among other criteria, be established or maintained by an 
employer, an employee organization, or both an employer and an employee 
organization.
    Section 3(5) of ERISA generally defines the term ``employer'' as 
``any person acting directly as an employer, or indirectly in the 
interest of an employer, in relation to an employee benefit plan.'' 
Thus, ERISA defines the term ``employer'' to include the ``direct'' (or 
common-law) employer of the covered employees or ``any person acting . 
. . indirectly in the interest of'' the common-law employer, in 
relation to an employee benefit plan. Section 3(5) of ERISA also 
expressly identifies ``a group or association of employers acting for 
an employer in such capacity'' as falling within the definition of 
``employer.'' A group or association may establish an employee welfare 
benefit plan only when it is acting as an ``employer'' within the 
meaning of section 3(5) of ERISA. The Department's regulation at 29 CFR 
2510.3-5, published in its 2018 AHP Rule,\1\ which is the subject of 
this rescission, sought to define circumstances under which a group or 
association of employers constitutes an ``employer'' within the meaning 
of section 3(5) of ERISA with respect to sponsorship of a group health 
plan and the provision of health benefits.
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    \1\ 83 FR 28912 (June 21, 2018). The 2018 AHP Rule included an 
amendment to the Department's regulation at 29 CFR 2510.3-3, which 
excludes ``plans without employees'' from the definition of employee 
benefit plans covered by Title I of ERISA. Under the amendment, a 
working owner with no common law employees would have been treated 
as both an ``employer'' member of the employer group or association 
and an ``employee'' participant in the AHP, notwithstanding the lack 
of any employment relationship with any other person. This amendment 
to 29 CFR 2510.3-3 is also rescinded by this final rule.
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B. Historical Guidance Prior to the 2018 AHP Rule--``Bona Fide'' Group 
or Association of Employers

    Based on definitions in Title I of ERISA, and because Title I's 
overall structure contemplates employment-based benefit arrangements, 
the Department has long recognized that, even absent the involvement of 
an employee organization, a group or association of employers may 
sponsor a single ``multiple employer'' plan if certain criteria are 
satisfied. If a group or association satisfies these criteria, then it 
is generally referred to as a ``bona fide'' employer group or 
association according to the Department's pre-rule guidance first 
issued more than forty years ago.\2\ Under that pre-rule guidance, 
health coverage sponsored by a bona fide employer group or association 
can be structured as a single, multiple employer plan covered by ERISA. 
The criteria specified in the pre-rule guidance are intended to 
distinguish bona fide groups or associations of employers that provide 
coverage to their employees and the families of their employees from 
arrangements that more closely resemble State-regulated private health 
insurance coverage.The Department's pre-rule guidance is consistent 
with the criteria articulated and applied by every Federal appellate 
court, in addition to several Federal district courts, that have 
considered whether an organization was acting in the interests of 
employer members.\3\ Moreover, to the Department's knowledge, no court 
has found, or even suggested, that the pre-rule guidance criteria too 
narrowly construed the meaning of acting ``indirectly in the interest 
of an employer'' under section 3(5) of ERISA.
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    \2\ An information letter from the Employee Benefits Security 
Administration (EBSA)--previously known as the Pension and Welfare 
Benefits Administration (PWBA)--explained that ``[t]he question of 
whether or not an association is an employer within the meaning of 
section 3(5) rests upon the dual questions of whether or not a bona 
fide employer association exists and, if so, whether it is acting in 
the interest of an employer in relation to an employee benefit 
plan,'' and also noted that ``a number of factors must be 
considered'' to determine ``whether a bona fide employer association 
exists.'' Letter from Helene Benson, PWBA, to David Peters, 1979 WL 
169912 (Aug. 22, 1979); Advisory Opinion No. 80-15A (March 14, 1980) 
(``The Department has taken the position that, in order for any 
group or association to satisfy this definition [association acting 
for its employer members], it must be a bona fide association of 
employers, subject, in both form and substance, to the control of 
its employer members.'')
    \3\ Gruber v. Hubbard Bert Karle Weber, Inc., 159 F.3d 780, 786-
87 (3d Cir. 1998) (endorsing the Department's historical approach to 
determining whether an organization is acting in the interests of 
employer members); MDPhysicians & Assocs., Inc. v. State Bd. of 
Ins., 957 F.2d 178, 185-86 (5th Cir. 1992) (consistent with the 
Department's pre-rule guidance, requiring that, to act in the 
interests of employer members, an organization must not be a 
commercial, ``entrepreneurial venture'' but must instead represent 
members with ``a common economic or representation interest'' 
unrelated to the provision of benefits and who established or 
maintained the plan); Wisconsin Educ. Ass'n Ins. Tr. v. Iowa State 
Bd. of Pub. Instruction, 804 F.2d 1059, 1062-65 (8th Cir. 1986) 
(hereinafter WEAIT); Int'l Ass'n of Entrepreneurs of Am. Ben. Tr. v. 
Foster, 883 F. Supp. 1050, 1056-62 (E.D. Va. 1995); Assoc. Indus. 
Mgmt. Servs. v. Moda Health Plan, Inc., No. 3:14-CV-01711-AA, 2015 
WL 4426241, at *2-*5 (D. Or. July 16, 2015); Smith v. Prudential 
Health Care Plan Inc., No. CIV. A. 97-891, 1997 WL 297096, at *3-*4 
(E.D. Pa. May 27, 1997).
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    Historically, the Department has taken a facts-and-circumstances 
approach to determine whether a group or association of employers is a 
bona fide employer group or association that may sponsor an ERISA group 
health plan on behalf of its employer members. The Department's 
longstanding pre-rule guidance, largely taking the form of a collection 
of advisory opinions issued over more than four decades, has expressed 
the Department's view regarding whether, based on individual 
circumstances, a particular group or association was able to sponsor a 
multiple employer welfare plan.\4\ While the language in the 
Department's pre-rule advisory opinions was tailored to the issues 
presented in the specific arrangements involved, the Department's 
interpretive guidance has consistently focused on three criteria: (1) 
whether the group or association has business or organizational 
purposes and functions unrelated to the provision of benefits (the 
``business purpose'' standard); (2) whether the employers share a 
commonality of interest and genuine organizational relationship 
unrelated to the provision of benefits (the ``commonality'' standard); 
and (3) whether the employers that participate

[[Page 34108]]

in a benefit program, either directly or indirectly, exercise control 
over the program, both in form and substance (the ``control'' 
standard).
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    \4\ See, e.g., Advisory Opinions Nos. 94-07A (Mar. 14, 1994), 
95-01A (Feb. 13, 1995), 96-25 (Oct. 31, 1996), 2001-04A (Mar. 22, 
2001), 2003-13A (Sept. 30, 2003), 2003-17A (Dec. 12, 2003), 2007-06A 
(Aug. 16, 2007), 2012-04A (May 25, 2012), and 2019-01A (July 8. 
2019). See also Department of Labor Publication, ``Multiple Employer 
Welfare Arrangements Under ERISA, A Guide to Federal and State 
Regulation,'' at www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/mewa-under-erisa-a-guide-to-federal-and-state-regulation.pdf. Judicial decisions tended to take 
approaches consistent with that followed by the Department. See also 
Wisconsin Educ. Assn. Ins. Trust v. Iowa State Bd. of Public 
Instruction, 804 F.2d 1059, 1063-1064 (8th Cir. 1986); MDPhysicians 
& Associates, Inc. v. State Bd. of Ins., 957 F.2d 178, 183-186 (5th 
Cir. 1992) [hereinafter MDPhysicians]; National Business Assn. Trust 
v. Morgan, 770 F. Supp. 1169 (W.D. Ky. 1991).
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    A variety of factors were set forth in the Department's 
longstanding pre-rule guidance as relevant when applying these three 
general criteria to a particular group or association. These factors 
include how members are solicited; who is entitled to participate and 
who actually participates in the group or association; the process by 
which the group or association was formed; the purposes for which it 
was formed; the preexisting relationships, if any, of its members; the 
powers, rights, and privileges of employer members that exist by reason 
of their status as employers; who actually controls and directs the 
activities and operations of the benefit program; and the extent of any 
employment-based common nexus or other genuine organizational 
relationship unrelated to the provision of benefits.\5\
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    \5\ See Gruber, 159 F.3d at 788 fn. 5 (listing the Department's 
criteria); Int'l Ass'n of Entrepreneurs of Am. Ben. Tr. v. Foster, 
883 F. Supp. at 1061 (same); Hall v. Maine Mun. Emps. Health Tr., 93 
F. Supp. 2d 73, 77 (D. Me. 2000); Assoc. Indus. Mgmt. Servs. v. Moda 
Health Plan, Inc., 2015 WL 4426241, at *3.
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C. Association Coverage Under the Public Health Service Act

    The Public Health Service Act (PHS Act) establishes health coverage 
requirements in Title XXVII that generally apply to group health plans 
and health insurance issuers offering group or individual health 
insurance coverage. The provisions of Title XXVII of the PHS Act have 
been amended by the Affordable Care Act (ACA) \6\ and other Federal 
laws. These PHS Act provisions are administered by the Department of 
Health and Human Services (HHS), Centers for Medicare & Medicaid 
Services (CMS). With respect to health insurance issuers, States are 
the primary enforcers of these PHS Act provisions, and if a State fails 
to substantially enforce them, CMS enforces them.
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    \6\ The Patient Protection and Affordable Care Act, Public Law 
111-148, was enacted on March 23, 2010; the Health Care and 
Education Reconciliation Act of 2010, Public Law 111-152, was 
enacted on March 30, 2010. These statutes are collectively referred 
to as the Affordable Care Act (ACA). The ACA reorganized, amended, 
and added to the provisions of part A of title XXVII of the PHS Act 
relating to group health plans and health insurance issuers in the 
group and individual markets.
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    Under Title XXVII of the PHS Act, ``individual market coverage'' is 
any health insurance coverage that is not offered in connection with a 
group health plan.\7\ Conversely, the term ``group health insurance 
coverage'' refers to health insurance coverage offered in connection 
with a group health plan.\8\ The PHS Act derives its definitions of 
``group health plan'' and ``employer'' from the ERISA definitions of 
``employee welfare benefit plan'' and ``employer.'' \9\ Thus, reference 
to ERISA is needed when determining whether a group health plan exists 
for PHS Act purposes and determining whether an ERISA-covered health 
arrangement is properly treated as a single plan operating on behalf of 
multiple employers or, instead, a collection of separate and discrete 
employer-sponsored plans.
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    \7\ Section 2791(b)(5) and (e)(1)(A) of the PHS Act.
    \8\ Section 2791(b)(4) of the PHS Act.
    \9\ Section 2791(a)(1) and (d)(6) of the PHS Act.
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    In guidance issued in 2002 and 2011, CMS explained how the 
requirements of Title XXVII of the PHS Act apply to health insurance 
coverage sold to or through associations.\10\ Specifically, as stated 
in the guidance, the test for determining whether association coverage 
\11\ is individual or group market coverage for purposes of Title XXVII 
of the PHS Act is the same test as that applied to health insurance 
coverage offered directly to individuals or employers. In other words, 
CMS will generally ignore--``look through''--the association to 
determine whether each association member must receive coverage that 
complies with the requirements arising out of its status as an 
individual, small employer, or large employer.
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    \10\ See Centers for Medicare & Medicaid Services, Application 
of Individual and Group Market Requirements under Title XXVII of the 
Public Health Service Act when Insurance Coverage Is Sold to, or 
through Associations, Insurance Standards Bulletin Series--
INFORMATION (Sept. 1, 2011), available at https://www.cms.gov/cciio/resources/files/downloads/association_coverage_9_1_2011.pdf. See 
also CMS Insurance Standards Bulletin Transmittal No. 02-02 (August 
2002), available at https://www.cms.gov/regulations-and-guidance/health-insurance-reform/healthinsreformforconsume/downloads/hipaa-02-02.pdf.
    \11\ For this purpose, the term ``association coverage'' means 
health insurance coverage offered to collections of individuals and/
or employers through entities that may be called associations, 
trusts, multiple employer welfare arrangements, purchasing 
alliances, or purchasing cooperatives.
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    Consequently, coverage that is issued to or through an association, 
but not in connection with a group health plan, is not considered group 
health insurance coverage for purposes of the PHS Act. Under the PHS 
Act, such coverage is considered coverage in the individual market, 
regardless of whether it is considered group coverage under State 
law.\12\
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    \12\ See 45 CFR 144.102(c).
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    In situations involving employment-based association coverage where 
coverage is offered in connection with a group health plan, the 
coverage is considered group health insurance coverage under the PHS 
Act. In cases where an association is not considered an employer under 
ERISA, each employer member of the association is considered to sponsor 
its own group health plan under the PHS Act. In those cases where an 
association is determined to be an employer that is ``acting indirectly 
in the interest of its employer members'' and sponsors a plan under 
ERISA, the association coverage is considered a single group health 
plan under the PHS Act.
    Under the PHS Act, the number of employees of the employer 
sponsoring the group health plan determines whether the employer is a 
small employer \13\ or large employer \14\ and thus whether health 
insurance coverage provided in connection with a group health plan 
sponsored by the employer falls into the small group market or large 
group market. In the situation where each employer member of the 
association is considered to sponsor its own group health plan, the 
size of each employer participating in the association determines 
whether that employer's coverage is subject to the small group market 
or large group market rules. In those instances where the group or 
association of employers is, in fact, sponsoring the group health plan 
and the association itself is deemed the ``employer,'' the number of 
employees employed by all the employers participating in the 
association determines whether the coverage is subject to the small 
group market or large group market rules. Accordingly, the status of an 
association as a single ``employer'' within the meaning of section 3(5) 
of ERISA, and of the AHP as a single plan has important legal 
consequences. As a general matter, small group and individual market 
coverage is subject to Federal protections not applicable to large 
group market coverage, such as the ACA's premium rating requirements, 
single risk pool, and essential health benefit (EHB) requirements. 
Thus, to the extent the arrangement is not a single plan, but rather an 
aggregation of individual plans (or individuals), the participants 
covered by the arrangement are subject

[[Page 34109]]

to these more robust protections applicable to plans in the small group 
market (or to individual coverage, when the insured parties are simply 
individuals purchasing insurance coverage outside the group 
market).15 16
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    \13\ The term ``small employer'' generally means an employer who 
employed an average of at least 1 but not more than 50 employees on 
business days during the preceding calendar year, and who employed 
at least 1 employee on the first day of the plan year. Section 
2791(e)(4) of the PHS Act.
    \14\ The term ``large employer'' generally means an employer who 
employed an average of at least 51 employees on business days during 
the preceding calendar year and who employs at least 2 employees on 
the first day of the plan year. Section 2791(e)(2) of the PHS Act.
    \15\ There are other provisions of the PHS Act that apply to 
individual but not large group market coverage. For example, section 
2746 of the PHS Act requires health insurance issuers offering 
individual health insurance coverage or short-term limited duration 
insurance coverage to make disclosures to enrollees in such coverage 
and provide reports to the Secretary of HHS regarding direct and 
indirect compensation provided by the issuer to an agent or broker 
associated with enrolling individuals in such coverage.
    \16\ See section 2701 of the PHS Act (premium rating), section 
1312(c) of the ACA (single risk pool), and section 2707(a) of the 
PHS Act (EHB requirements). The ACA requires non-grandfathered 
health plans in the individual and small group markets to cover 
EHBs, which include items and services in the following ten benefit 
categories: (1) ambulatory patient services; (2) emergency services; 
(3) hospitalization; (4) maternity and newborn care; (5) mental 
health and substance use disorder services including behavioral 
health treatment; (6) prescription drugs; (7) rehabilitative and 
habilitative services and devices; (8) laboratory services; (9) 
preventive and wellness services and chronic disease management; and 
(10) pediatric services, including oral and vision care. 42 U.S.C. 
18022(b).
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D. The 2018 AHP Rule

    On June 21, 2018, the Department published the 2018 AHP Rule,\17\ 
which was intended to broaden the types of employer groups and 
associations that may sponsor a single group health plan under ERISA. 
The Department issued the 2018 AHP Rule in response to a 2017 Executive 
Order (E.O.) that was rescinded in 2021.\18\ Relative to the 
longstanding pre-rule guidance, the 2018 AHP Rule substantially 
loosened the requirements for groups or associations to be considered 
bona fide groups or associations that were eligible to establish 
employee welfare benefit plans or to otherwise meet the definition of 
``employer'' under section 3(5) of ERISA.\19\ As published, the 2018 
AHP Rule altered many of the guardrails in pre-rule guidance, which had 
been intended to distinguish bona fide employer associations united by 
common employment-based relationships from mere commercial ventures 
aimed at marketing insurance to employers and individuals.
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    \17\ 83 FR 28912, 28962 (June 21, 2018).
    \18\ E.O. 13813, 82 FR 48385 (rescinded by E.O. 14009, 86 FR 
7793 (Jan. 28, 2021)).
    \19\ See generally 83 FR 28912 (June 21, 2018). But the 
Department expressly noted in the 2018 AHP Rule that the rule ``does 
not invalidate any existing advisory opinions, or preclude future 
advisory opinions, from the Department under section 3(5) of ERISA 
that address other circumstances in which the Department will view a 
person as able to act directly or indirectly in the interest of 
direct employers in sponsoring an employee welfare benefit plan that 
is a group health plan.'' 83 FR 28912, 28962 (June 21, 2018).
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    Thus, paragraph (b)(1) of the 2018 AHP Rule abandoned the 
requirement in pre-rule guidance that the group or association acting 
as an employer must exist for purposes other than providing health 
benefits. Instead, the 2018 AHP Rule only required that the group or 
association must have at least one substantial business purpose 
unrelated to offering and providing health coverage or other employee 
benefits to its employer members and their employees. In a significant 
departure from pre-rule guidance, the rule specifically stated that 
``the primary purpose of the group or association'' could be ``to offer 
and provide health coverage to its employer members and their 
employees.'' \20\
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    \20\ 83 FR 28912, 18 (June 21, 2018).
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    Similarly, paragraph (c) of the 2018 AHP Rule provided for a looser 
commonality standard than the pre-rule guidance, which had insisted on 
a genuine commonality of interests between employer members. Under the 
2018 AHP Rule, a group or association of employers satisfied the 
commonality of interest requirement if either: (1) its employer members 
were in the same trade or business; or (2) the principal places of 
business for its employer members were located within a region that did 
not exceed the boundaries of the same State or metropolitan area, such 
as the Washington Metropolitan Area of the District of Columbia (which 
also includes portions of Maryland and Virginia). No other common 
interests were required.\21\ Under the pre-rule guidance, geography 
alone would not have been sufficient to establish commonality between 
businesses. For example, barbers, mechanics, and lawyers would not have 
been treated as having the requisite commonality of interest merely 
because they all have a principal place of business in the State of New 
York.
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    \21\ 29 CFR 2510.3-5(c); see 83 FR 28912, 28924 (June 21, 2018).
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    In a particularly striking departure from ERISA's employment-based 
structure, paragraph (e) of the 2018 AHP Rule specifically allowed 
working owners without any common-law employees to participate in AHPs, 
stating that the working owner would be treated as both an ``employer'' 
and ``employee'' for purposes of participating in, and being covered 
by, an AHP, notwithstanding the absence of any employment relationship 
with any common-law employees.\22\ Under the pre-rule guidance, working 
owners without common-law employees generally were not permitted to be 
treated as employers for the purpose of participating in a bona fide 
employer group or association,\23\ or as employees who could be 
participants in an ERISA-covered employee welfare benefit plan.
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    \22\ Id. at 28929-33.
    \23\ Id. at 28928, n. 40.
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    In part because the 2018 AHP Rule had relaxed the standards for 
treating arrangements as single group plans--making it easier for small 
employers and working owners to purchase coverage in the large group 
market which is not subject to all the legal protections applicable to 
coverage in the individual and small group markets--the 2018 AHP Rule 
expressly added nondiscrimination standards as an additional safeguard 
against abuse.\24\ These standards aimed to reduce the danger that the 
new AHPs would abuse their status by cherry-picking groups of 
relatively healthy participants, such as by charging one participating 
business more for premiums than it charges other members because that 
business employs several individuals with chronic illness, and 
excluding others at the expense of the broader insurance market, which 
would cover a relatively sicker and more expensive population. In 
particular, the 2018 AHP Rule incorporated and adapted existing health 
nondiscrimination provisions already applicable to group health plans, 
including AHPs, under the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA).\25\
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    \24\ Under the 2018 AHP Rule, in addition to the bona fide group 
or association, the underlying health coverage offered by the bona 
fide group or association must also meet these requirements for the 
bona fide group or association to qualify as an employer under the 
2018 AHP Rule. 84 FR 28912, 28926-29.
    \25\ Id. at 28926-27.
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    In applying the HIPAA health nondiscrimination rules for defining 
similarly situated individuals under the 2018 AHP Rule, the group or 
association could not treat employer members as distinct groups of 
similarly situated individuals if it wished to qualify as a bona fide 
group or association for purposes of sponsoring an AHP.\26\ For 
example, a group or association could not separately experience-rate 
each employer member of the association based on the health factors of 
their employees and meet the criteria to be a bona fide group or 
association of employers under the 2018 AHP Rule. The pre-rule guidance 
does not incorporate nondiscrimination requirements in the definition 
of employer, although plans must comply with all applicable laws, 
including the

[[Page 34110]]

HIPAA nondiscrimination rules. As the Department noted in the preamble 
to the 2018 AHP Rule, the HIPAA nondiscrimination rules apply to group 
health plans, including AHPs, and therefore AHPs, like any other group 
health plan, cannot discriminate in eligibility, benefits, or premiums 
against an individual within a group of similarly situated individuals 
based on a health factor.
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    \26\ Id. at 28927, 28929, 28955.
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E. Decision Finding Core Provisions of the 2018 AHP Rule Invalid

    In July 2018, eleven States and the District of Columbia 
(collectively, the States) sued the Department in the U.S. District 
Court for the District of Columbia. They argued that the 2018 AHP Rule 
violates the Administrative Procedure Act (APA), 5 U.S.C. 551 et seq., 
because it exceeds the Department's statutory authority and is 
arbitrary or capricious. The States moved for summary judgment, and the 
Department moved to dismiss the lawsuit for lack of standing and cross-
moved in the alternative for summary judgment. On March 28, 2019, the 
Federal district court denied the Department's motions and granted the 
States' motion for summary judgment. In granting the States' motion, 
the district court held invalid the 2018 AHP Rule's definition of bona 
fide group or association of employers and the language permitting 
working owners without common-law employees to be treated as employees 
when participating in an AHP.\27\ Specifically, the district court 
concluded that the 2018 AHP Rule's criteria for establishing AHPs 
unreasonably construed ERISA's requirement that the association act 
``indirectly in the interest of an employer'' because the 2018 AHP 
Rule's ``substantial business purpose'' and ``geographic commonality'' 
requirements were not drawn narrowly enough to limit AHPs to those that 
act in the interest of employers, thus unreasonably expanding the 
definition of ``employer.'' \28\ In addition, the district court ruled 
that the 2018 AHP Rule's expansion of the term ``employer'' under ERISA 
to include working owners without common-law employees (when members of 
an association) was unreasonable because it was contrary to ERISA's 
text and central purpose of regulating employment-based 
relationships.\29\ Regarding ERISA's text and purpose, the district 
court held that Congress did not intend for working owners without 
common-law employees to be included within ERISA--either as individuals 
or when joined in an employer association.\30\ In conclusion, the 
district court held that the 2018 AHP Rule was inconsistent with ERISA 
and the APA because the provisions unlawfully failed to limit bona fide 
associations to those acting ``in the interest of'' their employer 
members, within the meaning of ERISA, thus exceeding the Department's 
statutory authority.\31\ The district court remanded the 2018 AHP Rule 
to the Department to consider how the severability provision of the 
2018 AHP Rule affects any of its remaining provisions.\32\ The 
Department's longstanding pre-rule guidance was not affected by the 
district court's decision.
---------------------------------------------------------------------------

    \27\ New York v. United States Department of Labor, 363 F. Supp. 
3d 109 (D.D.C. 2019).
    \28\ Id. at 131-34.
    \29\ Id. at 136-40.
    \30\ Id. at 137. The district court concluded that the provision 
was contrary to ERISA and the APA and that it relied on ``a tortured 
reading'' of the ACA. Id. at 141. The court described the defense of 
the working owner test as ``pure legerdemain,'' noting that ``DOL's 
feat of prestidigitation transforms two individuals, neither of whom 
works for the other, into a total of three employers and two 
employees.'' Id. at 139. The court understood ERISA to require a 
different approach to counting employees, noting that ``when one 
counts the employees employed by two self-employed persons without 
employees, the sum is zero.'' Id.
    \31\ Id. at 128.
    \32\ Id. at 141.
---------------------------------------------------------------------------

    In 2019, the Department appealed the district court's decision.\33\ 
Thereafter, the U.S. Court of Appeals for the District of Columbia 
Circuit granted the Department's request to stay the appeal.\34\ 
Subsequently, the Department informed the appeals court that it would 
undertake notice and comment rulemaking on a proposal to rescind the 
2018 AHP Rule. The appeal pending before the D.C. Circuit remains 
stayed.
---------------------------------------------------------------------------

    \33\ New York v. United States Department of Labor, 363 F. Supp. 
3d 109, appeal docketed, No. 19-5125 (D.C. Cir. May 31, 2019).
    \34\ New York v. United States Department of Labor, No. 19-5125 
(D.C. Cir. Feb. 8, 2021) (order granting consent motion to hold case 
in abeyance).
---------------------------------------------------------------------------

    The Department considered the severability clause issue raised by 
the district court and concluded that, without the core provisions that 
the district court found invalid, the 2018 AHP Rule could not be 
operationalized and would provide no meaningful guidance. To minimize 
consequences of the district court's decision on AHP participants, the 
Department announced a temporary safe harbor from enforcement on April 
29, 2019.\35\ Specifically, the Department announced that it would not 
pursue enforcement actions against parties for potential violations 
stemming from actions taken prior to the district court's decision and 
in good faith reliance on the 2018 AHP Rule, as long as parties met 
their responsibilities to association members and the AHP's 
participants and beneficiaries to pay health benefit claims as 
promised.\36\ In addition, the Department announced that it would not 
take action against existing AHPs for continuing, through the remainder 
of the applicable plan year or contract term that was in force at the 
time of the district court's decision, to provide health benefits to 
members who enrolled in good faith reliance on the 2018 AHP Rule before 
the district court's order.\37\ Because the 2018 AHP Rule ceased being 
an alternative pathway for entities to be treated as bona fide employer 
groups or associations after the district court's decision in 2019, the 
Department anticipated that parties who established AHPs in reliance on 
the 2018 AHP Rule would wind them down and that no new AHPs would be 
formed in reliance on the 2018 AHP rule until the judicial process 
ended. The Department's temporary safe harbor from enforcement expired 
long ago, and the Department is not aware of any AHPs that currently 
exist in reliance on the 2018 AHP Rule.\38\
---------------------------------------------------------------------------

    \35\ Press Release, Employee Benefits Security Administration, 
U.S. Department of Labor Statement Relating to the U.S. District 
Court Ruling in State of New York v. United States Department of 
Labor (Apr. 29, 2019), available at https://www.dol.gov/newsroom/releases/ebsa/ebsa20190429.
    \36\ Id.
    \37\ In addition, as explained in the April 29, 2019 statement, 
HHS had advised the Department that HHS would not pursue enforcement 
against nonfederal governmental plans or health insurance issuers 
for potential violations of Title XXVII of the PHS Act caused by 
actions taken before the district court's decision in good faith 
reliance on the rule's validity, through the remainder of the 
applicable plan year or contract term that was in force at the time 
of the district court's decision. HHS had also advised the 
Department that HHS would not consider States to be failing to 
substantially enforce applicable requirements under Title XXVII of 
the PHS Act in cases where the State adopted a similar approach with 
respect to health insurance coverage issued within the State. Id.
    \38\ The non-enforcement policy ended at the end of the plan 
year or contract term that was in effect at the time of the district 
court's decision on March 28, 2019. Id. at 38.
---------------------------------------------------------------------------

III. Rescission of 2018 AHP Rule

    This final rule rescinds the 2018 AHP Rule in its entirety. 
Accordingly, the 29 CFR 2510.3-5 regulation established by the 2018 AHP 
Rule and the related amendment to the 29 CFR 2510.3-3 regulation made 
by the 2018 AHP Rule are rescinded.
    The 2018 AHP Rule reflected a substantial departure from the 
Department's longstanding pre-rule guidance on the definition of 
``employer'' under ERISA. The 2018 AHP Rule struck the wrong balance 
between ensuring a sufficient

[[Page 34111]]

employment nexus and enabling the creation of AHPs. The employment 
relationship is at the heart of what makes an entity a bona fide group 
or association of employers capable of sponsoring an AHP, and of what 
separates bona fide employer associations from commercial ventures 
aimed at selling insurance to unrelated individuals and employers. The 
approach taken in the 2018 AHP Rule does not comport with the better 
reading of the statute because it goes too far in disregarding ERISA's 
focus on employment-based relationships. The pre-rule guidance rightly 
insisted on the existence of an employment relationship and on a common 
employment nexus between entities participating in a bona fide employer 
association. By departing from these standards, in the 2018 AHP Rule, 
the Department undermined ERISA's employment-based focus and wrongly 
treated as ``employers'' entities whose primary purpose was the 
marketing of health benefits to unrelated employers and individuals.
    As explained in detail below, the Department is no longer of the 
view that the business purpose standard, geography-based commonality 
standard, and working owner provision in the 2018 AHP Rule, even as 
bolstered by the nondiscrimination standards in paragraph (d)(4), are 
sufficient to distinguish between meaningful employment-based 
relationships and commercial insurance-type arrangements whose purpose 
is principally to market benefits, and to identify and manage risk. The 
Department's rescission of the 2018 AHP Rule makes clear that this 
significant departure from pre-rule guidance no longer represents the 
Department's interpretation of when a group or association can 
constitute an ``employer'' for purposes of sponsoring a group health 
plan under ERISA. The rescission leaves in place the longstanding pre-
rule guidance that has been consistently supported and relied upon in 
numerous judicial decisions because it fosters a sufficient employer-
employee nexus and proper oversight of AHPs, while remaining consistent 
with ERISA's text and purpose.

A. Authority To Define ``Employer'' in Section 3(5) of ERISA

    Congress tasked the Department with administering ERISA.\39\ The 
Department has clear authority to interpret the term ``employer,'' 
including defining when a ``group or association of employers'' may act 
``indirectly in the interest of an employer'' in establishing an 
employee benefit plan, and has done so in numerous advisory 
opinions.\40\ The courts and the Department have consistently stressed 
that ERISA's definition of ``employee benefit plan,'' including the 
definition's reference to arrangements ``established or maintained by 
an employer or employee organization, or both,'' envisions employment-
based arrangements. No court decision or guidance from the Department, 
including the 2018 AHP Rule, has suggested the ``employer group or 
association'' provision in the section 3(5) of ERISA definition of 
``employer'' extends the concept of an ``employee benefit plan'' to 
commercial insurance-type arrangements.
---------------------------------------------------------------------------

    \39\ 29 U.S.C. 1135 (delegating authority to the Secretary of 
Labor to ``prescribe such regulations as he finds necessary or 
appropriate to carry out the provisions of [ERISA]''); see Black & 
Decker Disability Plan v. Nord, 538 U.S. 822, 831 (2003) (deferring 
to the Department's interpretation of an ERISA provision).
    \40\ See Advisory Opinions Nos. 94-07A (Mar. 14, 1994), 95-01A 
(Feb. 13, 1995), 96-25A (Oct. 31, 1996), 2001-04A (Mar. 22, 2001), 
2003-13A (Sept. 30, 2003), 2003-17A (Dec. 12, 2003), 2007-06A (Aug. 
16, 2007), 2012-04A (May 25, 2012), and 2019-01A (July 8. 2019); see 
also 2018 AHP Rule, 83 FR 28912, 28914 (June 21, 2018) and New York 
v. United States Department of Labor, 363 F. Supp. 3d 109, 128 
(D.D.C. 2019) (recognizing the Department's authority to interpret 
ERISA).
---------------------------------------------------------------------------

    As described above, the Department's longstanding pre-rule 
guidance, as expressed in advisory opinions, has traditionally applied 
a facts-and-circumstances approach to determine whether a group or 
association of employers is a bona fide employer group or association 
capable of sponsoring an ERISA plan on behalf of its employer members. 
This pre-rule guidance focuses on three general criteria: (1) whether 
the group or association has business or organizational purposes and 
functions unrelated to the provision of benefits; (2) whether the 
employers share some commonality of interest and genuine organizational 
relationship unrelated to the provision of benefits; and (3) whether 
the employers that participate in a benefit program, either directly or 
indirectly, exercise control over the program, both in form and 
substance. While there are many organizations of employers, the 
Department's pre-rule guidance makes clear that only certain entities 
consisting of more than one employer meet the definition of a bona fide 
group or association of employers under ERISA.
    Before the 2018 AHP Rule, the Department's approach to these 
determinations had consistently focused on employment-based 
arrangements, as contemplated by ERISA, rather than commercial 
insurance-type arrangements that lack the requisite connection to the 
employment relationship.\41\ The Department's longstanding pre-rule 
guidance had also been informed by its extensive experience with 
unscrupulous promoters, marketers, and operators of multiple employer 
welfare arrangements (MEWAs).\42\ AHPs generally qualify as MEWAs under 
ERISA. Although MEWAs can provide valuable coverage, historically 
MEWAs, particularly self-funded MEWAs, have disproportionately suffered 
from financial mismanagement or abuse, leaving participants and 
providers with unpaid benefits and bills and putting small businesses 
at financial risk.\43\ Because of this history of abuse by MEWA 
promoters falsely claiming ERISA coverage and protection from State 
regulation, Congress amended ERISA in 1983 to provide an exception to 
ERISA's broad preemption provisions
---------------------------------------------------------------------------

    \41\ This focus is supported by courts' interpretation of the 
term ``employee benefit plan.'' See, e.g., Wisconsin Educ. Ass'n 
Ins. Trust v. Iowa State Bd. of Public Instruction, 804 F.2d 1059, 
1063-64 (8th Cir. 1986) (concluding that ``the statute and 
legislative history will [not] support the inclusion of what amounts 
to commercial products within the umbrella of the definition'' of 
``employee benefit plan'' (citing H.R. Rep. No. 1785, 94th Cong., 2d 
Sess. 48 (1977)).
    \42\ Section 3(40)(A) of ERISA (defining MEWAs).
    \43\ For discussions of this history, see: (1) U.S. Gov't 
Accountability Office, GAO-92-40, ``States Need Labor's Help 
Regulating Multiple Employer Welfare Arrangements.'', March 1992, at 
https://www.gao.gov/assets/220/215647.pdf; (2) U.S. Gov't 
Accountability Office, GAO-04-312, ``Employers and Individuals Are 
Vulnerable to Unauthorized or Bogus Entities Selling Coverage.'' 
Feb. 2004, at https://www.gao.gov/new.items/d04312.pdf; and (3) 
Kofman, M. and Jennifer Libster, ``Turbulent Past, Uncertain Future: 
Is It Time to Re-evaluate Regulation of Self-Insured Multiple 
Employer Arrangements?'', Journal of Insurance Regulation, 2005, 
Vol. 23, Issue 3, pp. 17-33.

---------------------------------------------------------------------------

[[Page 34112]]

for the regulation of plan and non-plan MEWAs \44\ under State 
insurance laws.\45\
---------------------------------------------------------------------------

    \44\ A ``MEWA'' is a ``multiple employer welfare arrangement'' 
as defined in ERISA section 3(40). A MEWA can be a single ERISA-
covered plan (``plan MEWA''), or an arrangement comprised of 
multiple ERISA-covered plans, each sponsored by unrelated employer 
members that participate in the arrangement (``non-plan MEWA''). An 
AHP is a plan MEWA. If an ERISA-covered plan is a MEWA, States may 
apply and enforce their State insurance laws with respect to the 
plan to the extent provided by ERISA section 514(b)(6)(A)--the 
extent to which depends on whether the MEWA that is an ERISA-covered 
plan is fully insured. If a MEWA is determined not to be an ERISA-
covered plan, the persons who operate or manage the MEWA may 
nonetheless be subject to ERISA's fiduciary responsibility 
provisions if such persons are responsible for, or exercise control 
over, the assets of ERISA-covered plans. In both situations, the 
Department would have concurrent jurisdiction with the State(s) over 
the MEWA. See Department of Labor Publication, Multiple Employer 
Welfare Arrangements Under ERISA, A Guide to Federal and State 
Regulation, https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/our-activities/resource-center/publications/mewa-under-erisa-a-guide-to-federal-and-state-regulation.pdf.
    \45\ Section 514(b)(6) of ERISA, 29 U.S.C. 1144(b)(6).
---------------------------------------------------------------------------

    Employees and their dependents have too often become financially 
responsible for medical claims they were promised would be covered by 
the plan after paying premiums to fraudulent or mismanaged MEWAs, which 
could include AHPs. Because these entities often become insolvent, 
individuals and families bear the risk, and the impact can be 
devastating as participants are left with large unpaid medical bills or 
even lose access to critical medical services.\46\ Even when such MEWAs 
are not insolvent, employees and their dependents may still become 
financially responsible for health claims where the AHP failed to 
adequately disclose the benefit limitations and exclusions under the 
plan.\47\ The Department is concerned about the potential uptake and 
expansion of fraudulent and mismanaged MEWAs.
---------------------------------------------------------------------------

    \46\ Based on the Department's enforcement data, since 2001, the 
Department has taken civil and criminal enforcement action, as 
reflected in criminal indictments, civil complaints, temporary 
restraining orders, and cease and desist orders involving 108 
fraudulent and mismanaged MEWAs and their operators. Just since 
2018, the Department was forced to take civil and criminal 
enforcement action against 21 MEWAs in order to protect participants 
and beneficiaries from fraud or mismanagement. Further, the 
Department has civilly recovered over $95 million from mismanaged or 
fraudulent MEWAs in the last five years alone. See EBSA National 
Enforcement Project--Health Enforcement Initiatives at www.dol.gov/agencies/ebsa/about-ebsa/our-activities/enforcement#national-enforcement-projects; U.S. Department of Labor Files Complaint to 
protect Participants and Beneficiaries of failing Medova MEWA 
operating in 38 states, available at https://www.dol.gov/newsroom/releases/ebsa/ebsa20201218; Federal Court Appoints Independent 
Fiduciary as Claims Administrator of Medova Arrangement, available 
at https://www.dol.gov/newsroom/releases/ebsa/ebsa20210412; Federal 
Court Orders Kentucky Bankers Association to Pay $1,561,818 In 
Losses to Benefits Plan After U.S. Department of Labor Finds 
Violations, available at https://www.dol.gov/newsroom/releases/ebsa/ebsa20201015; MEWA Enforcement Fact Sheet, available at https://www.dol.gov/sites/dolgov/files/EBSA/about-ebsa/our-activities/resource-center/fact-sheets/mewa-enforcement.pdf.
    \47\ See 83 FR 28912, 28952 (June 21, 2018) (highlighting that 
many of the Department's civil enforcement cases involving MEWAs 
involved failure to follow plan terms or health care laws, failure 
to provide plan benefits, or reporting and disclosure deficiencies).
---------------------------------------------------------------------------

    ERISA's overarching purpose is to protect participants and 
beneficiaries. The provisions of Title I of ERISA were initially 
enacted primarily to address public concern that funds of private 
pension plans were being mismanaged and abused. Over time, however, 
ERISA's protections have dramatically expanded with respect to private 
group health plans as well. Both Federal regulators and State insurance 
regulators have devoted substantial resources to detecting and 
correcting mismanagement and abuse, and in some cases, prosecuting 
wrongdoers. Even the 2018 AHP Rule expressed concern about departing 
too dramatically from its traditional interpretation of the term 
``employer.'' \48\ While the Department sought to expand the scope of 
covered entities, it recognized the danger that too broad an expansion 
could result in ``associations'' masquerading as bona fide employer 
groups or associations merely to promote the commercial sale of 
insurance. For that reason, the Department in the 2018 AHP Rule adopted 
and clarified the pre-rule guidance condition that the employers who 
participate in the AHP must control the group or association and the 
plan and added an express nondiscrimination requirement as a 
counterweight to abuse.
---------------------------------------------------------------------------

    \48\ 83 FR 28912 (``[T]he regulation continues to distinguish 
employment-based plans, the focal point of Title I of ERISA, from 
commercial insurance programs and other service provider 
arrangements.'').
---------------------------------------------------------------------------

    Because oversight resources are extremely limited and fraudulent 
operations often resist detection until claims go unpaid, significant 
damage can be done before State and Federal governmental entities even 
receive a complaint about an arrangement, making it difficult for 
regulators to mitigate damage and stop bad actors. The vulnerability of 
the participants, beneficiaries, and employers whose employees receive 
benefits through an AHP is further heightened when the standard for 
becoming a bona fide group or association is weakened. A weakened 
standard also can hinder efforts by States to regulate MEWAs, including 
AHPs, within their borders.\49\
---------------------------------------------------------------------------

    \49\ U.S. Gov't Accountability Office, GAO-92-40, ``States Need 
Labor's Help Regulating Multiple Employer Welfare Arrangements.'' 
March 1992, pg. 2-3 at https://www.gao.gov/assets/220/215647.pdf.
---------------------------------------------------------------------------

    The preamble of the 2018 AHP Rule implies as much in explaining the 
importance of incorporating the nondiscrimination provision in 
paragraph (d)(4) of the 2018 AHP Rule. As noted above, paragraph (d)(4) 
of the 2018 AHP Rule sought to prohibit AHPs from treating member 
employers as distinct groups in an effort to distinguish AHPs from 
commercial insurance issuers. In discussing the importance of a 
requisite connection or commonality to lessen concerns about fraud, the 
preamble of the 2018 AHP Rule explained that because the final rule 
relaxed the Department's pre-rule guidance on the groups or 
associations that may sponsor a single ERISA-covered group health plan, 
paragraph (d)(4) was especially important in the context of the new, 
broader arrangements to distinguish a group or association-sponsored 
AHP from commercial insurance-type arrangements, which lack the 
requisite connection to the employment relationship and whose purpose 
was, instead, principally to sell health coverage and to identify and 
manage risk on a commercial basis.\50\
---------------------------------------------------------------------------

    \50\ 83 FR 28912, 28928-29 (June 21, 2018).
---------------------------------------------------------------------------

    The Department continues to be mindful of the unique potential 
harms to participants, beneficiaries, small employers, and health care 
providers in the context of AHPs and any other form of MEWAs. These 
concerns underscore the need to limit ERISA-covered AHPs to true 
employee benefit plans that are the product of a genuine employment 
relationship and not artificial structures marketed as employee benefit 
plans, often with an objective of attempting to sidestep otherwise 
applicable insurance regulations or misdirect State insurance 
regulators. Such artificial vehicles are not ``employee benefit plans'' 
as defined in section 3(3) of ERISA, nor, as explained above, would it 
be consistent with the purpose of the statute to treat them as such. In 
sum, upon further evaluation and consistent with the sound 
administration of ERISA, the Department has concluded that it should 
rescind the 2018 AHP Rule from the Code of Federal Regulations (CFR). 
The Department now believes that the provisions of the 2018 AHP Rule 
that the district court found inconsistent with the APA and in excess 
of the Department's statutory authority under ERISA are, at a minimum, 
not consistent

[[Page 34113]]

with the best reading of ERISA's statutory requirements governing group 
health plans.

B. Discussion of Decision To Rescind

    Under Supreme Court precedent, an agency has the discretion to 
change a policy position provided that the agency acknowledges changing 
its position, the new policy is permissible under the governing 
statute, there are good reasons for the new position, the agency 
believes that the new policy is better, as evidenced by the agency's 
conscious action to change its policy, and the agency takes into 
account any serious reliance interests in the prior policy.\51\
---------------------------------------------------------------------------

    \51\ Encino Motorcars, LLC v. Navarro, 579 U.S. 211, 220-23 
(2016); see id. at 225 (Ginsburg, J., concurring) (restating the 
rule governing an agency's reversal in policy, as articulated in 
F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009)).
---------------------------------------------------------------------------

    The Department has further reviewed the relevant statutory 
language, judicial decisions, and pre-rule guidance, and further 
considered ERISA's statutory purposes and related policy goals. The 
Department has also closely considered the comments submitted on the 
proposed rescission. Based on this review, the Department has concluded 
it is appropriate to rescind the regulatory provisions adopted in the 
2018 AHP Rule.\52\ The rescission will ensure that the guidance being 
provided to the regulated community is in alignment with ERISA's text 
and purpose. In addition, the rescission aims to resolve and mitigate 
any uncertainty regarding the status of the standards that were set 
under the 2018 AHP Rule, and also to facilitate a reexamination of the 
criteria required for a group or association of employers to be able to 
sponsor an AHP. In reaching the decision to rescind the regulation, the 
Department has also been mindful of the fact that the 2018 AHP Rule was 
only briefly in effect, it represented a significant departure from 
longstanding guidance, which the Department is leaving in place, and 
that no commenter presented any claims of ongoing reliance on it. As a 
result, the net effect of rescission is the continued implementation of 
the Department's longstanding positions on the proper analysis of the 
status of employer associations under ERISA, which positions are also 
consistent with the district court's opinion in New York v. United 
States Department of Labor.
---------------------------------------------------------------------------

    \52\ Section 2(c) of Executive Order 14070, ``Continuing to 
Strengthen Americans' Access to Affordable, Quality Health 
Coverage,'' provides that ``agencies . . . with responsibilities 
related to Americans' access to health coverage shall review agency 
actions to identify ways to continue to expand the availability of 
affordable health coverage, to improve the quality of coverage, to 
strengthen benefits, and to help more Americans enroll in quality 
health coverage. As part of this review, the heads of such agencies 
shall examine . . . policies or practices that improve the 
comprehensiveness of coverage and protect consumers from low-quality 
coverage.'' 87 FR at 20689, 20690. This rescission comports with 
E.O. 14070 because it acknowledges that health insurance coverage 
offered through AHPs in the large group markets, or health coverage 
offered through a self-insured AHP, is not subject to the ACA's EHB 
requirements; consequently, individuals and small employers who 
receive such coverage in lieu of individual and small group market 
coverage subject to the ACA market reforms face the risk of becoming 
underinsured if their AHP offers less than comprehensive coverage. 
In addition, the rescission also acknowledges commenters' assertions 
that the 2018 AHP Rule would have negatively affected the small 
group and individual markets.
---------------------------------------------------------------------------

    Part of the 2018 AHP Rule's purpose was to permit small employers 
and working owners to purchase health coverage that did not have to 
comply with the protections applicable to the small group and 
individual markets. In this manner, the rule aimed to promote the 
formation of AHPs for small employers and certain self-employed 
individuals. As noted in the Regulatory Impact Analysis (RIA) below, 
the 2018 AHP Rule hypothesized that small employers and their plan 
participants would potentially benefit from the ability to band 
together to offer less generous, and less costly, benefits. At the same 
time, however, many comments on the proposed recission of the 2018 AHP 
Rule expressed concerns that echoed public comments provided to the 
Department during the 2018 AHP rulemaking process, which indicated that 
implementation of the 2018 AHP Rule would increase adverse selection 
against the individual and small group markets by drawing healthier, 
younger people into AHPs, thus increasing premiums for those remaining 
in those markets.\53\ The economic analysis for the 2018 AHP Rule 
projected that those employers and participants that remained in the 
small-group and individual markets could face premium increases between 
0.5 and 3.5 percent, resulting in an increase in the number of 
uninsured individuals caused by those that exited the individual market 
due to higher premiums.
---------------------------------------------------------------------------

    \53\ See 83 FR 28957 (June 21, 2018). By increasing premiums for 
individual coverage, the expansion of AHPs may increase federal 
spending on premium tax credits for coverage offered through an 
Exchange but may be offset by reduced federal spending through 
displacement of some Medicaid coverage for individuals who would 
have transferred into AHPs under the 2018 AHP Rule.
---------------------------------------------------------------------------

    Concerns about such adverse impacts on the health markets were 
echoed in many comments submitted on the proposed rescission. As AHPs 
tend to be large group plans, they generally are not subject to Federal 
benefit mandates that apply to the individual and small group markets, 
such as the requirement to cover EHBs. Consequently, AHPs can 
potentially tailor plan benefits so that individuals with preexisting 
conditions, or those who are otherwise anticipated to have higher 
health care costs, are discouraged from joining AHPs (or are not 
offered AHPs), causing further adverse selection, market segmentation, 
and higher premiums in the individual and small group markets.\54\ The 
Department acknowledged in the 2018 AHP Rule that the rule's 
``increased regulatory flexibility'' would necessarily result in some 
segmentation of risk that favors AHPs over individual and small group 
markets and some premium increases for individuals and other small 
businesses remaining in the individual and small group markets. The 
Department concluded at that time, however, that practical 
considerations and Federal nondiscrimination rules would limit such 
segmentation, and that States could further limit risk segmentation 
through regulation of AHPs as MEWAs. The Department also assumed some 
premium protection for subsidy-eligible taxpayers with household 
incomes at or below 400 percent of the Federal poverty level purchasing 
coverage on Exchanges.
---------------------------------------------------------------------------

    \54\ The American Medical Association noted that AHPs could 
exclude benefits like coverage of insulin, maternity care, mental 
health services and rehabilitative services that are particularly 
important to certain workers in blue-collar professions. See, e.g., 
Brief for American Medical Association and Medical Society of the 
State of New York as Amici Curiae in Support of Plaintiffs' Motion 
for Summary Judgment, at *16, New York v. U.S. Department of Labor, 
363 F. Supp. 3d 109 (D.D.C. 2019) (No. 1:18-CV-01747-JDB).
---------------------------------------------------------------------------

    In the proposed rescission, however, the Department expressed the 
view that it was appropriate to give greater attention to the long-term 
impacts on market risk introduced by the 2018 AHP Rule, especially in 
the small group and individual markets. After close review of the 
comments, discussed below, the Department affirms its view that 
rescission of the 2018 AHP Rule is warranted, not only because of these 
market risks, but because the 2018 AHP Rule did not reflect the best 
interpretation of section 3(5) of ERISA.
    Additionally, as commenters noted, health insurance coverage 
offered through AHPs in the large group markets is not subject to the 
requirement to offer EHBs, which means that individuals who join these 
AHPs may become underinsured if their AHP does not cover benefits that 
non-grandfathered small group and individual market health insurance 
coverage are required to cover, such as emergency services, 
prescription drug benefits, or even inpatient hospital

[[Page 34114]]

coverage. Because AHPs generally can offer less than comprehensive 
coverage, they are cheaper to purchase, but there is a significantly 
greater likelihood that they will cover less than expected or needed. 
As discussed in this final rule, the 2018 AHP Rule made it easier for 
small employers, and possible for working owners, to band together to 
avoid the requirements on small group and individual health insurance 
coverage by qualifying as a single group health plan to purchase 
coverage in the large group market. Such an AHP could offer 
significantly less comprehensive plans, including ones that fail to 
cover EHBs, resulting in participants and beneficiaries being 
vulnerable to high out-of-pocket costs and potentially not having 
access to benefits for care when they most need it.\55\
---------------------------------------------------------------------------

    \55\ The Department notes concerns expressed by commenters that 
low barriers to entry to become an AHP could result in groups or 
associations with less of a connection to the member employer's 
community and unscrupulous operators siphoning off members by 
limiting their membership to healthier groups and offering lower 
rates for health coverage to their members. Commenters to the 2018 
AHP notice of proposed rulemaking (NPRM) also expressed the concern 
that it could fragment the individual and small group markets, 
resulting in increased premiums. Commenters further communicated 
that organizations that form on the basis of offering health 
benefits could increase the prevalence of unscrupulous promoters 
that do not have strong incentives to maintain a credible 
reputation. See 83 FR 28912, 28917, and 28943 (June 21, 2018).
---------------------------------------------------------------------------

    The Department is also concerned that the 2018 AHP Rule could 
interfere with the goal of increasing affordable, quality coverage 
because the rule increases the possibility that individuals who join 
AHPs will be subject to mismanaged plans. As noted above, ERISA 
generally classifies AHPs as MEWAs. Historically, MEWAs, especially 
self-funded MEWAs, have disproportionately suffered from financial 
mismanagement or abuse, leaving participants and providers with unpaid 
benefits and bills.\56\
---------------------------------------------------------------------------

    \56\ The 2018 AHP Rule acknowledged this risk. See 83 FR 28951, 
28953 (June 21, 2018) (``[T]he Department anticipates that the 
increased flexibility afforded AHPs under this rule will introduce 
increased opportunities for mismanagement or abuse, in turn 
increasing oversight demands on the Department and State 
regulators.'') See 83 FR 28951, 28953 (June 21, 2018).
---------------------------------------------------------------------------

    The 2018 AHP Rule reflected a significant departure from the 
Department's longstanding pre-rule guidance. The Department's 
rescission of the 2018 AHP Rule makes clear that this significant 
departure from pre-rule guidance no longer represents the Department's 
interpretation of when a group or association can constitute an 
``employer'' for purposes of sponsoring a group health plan under 
ERISA. The rescission leaves in place the longstanding pre-rule 
guidance that has been consistently supported and relied upon in 
numerous judicial decisions because it fosters a sufficient employer-
employee nexus and proper oversight of AHPs, while remaining consistent 
with ERISA's text and purpose.
    As explained further below, the rescission also reflects a 
reexamination of the 2018 AHP Rule's ``business purpose'' standard and 
viability safe harbor,\57\ the geography-based commonality alternative, 
and the working-owner provisions, including the potential those 
provisions have for encouraging abusive health care arrangements, 
especially self-insured programs, that sell low quality or otherwise 
unreliable health insurance products through MEWAs to unsuspecting 
employers, particularly small businesses. Further, the Department does 
not believe that there is a basis for reliance on the 2018 AHP Rule, 
given that the temporary safe harbor from enforcement announced by the 
Department immediately following the district court's decision has long 
expired.\58\ The Department has thus concluded that it is appropriate 
to rescind the 2018 AHP Rule.
---------------------------------------------------------------------------

    \57\ The business purpose standard of the 2018 AHP Rule required 
that a group or association must have at least one ``substantial'' 
business purpose unrelated to offering and providing health coverage 
or other employee benefits to its employer members and their 
employees, even if the primary purpose of the group or association 
is to offer such coverage to its members. While the 2018 AHP Rule 
did not include a definition of ``substantial,'' it did provide a 
safe harbor for an association that would be a ``viable entity'' 
without sponsoring a health plan (``viability safe harbor''). 83 FR 
28912, 28956 (June 21, 2018).
    \58\ See supra note 31.
---------------------------------------------------------------------------

1. Business Purpose Standard
    The courts of appeals have uniformly interpreted ERISA's definition 
of ``employer'' to require common interests other than the provision of 
welfare benefits, independent of any deference to the Department's 
historical guidance.\59\ The decision of the Eighth Circuit Court of 
Appeals in WEAIT is instructive; there, the court held that ``[t]he 
definition of an employee welfare benefit plan is grounded on the 
premise that the entity that maintains the plan and the individuals 
that benefit from the plan are tied by a common economic or 
representation interest, unrelated to the provision of benefits.'' \60\
---------------------------------------------------------------------------

    \59\ Wisconsin Educ. Ass'n Ins. Trust v. Iowa State Bd. of Pub. 
Instruction, 804 F.2d 1059, 1065 (8th Cir. 1986) (``Our decision is 
premised on ERISA's language and Congress' intent. There is no need 
to resort to the Department of Labor's interpretations.''); see 
MDPhysicians & Assocs., Inc. v. State Bd. of Ins., 957 F.2d 178, 186 
n.9 (5th Cir. 1992) (``Although we ground our decision on the 
statutory language of ERISA and the intent of Congress, we recognize 
that [Department of Labor] opinions `constitute a body of experience 
and informed judgment to which courts and litigants may properly 
resort for guidance.' '') (citation omitted).
    \60\ 804 F.2d 1059, 1064 (8th Cir. 1986) (emphasis added); 
accord MDPhysicians, 957 F.2d 178, 185 (5th Cir. 1992).
---------------------------------------------------------------------------

    This requirement is reflected in longstanding pre-rule guidance 
focusing on whether the group or association of employers has business 
or organizational purposes and functions unrelated to the provision of 
benefits. Although neither the courts nor the Department's pre-rule 
guidance defined the outer limits of what could count as a sufficient 
purpose, the employer groups or associations that have been treated as 
``employer'' sponsors have well developed business purposes that are 
unrelated to the provision of benefits.\61\ The pre-rule guidance

[[Page 34115]]

uniformly emphasized that a purpose unrelated to the provision of 
benefits is a critical factor for any group or association of employers 
to be treated as a bona fide group or association that can act as an 
``employer'' within the meaning of section 3(5) of ERISA.
---------------------------------------------------------------------------

    \61\ Compare, e.g., Advisory Opinion No. 2019-01A (July 8, 2019) 
(``Ace is a hardware retailer cooperative and is the largest 
cooperative, by sales, in the hardware industry. . . . Ace 
facilitates access to materials, supplies and services, as well as 
engages in activities that support Ace retail owners' operation of 
their retail hardware businesses. Ace currently serves approximately 
2,700 retail owners who operate approximately 4,400 Ace stores in 
the U.S. In addition, approximately 120 corporate stores are owned 
and operated as wholly-owned subsidiaries of Ace.''); Advisory 
Opinion 2017-02AC (May 16, 2017) (``The First District Association 
(FDA) has been operating as an independent dairy cooperative 
organized under Minnesota Chapter 308A since 1921. . . . FDA's 
articles of incorporation provide that, among other related 
purposes, FDA's purposes and activities include the purchase, sale, 
manufacture, promotion and marketing of its members' dairy and 
agricultural products and engaging in other activities in connection 
with manufacture, sale or supply of machineries, equipment or 
supplies to its members.''); Advisory Opinion 2005-24A (Dec. 30, 
2005) (``WAICU's purposes and activities include representing its 
members at State and national forums, encouraging cooperation among 
its members to utilize resources effectively, and encouraging 
collaboration with other institutions of higher learning for the 
benefit of Wisconsin citizens. WAICU's services to its members 
include professional development for officers, research, public 
relations, marketing, admissions support, and managing collaborative 
ventures among the members (e.g., WAICU Study Abroad 
Collaboration).''); and Advisory Opinion 2001-04A (Mar. 22, 2001) 
(``The Association was incorporated in Wisconsin in 1935 for the 
purpose of promoting automotive trade in the State of Wisconsin . . 
. .''), with, e.g., MDPhysicians, supra note 3, at 185-87 (holding 
that a MEWA that made health coverage available to `` `employers at 
large' in the Texas panhandle'' did not have sufficient common 
economic or representational interest) (citation omitted); Gruber v. 
Hubbard Bert Karle Weber, Inc., 159 F.3d 780, 787 (3d Cir. 1998) 
(endorsing district court's finding of no commonality of interest 
``because `there was no nexus among the individuals benefitted by 
the [p]lan and the entity providing those benefits, other than the 
[p]lan itself' since [the association] `was comprised of disparate 
and unaffiliated businesses' who [sic] had no relationship prior to 
the inception of the [p]lan'') (citation omitted); Plog v. Colo. 
Ass'n of Soil Conservation Dists., 841 F. Supp. 350, 353 (D. Colo. 
1993) (rejecting claim that association was an ``employer'' under 
ERISA because the association was open to any person who paid the 
association fee).
---------------------------------------------------------------------------

    While paragraph (b) of the 2018 AHP Rule also contained a business 
purpose standard, it departed from the substance and intent of prior 
guidance by providing both that the primary purpose of the group or 
association could be to offer benefit coverage to the group's 
members,\62\ and that an unrelated purpose would be sufficiently 
substantial ``if the group or association would be a viable entity in 
the absence of sponsoring an employee benefit plan.'' \63\ For the 
reasons described in the proposal, the Department has concluded that 
the business purpose standard and accompanying viability safe harbor 
are too loose to ensure that the group or association sponsoring the 
AHP is actually acting in the employers' interest or to effectively 
differentiate an employee health benefit program offered by such an 
association from a commercial insurance venture.\64\ Although the 2018 
AHP Rule provided that the unrelated business purpose had to be 
``substantial'' and that the entity should be independently viable, the 
preamble discussion suggested that few posited purposes would be 
treated as too insubstantial to pass muster. For example, the preamble 
suggested that merely ``offering classes or educational materials on 
business issues of interest to members'' was per se sufficient to 
qualify as substantial.\65\
---------------------------------------------------------------------------

    \62\ 29 CFR 2520.3-5(b)(1).
    \63\ Id.
    \64\ 88 FR 87968, 87975-76 (Dec. 20, 2023).
    \65\ 83 FR 28912, 28918 (June 21, 2018).
---------------------------------------------------------------------------

    In the preamble to the 2018 AHP rule, the Department posited that 
this relaxation of the standard would nonetheless work to differentiate 
employer groups or associations from commercial insurance ventures 
because the rule's control requirement and its new nondiscrimination 
requirement would ensure that only bona fide associations become AHPs. 
But even if the possibility of employer control and nondiscrimination 
were sufficient to warrant treating an entity as an employer 
association for purposes of section 3(5) of ERISA, the rule treated 
individual working owners as ``employers'' for this purpose even though 
they neither employed nor were employed by anybody else. In addition, 
under the rule's terms, promoters could set up arrangements with 
separate contribution rates for ``employer'' members (including working 
owners) based on a variety of non-health factors that correlate with 
health risks, such as industry, occupation, or geography, in ways that 
would make the arrangement look strikingly similar to a commercial 
insurance venture, looking to minimize exposure to less healthy risk 
pools.\66\ Indeed, the economic analysis for the rule projected that, 
as a result of such risk selection, those employers and participants 
that remained in the larger small group and individual markets could 
face premium increases between 0.5 and 3.5 percent.\67\
---------------------------------------------------------------------------

    \66\ Id. at 28929.
    \67\ The reference to the potential premium increases of between 
0.5 and 3.5 percent reflects a moderate range derived from the 
figures cited in the cost analysis for the 2018 AHP Rule, which 
referred to a 2018 report that modeled the impact on premiums and 
source of insurance coverage under different AHP scenarios based on 
initial availability of AHPs, generosity of coverage of AHP plans, 
and projected level of risk selection by small businesses. 83 FR 
28912, 28945 fn. 95 (citing Avalere Health, Association Health 
Plans: Projecting the Impact of the Proposed Rule at 3, 5-7 (Feb. 
28, 2018), available at https://avalere.com/wp-content/uploads/2018/06/1519833539_Association_Health_Plans_White_Paper.pdf).
---------------------------------------------------------------------------

    The Department has concluded that the 2018 AHP Rule's test does not 
sufficiently ensure a business purpose that advances the interest of 
employer members of the group or association, nor does it prevent 
abuse. Part of the rationale for insisting on a common business purpose 
unrelated to the provision of benefits is to ensure that the entity is 
a bona fide association acting in the interest and on behalf of 
employer members, rather than merely a promoter of a commercial 
arrangement with competing financial interests. Bona fide associations 
with a common purpose and shared bonds unrelated to the provision of 
benefits can serve as strong advocates for their employer members and 
ensure that those members ultimately receive the benefits of the 
association's advocacy for their common interests. The 2018 AHP Rule's 
test falls short of providing that the employer members or their 
association are united by much more than a common desire to obtain 
health benefits and therefore does not ensure that associations act in 
the interest of, or as strong advocates for, employer members.
    In the Department's view, based on its long and significant 
experience in this area as well as current concerns about abuse, the 
2018 AHP Rule does not establish conditions that appropriately 
distinguish an employer group sponsoring an employee benefit plan from 
a commercial insurance venture. Under the rule's test, there is little 
to distinguish the association from any other commercial benefits 
promoter, except that, unlike commercial insurers, the AHP would be 
subject to less stringent state regulations and safeguards. As a 
result, the Department is concerned that the rule will unduly expose 
participants, beneficiaries, and unsuspecting small employers to 
unscrupulous operators looking to market health benefits without the 
protective structure and supports that apply to state-regulated 
insurance, such as funding and solvency requirements.\68\ As noted 
elsewhere in this preamble, even under the current more stringent 
standards, MEWAs, especially self-funded MEWAs, have been frequent 
subjects of abuse, and in the worst cases have left participants and 
beneficiaries with large unpaid claims or denials of treatment.\69\ 
These considerations reinforce the Department's conclusion that it 
should not have departed from its previous approach to interpreting the 
statutory text and its previous insistence on a strong common purpose 
unrelated to the provision of benefits.
---------------------------------------------------------------------------

    \68\ See supra note 39.
    \69\ See supra notes 43, 46.
---------------------------------------------------------------------------

2. Geographic Commonality
    There is a substantial body of case law interpreting ERISA's 
definition of ``employer'' to require common interests other than the 
provision of welfare benefits, independent of any deference to the 
Department's historical pre-rule guidance. For example, in WEAIT, the 
Eighth Circuit concluded that ``[t]he definition of an employee welfare 
benefit plan is grounded on the premise that the entity that maintains 
the plan and the individuals that benefit from the plan are tied by a 
common economic or representation interest, unrelated to the provision 
of benefits.'' \70\ The court further explained that ``[o]ur decision 
is premised on ERISA's language and Congress' intent'' and that 
``[t]here [wa]s no need to resort to the Department of Labor's 
interpretations.'' \71\ Like the commonality of interest requirement 
articulated by the Eighth Circuit in WEAIT--a requirement that court 
explained was grounded in ERISA--in MDPhysicians, the Fifth Circuit 
likewise found that ERISA required a commonality of interest among 
employer members.\72\
---------------------------------------------------------------------------

    \70\ 804 F.2d at 1063 (emphasis added).
    \71\ Id. at 1065.
    \72\ MDPhysicians, 957 F.2d at 186 n.9 (``Although we ground our 
decision on the statutory language of ERISA and the intent of 
Congress, we recognize that [Department of Labor] opinions 
`constitute a body of experience and informed judgment to which 
courts and litigants may properly resort for guidance.' '') 
(citation omitted); id. at 185-87 (holding that a MEWA that made 
health coverage available to `` `employers at large' in the Texas 
panhandle'' did not have sufficient common economic or 
representational interest).

---------------------------------------------------------------------------

[[Page 34116]]

    The Department's pre-rule guidance requires a genuine commonality 
of interests between employer members. Paragraph (c) of the 2018 AHP 
Rule altered this standard by setting forth alternative ways an 
association could be treated as having the requisite commonality of 
interest necessary to constitute a bona fide group or association of 
employers. The employers who participate in the group or association 
could have had ``industry commonality,'' which means they were in the 
same trade, industry, line of business, or profession. Alternatively, 
the 2018 AHP Rule provided that participating employers could have 
``geographic commonality'' if each employer had a principal place of 
business in the same geographic region that did not exceed the 
boundaries of a single State or metropolitan area (even if the 
metropolitan area included more than one State). This represented a 
significant departure from the Department's longstanding pre-rule 
guidance because it treated otherwise unrelated employers in multiple 
unrelated trades, industries, lines of business, or professions as 
having the requisite commonality, simply because they resided within 
the same geographic locale.\73\
---------------------------------------------------------------------------

    \73\ But see Advisory Opinion No. 2008-07A (Sept. 26, 2008) 
(``In the Department's view, however, the Bend Chamber [of 
Commerce]'s structure is not the type of connection between employer 
members that the Department requires for a group or association of 
employers to sponsor a single `multiple employer plan.' Rather, the 
Department would view the employers that use the Bend Chamber's 
arrangement as each having established separate employee benefit 
plans for their employees. Although we do not question the Bend 
Chamber's status as a genuine regional chamber of commerce with 
legitimate business and associational purposes, the primary economic 
nexus between the member employers is a commitment to private 
business development in a common geographic area. This would appear 
to open membership in the Bend Chamber, and in turn participation in 
the proposed health insurance arrangement, to virtually any employer 
in the region. The other factors the Bend Chamber cites do not 
directly relate to a connection between the member employers, the 
association, and the covered employees; instead, such factors are 
characteristics that evidence the reliability of the Bend Chamber's 
operations (e.g., cash assets of $100,000 or more, physical office 
space, years in operation, etc.).'').
---------------------------------------------------------------------------

    The preamble of the 2018 AHP Rule focused on the desired goal of 
the rule to spur AHP formation, but it did not adequately address the 
fundamental question of how geography alone, without any other common 
business nexus, could provide the requisite commonality of interest. 
The preamble to the 2018 AHP Rule did not dispute the importance of 
commonality. Indeed, the 2018 AHP Rule rejected suggestions that 
commonality could be established by shared ownership characteristics 
(all women-owned businesses; all minority-owned businesses; all 
veteran-owned businesses), shared business models (for example, all 
non-profit businesses), shared religious/moral convictions, or shared 
business size.\74\ The Department rejected such broad categories as 
falling within the common nexus standard because it had concluded that 
a standard this lax would be ``impossible to define or limit'' and 
would ``eviscerate'' the commonality requirement.\75\ The 2018 AHP Rule 
concluded that, as a policy matter, these line-drawing concerns did not 
apply to groups with geographic commonality. However, the discussion in 
the 2018 AHP Rule was, at best, incomplete because it focused mostly on 
the benefits of having more AHPs but did not explain how geographic 
commonality was an employment-based commonality that was different from 
the shared ownership, shared business models, shared religious/moral 
convictions, and shared business size criteria that the Department 
rejected.
---------------------------------------------------------------------------

    \74\ 83 FR 28912, 28926 (June 21, 2018). The preamble of the 
2018 AHP Rule explained that a test that would treat all nationwide 
franchises, all nationwide small businesses, or all nationwide 
minority-owned businesses, as having a common employment-based 
nexus--no matter the differences in their products, services, 
regions, or lines of work--would not be sufficient to establish 
commonality of interest for a national group or association because 
it would be impossible to define or limit (e.g., business owners who 
support democracy) and, ``in the Department's view, would 
effectively eviscerate the genuine commonality of interest required 
under ERISA.''
    \75\ Id.
---------------------------------------------------------------------------

    As explained in the proposal, the Department is now of the view 
that a commonality requirement based on common geography alone (same 
State or multi-State area) does not adequately establish 
commonality.\76\ The same reasons why the Department rejected other 
expansions of the commonality requirement militate against adopting 
geographic commonality as well. There is little basis for treating 
disparate employers engaged in disparate enterprises with disparate 
interests in different urban or rural settings as having a sufficient 
common nexus merely because they are all in the same State.\77\
---------------------------------------------------------------------------

    \76\ 88 FR 87968, 76-77 (Dec. 20, 2023).
    \77\ In recent years, the case for relying on geography as a 
basis for commonality has likely been further reduced by the 
adoption of remote workplace flexibilities and virtual office 
technologies, which reduce the tie between the worker and any 
particular geographic location.
---------------------------------------------------------------------------

    While the Department acknowledges that employers within the same 
geographic locale can share other common interests that result in a 
sufficient common economic and representational interest, the 
Department is now concerned that the 2018 AHP Rule did not articulate 
an appropriate basis for treating common geography alone as a shared 
interest with respect to the employment relationship. Just as would be 
the case for associations consisting of employers whose membership is 
based on common business size, the Department is concerned that 
recognizing under section 3(5) of ERISA an association composed of 
unrelated employers all operating in any specific State or multi-State 
area with no other commonality also would not sufficiently respect the 
genuine commonality of interest requirement under ERISA, which is 
intended to ensure that AHPs are operating in the interest of employers 
and are not merely operating as traditional health insurance issuers in 
all but name.
3. Working Owners
    The 2018 AHP Rule allowed certain self-employed persons without any 
common-law employees to participate in AHPs as ``working owners.'' \78\ 
The 2018 AHP Rule established wage, hours of service, and other 
conditions for when a working owner would be treated as both an 
``employer'' and ``employee'' for purposes of participating in, and 
being covered by, an AHP.\79\ The 2018 AHP Rule treated these self-
employed persons as employers even though they had no employment 
relationship with anybody other than themselves. Thus, a group or 
association could become an employer by virtue of its working owner 
members being classified as both an employer and an employee, even 
though the working owners had no employees and were not employed by 
another person or entity.
---------------------------------------------------------------------------

    \78\ 29 CFR 2510.3-5(e).
    \79\ See id. at Sec.  2510.3-3(c).
---------------------------------------------------------------------------

    The Department now believes that the 2018 AHP Rule gave too little 
weight to ERISA's focus on the employment relationship in treating 
working owners as both employees and employers notwithstanding the 
absence of any employment relationship with anybody. While the 2018 AHP 
Rule's approach promoted the creation of plan MEWAs, it came at the 
expense of the better reading of the statute's references to employers 
and employees. ERISA applies when there is an employer-employee 
relationship. This relationship, as suggested by the very

[[Page 34117]]

title of the Act (the Employee Retirement Income Security Act), and the 
Act's reliance on ``employer'' and ``employee'' to define what counts 
as an ERISA-covered plan, is central to the statutory framework. ERISA 
generally regulates employment-based relationships, not the sale of 
insurance to individuals outside such relationships. This employer-
employee nexus is the heart of what makes an entity a bona fide group 
or association of employers capable of sponsoring an AHP and is meant 
to reflect genuine employment relationships. The Department is now of 
the view that ERISA calls for a higher standard for determining what 
constitutes a bona fide group or association of employers than is 
evidenced in the 2018 AHP Rule. In the ERISA context, the bona fide 
group or association of employers consists of actual employers who, as 
of the time they join the group or association, hire, and pay wages or 
salaries to other people who are their common-law employees working for 
them. Under the 2018 AHP Rule, although working owners had to meet 
requirements related to the number of hours devoted to providing 
personal services to the trade or business or the amount of income 
earned from the trade or business in order to participate in an AHP, 
these requirements related to differentiating self-employed individuals 
from individuals engaged in hobbies that generate income or other de 
minimis commercial activities.\80\ These requirements did not, however, 
reflect the existence of a genuine employer-employee relationship, as 
in the exchange between an employee and an employer of personal 
services for wages and other compensation (such as health benefits 
offered through a group health plan) that would be expected in a 
common-law employment relationship.
---------------------------------------------------------------------------

    \80\ 83 FR 28931 (June 21, 2018).
---------------------------------------------------------------------------

    Upon further reflection, the Department is now concerned that, by 
removing the prior (and more stringent) employer-employee nexus 
requirement, the 2018 AHP Rule departs too far from ERISA's essential 
purpose and fails to take appropriate account of the underlying basis 
for the bona fide group or association of employers standard. As stated 
previously, upholding the purpose of the statute requires drawing 
appropriate distinctions between employers and associations acting ``in 
the interest of an employer'' on the one hand, and entrepreneurial 
insurance-type ventures on the other. A strong employer-employee nexus 
condition also helps reduce the vulnerability of MEWAs to fraudulent 
behavior and mismanagement. Routinely treating people as ``employers'' 
when they have no employees risks converting ERISA from an employment-
based statute, as Congress intended, to one that regulates the sale of 
insurance to individuals, without regard to an employment relationship.
    The Department, upon further review of relevant Supreme Court and 
circuit court judicial decisions, and consistent with the Department's 
reconsidered view of working owners (without common-law employees) for 
purposes of section 3(5) of ERISA, has concluded that the better 
interpretation of such case law is that a working owner may act as an 
employer for purposes of participating in a bona fide employer group or 
association under circumstances where there are also common-law 
employees of the working owner. In Raymond B. Yates, M.D., P.C. Profit 
Sharing Plan v. Hendon, the Supreme Court held that a working owner and 
spouse were eligible to participate in the corporation's ERISA plan, 
provided that at least one common-law employee of the corporation 
participated in its plan.\81\ Several circuit court opinions also 
emphasize the existence of an employment relationship when determining 
if an owner is an employer and/or employee. As the Eleventh Circuit 
stated in Donovan v. Dillingham, ``[t]he gist of ERISA's definitions of 
employer, employee organization, participant, and beneficiary is that a 
plan, fund, or program falls within the ambit of ERISA only if the 
plan, fund, or program covers ERISA participants because of their 
employee status in an employment relationship . . . .'' \82\ In 
Meredith v. Time Insurance Company, the Fifth Circuit held that the 
Department could reasonably decline to treat a sole proprietor both as 
an employer and employee under section 3(5) of ERISA because the 
``employee-employer relationship is predicated on the relationship 
between two different people.'' \83\ Similarly, in Marcella v. Capital 
Districts Health Plan, Inc., the Second Circuit found that working 
owners without common-law employees are not employers.\84\ Further, as 
indicated in Donovan, just as the statutory definition of ``employer'' 
under ERISA requires an employee, the statutory definition of 
``employee'' under ERISA requires the employee to work for another.\85\ 
These holdings are consistent with the Department's traditional 
interpretation of ``employee'' in 29 CFR 2510.3-3(b) and (c).\86\
---------------------------------------------------------------------------

    \81\ Raymond B. Yates, M.D., P.C. Profit Sharing Plan v. Hendon, 
541 U.S. 1, 6 (2004). See also Advisory Opinion 99-04A (Feb. 4, 
1999) (outside of a bona fide group or association analysis under 
section 3(5) of ERISA, concluding that nothing in the definitions of 
Title I of ERISA precluded a working owner who had initially 
participated in a multiemployer pension plan as an employee of a 
contributing employer from continuing to participate in that plan) 
and Advisory Opinion 2006-04A (April 27, 2006) (individual who 
actively performed work for his own company that would otherwise be 
covered by a collective bargaining agreement if he were not a 
``supervisor'' under federal labor law may continue to participate 
in multiemployer pension plan that he previously participated in as 
a covered employee).
    \82\ Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982) 
(emphasis added).
    \83\ Meredith v. Time Ins. Co., 980 F.2d 352, 358 (5th Cir. 
1993); id. (``When the employee and employer are one and the same, 
there is little need to regulate plan administration. . . . It would 
appear axiomatic that the employee-employer relationship is 
predicated on the relationship between two different people. . . . 
We conclude that the power to so define the scope of ERISA has been 
delegated by Congress to the Department of Labor, and find no reason 
to disturb the Department's conclusion that ERISA does not intend to 
treat the spouse of a sole proprietor as an employee.'').
    \84\ Marcella v. Capital Dists. Health Plan, Inc., 293 F.3d 42, 
48 (2d Cir. 2002); id. at 49 (holding that ``a group or association 
. . . that contains non-employers cannot be an `employer' within the 
meaning of ERISA'').
    \85\ Baucom v. Pilot Life Ins. Co., 674 F. Supp. 1175, 1180 
(M.D.N.C. 1987). In Baucom, ``[r]eturning to ERISA's language, the 
court observe[d] that, despite its limitations, the statutory 
definition of `employee' mandates that an employee must work for 
another.'' Id. (citation omitted).
    \86\ In 1996, HIPAA added provisions of ERISA and the PHS Act, 
which specified that for purposes of part 7 of Title I of ERISA and 
Title XXVII of the PHS Act ``[a]ny plan, fund, or program which 
would not be (but for this subsection) an employee welfare benefit 
plan and which is established or maintained by a partnership, to the 
extent that such plan, fund, or program provides medical care . . . 
to present or former partners in the partnership . . . shall be 
treated (subject to paragraph (2)) as an employee welfare benefit 
plan which is a group health plan.'' Section 732(d) of ERISA; 
Section 2722(d) of PHS Act. For a group health plan, the term 
employee also includes any bona fide partner. 26 CFR 54.9831-
1(d)(2); 29 CFR 2590.732(d)(2); 45 CFR 146.145(c)(2).
---------------------------------------------------------------------------

C. Alternatives To Complete Rescission of the 2018 AHP Rule

    As part of its deliberations as to whether to rescind the 2018 AHP 
Rule, the Department considered several alternatives to this 
rulemaking. The Department contemplated removing only certain 
provisions of the 2018 AHP Rule. For example, the Department considered 
rescinding the working owner provision, which represents a significant 
departure from the pre-rule guidance. Similarly, the Department 
considered removing the geographic commonality provision, which also 
represents a dramatic departure from the pre-rule guidance. However, 
the Department decided against a rescission of only the specific 
provisions invalidated by the district court. The

[[Page 34118]]

Department is concerned that the provisions that would remain in the 
2018 AHP Rule would not provide an adequate definition of ``employer'' 
that properly reflect the limits of ERISA's definition of ``employer'' 
in section 3(5) and Congress' focus on employment-based arrangements, 
as opposed to the ordinary commercial provision of insurance outside 
the employment context, and, for the reasons discussed above, would be 
missing key elements necessary for a comprehensive framework for a 
group or association to demonstrate that it is acting ``indirectly in 
the interest of an employer'' within the meaning of section 3(5) of 
ERISA.\87\ Without the core provisions held invalid by the district 
court, the 2018 AHP Rule could not be operationalized and would provide 
no meaningful guidance.
---------------------------------------------------------------------------

    \87\ See, e.g., Gruber v. Hubbard Bert Karla Weber, Inc., 159 
F.3d 780, 787 (3d Cir. 1988) (``[T]o qualify as an `employer' for 
ERISA purposes, an employer group or association must satisfy both 
the commonality of interest and control requirements.'').
---------------------------------------------------------------------------

    The Department also considered rescinding the 2018 AHP Rule and 
codifying the pre-rule guidance. The Department recognizes that there 
could be benefits to codifying its longstanding pre-rule guidance. The 
pre-rule guidance is largely in the form of advisory opinions, which do 
not have the same authority as regulations and technically are not 
precedential.\88\ Application of the Department's pre-rule guidance 
thus requires interested parties to compare their specific 
circumstances to various opinions the Department issued to determine 
whether the Department has addressed analogous facts and circumstances. 
Nonetheless, the Department concluded that it would be better to seek 
comment from interested parties on whether the Department should first 
propose a rule either codifying the pre-rule guidance or creating 
alternative criteria and then consider that input as part of a 
comprehensive reevaluation of the definition of ``employer'' in the AHP 
context. As discussed further below, the Department received comments 
on the proposed rescission supporting codifying the pre-rule guidance, 
supporting codifying the pre-rule guidance with modifications, and 
opposing codification of the pre-rule guidance. The Department is 
proceeding to fully rescind the 2018 AHP Rule without proposing any 
additional guidance at this time. The Department takes the comments on 
potential future guidance under advisement, and such comments will 
inform the Department's decision regarding any future efforts on this 
matter.
---------------------------------------------------------------------------

    \88\ Advisory opinions are issued pursuant to ERISA Procedure 
76-1, which in Section 10 describes the effect of advisory opinions 
as follows: ``An advisory opinion is an opinion of the department as 
to the application of one or more sections of the Act, regulations 
promulgated under the Act, interpretive bulletins, or exemptions. 
The opinion assumes that all material facts and representations set 
forth in the request are accurate and applies only to the situation 
described therein. Only the parties described in the request for 
opinion may rely on the opinion, and they may rely on the opinion 
only to the extent that the request fully and accurately contains 
all the material facts and representations necessary to issuance of 
the opinion and the situation conforms to the situation described in 
the request for opinion.''
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IV. Requests for Public Comments

    In the proposal, the Department requested comments from interested 
parties on all aspects of the proposal to rescind the 2018 AHP Rule in 
its entirety. In the Department's view, ERISA's statutory purposes are 
better served by rescinding the 2018 AHP Rule and removing it from the 
published CFR while the Department considers alternatives and engages 
with interested parties. In addition to comments on rescission of the 
2018 AHP Rule, the Department also asked for comments on whether the 
Department should propose a rule for group health plans that codifies 
and replaces the pre-rule guidance, issue additional guidance 
clarifying the application of the Department's longstanding pre-rule 
guidance as it relates to group health plans (including, for example, 
the HIPAA nondiscrimination rule's application to AHPs), propose 
revised alternative criteria for multiple employer association-based 
group health plans, or pursue some combination of those or other 
alternative steps. The Department received 58 comment letters, all of 
which are posted on the Department's website and on 
Regulations.gov.\89\ An overwhelming majority of commenters support 
rescission of the 2018 AHP Rule in whole or in part. Comments are 
discussed below in Section V. Our evaluation focused on ensuring that 
the Department's regulatory policy and actions in this area honor the 
Department's long held view, reiterated in the preamble to the 2018 AHP 
Rule, that Congress did not intend to treat commercial health insurance 
products marketed by private entrepreneurs, who lack the close economic 
or representational ties to participating employers and employees, as 
ERISA-covered employee welfare benefit plans.\90\
---------------------------------------------------------------------------

    \89\ To directly access the rulemaking docket, see https://www.regulations.gov/docket/EBSA-2023-0020.
    \90\ 83 FR 28912, 28928 (June 21, 2018); Advisory Opinions Nos. 
94-07A (Mar. 14, 1994), available at www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/advisory-opinions/1994-07a, and 
2001-04A (Mar. 22, 2001), available at www.dol.gov/agencies/ebsa/employers-andadvisers/guidance/advisory-opinions/2001-04a.
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V. Discussion of Public Comments on NPRM

A. The 2018 AHP Rule and the Affordable Care Act

    Many comments focused on the impact of the 2018 AHP Rule on the 
ACA. These comments largely fell into two categories: (1) whether AHPs 
formed under the 2018 AHP Rule (which generally were not subject to the 
ACA's requirement to cover EHBs) would offer less comprehensive 
coverage \91\ to working owners and small employers than coverage in 
the individual and small group markets; and (2) whether the 2018 AHP 
Rule would have affected the ACA individual and small group market risk 
pools through risk segmentation. Other commenters noted that the 2018 
AHP Rule's working owner provision conflicted with the ACA's 
protections for individuals enrolling in individual market plans \92\ 
and with the definition of ``employer'' in the ACA.\93\
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    \91\ Health plans that do not include benefits that non-
grandfathered small group and individual market health insurance 
coverage are required to cover, such as emergency services or 
prescription drug benefits, or even inpatient hospital coverage, are 
sometimes referred to as ``less comprehensive coverage'' plans.
    \92\ See supra notes 15, 16.
    \93\ According to one commenter, under the 2018 AHP Rule, an AHP 
could be comprised of participants who are common-law employees, 
common-law employees and working owners, or comprised of only 
working owners. In all cases, the working owner could be treated as 
an employee and the business as the individual's employer for 
purposes of being an employer member of the association and an 
employee participant in the AHP which, according to the commenter, 
violates both the ACA and ERISA. The commenter believes that 
coverage offered to ``working owners'' fits squarely within the 
ACA's and PHS Act's definition of ``individual health insurance 
coverage'' and, therefore, coverage consisting of only working 
owners cannot be considered group health insurance coverage. See 
comment from Timothy Stoltzfus Jost (Feb. 15, 2024) last accessed at 
https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00011.pdf.
---------------------------------------------------------------------------

    With respect to comments raising the issue of AHPs offering less 
comprehensive coverage, commenters stated that AHPs operating under the 
2018 AHP Rule, unlike individual and small group market insurance 
coverage that must offer certain benefits under the ACA, would not have 
been required to provide EHBs, including emergency services, 
prescription drug benefits, or

[[Page 34119]]

even inpatient hospital care. Because an AHP is generally self-funded 
or funded through large group market insurance coverage and therefore 
not subject to EHB requirements, several of these commenters stated 
that AHPs could impose benefit design and association eligibility rules 
to ``cherry pick'' healthier individuals. Other commenters countered 
this assertion, stating that AHPs before the 2018 AHP Rule, as well as 
those that briefly existed under it, covered many (if not all) of the 
ACA's EHBs voluntarily if they were self-insured plans, or under State 
law insurance mandates if they were insured plans. These commenters 
also pointed to other Federal laws that would have restricted the 
ability of AHPs formed under the 2018 AHP Rule to offer less than 
comprehensive coverage.\94\
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    \94\ The Federal laws mentioned include HIPAA, the Women's 
Health and Cancer Rights Act of 1998, the Genetic Information 
Nondiscrimination Act of 2008, and Title X of the Consolidated 
Omnibus Budget Reconciliation Act of 1985, as amended (``COBRA'').
---------------------------------------------------------------------------

    Many commenters stated that the 2018 AHP Rule would have negatively 
affected the health insurance markets. These commenters argued that 
AHPs, which generally--as previously noted--are self-funded or funded 
through large group market insurance coverage, would be permitted to 
use rating factors such as age, gender, and industry that are 
prohibited in the small group and individual markets.\95\ These 
commenters asserted that the use of these rating factors would 
negatively impact the individual and small group market risk pools. 
They stated that AHPs formed under the 2018 AHP Rule would offer lower 
premiums to healthier and younger enrollees, drawing those individuals 
away from the small group and individual markets, thereby increasing 
premiums for the individuals remaining in those markets, and eventually 
reducing the availability of plan choices in those markets.\96\
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    \95\ Section 2701 of the PHS Act, as added by the ACA, 
implemented at 45 CFR 147.102, restricts variation in premium rates 
based on age to a 3:1 ratio.
    \96\ One commenter representing a State Exchange painted a more 
severe outcome. This commenter stated that the 2018 AHP Rule would 
have eventually caused the collapse of the private health insurance 
markets across the nation, leading to higher premiums for small 
businesses and individuals, leaving people who need comprehensive 
coverage with no private options, and forcing people to become 
uninsured. See comment from the District of Columbia Health Benefit 
Exchange Authority (Feb. 20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00033.pdf.
---------------------------------------------------------------------------

    Some commenters disputed that the 2018 AHP Rule would have resulted 
in adverse selection and market segmentation. These commenters stated 
that AHPs faced various restrictions or operated within various 
parameters that would have prevented them from marketing coverage only 
to healthier individuals, including that (1) AHP coverage is employer-
based, which means that AHPs could not seek out only healthy 
individuals; (2) AHPs could not base plan rates on individual health 
status or pre-existing conditions; (3) government subsidies would have 
shielded most participants from any increases in individual health 
insurance coverage costs; and (4) AHPs would have covered new lives 
rather than draw individuals away from existing small group or 
individual market plans.
    After careful consideration of public comments on the proposal, the 
Department acknowledges that health insurance coverage offered through 
AHPs in the large group markets, or health coverage offered through a 
self-insured AHP, is not subject to the ACA's EHB requirements; 
consequently, individuals and small employers who receive such coverage 
in lieu of individual and small group market coverage subject to the 
ACA market reforms face the risk of becoming underinsured if their AHP 
offers less than comprehensive coverage.\97\ In addition, the 
Department also acknowledges the strength of arguments that the 2018 
AHP Rule could have negatively affected the small group and individual 
markets.\98\
---------------------------------------------------------------------------

    \97\ The Department is also cognizant that the district court in 
New York v. United States Department of Labor, 363 F. Supp. 3d 109, 
117-18 (D.D.C. 2019), referred to former President Trump's Executive 
Order 13813 and comments by then Secretary of Labor Alexander Acosta 
as evincing an intent--by way of the 2018 AHP Rule--to sidestep 
major elements of the ACA. On October 12, 2017, President Trump 
issued Executive Order 13813, ``Promoting Healthcare Choice and 
Competition Across the United States,'' stating, in relevant part, 
that ``[e]xpanding access to AHPs will also allow more small 
businesses to avoid many of the PPACA's costly requirements.'' 
Executive Order 13813, 82 FR 48385 (Oct. 17, 2017). In remarks to 
the National Federation of Independent Businesses, President Trump 
further stated: ``Alex [Acosta] and the Department of Labor are 
taking a major action that's been worked on for four months now--and 
now it's ready--to make it easier for small businesses to band 
together to negotiate lower prices for health insurance and escape 
some of Obamacare's most burdensome mandates through association 
health plans.'' See Remarks by President Trump at the National 
Federation of Independent Businesses 75th Anniversary Celebration, 
June 19, 2018 (emphasis added), available at 
www.trumpwhitehouse.archives.gov/briefings-statements/remarks-president-trump-national-federation-independent-businesses-75th-anniversary-celebration/. In a Wall Street Journal op-ed, then 
Secretary of Labor Alex Acosta wrote: ``Companies with 50 or fewer 
employees are subject to the law's benefit mandates and rating 
restrictions, while large companies are not. This is backward. Small 
businesses should face the same regulatory burden as large 
companies, if not a lighter one. AHPs will help level the playing 
field.'' See Alexander Acosta, ``A Health Fix For Mom and Pop 
Shops,'' June 18, 2018, available at www.wsj.com/articles/a-health-fix-for-mom-and-pop-shops-1529363643.
    \98\ See supra note 52 (discussing the President's directive to 
Federal agencies in E.O. 14070 ``to identify ways to continue to 
expand the availability of affordable health coverage, to improve 
the quality of coverage, to strengthen benefits, and to help more 
Americans enroll in quality health coverage'').
---------------------------------------------------------------------------

    At the same time, however, this rescission is ultimately based on 
the Department's interpretation of ERISA, not the ACA. Also, because 
the district court held certain provisions of the 2018 AHP Rule 
invalid, the agency does not have strong data on the number and nature 
of AHPs formed under the 2018 AHP Rule. Irrespective of these possible 
negative impacts, however, the Department is rescinding the 2018 AHP 
Rule based on its view that the geographic commonality, business 
purpose and working owner provisions of the 2018 AHP Rule were 
inconsistent with the best interpretation of the statutory language in 
section 3(5) of ERISA.

B. Geographic Commonality

    The 2018 AHP Rule provided that an association could be treated as 
having the requisite commonality of interest necessary to constitute a 
bona fide group or association of employers where the employers share 
``geographic commonality,'' defined as each employer having a principal 
place of business in the same geographic region that does not exceed 
the boundaries of a single State or metropolitan area (even if the 
metropolitan area included more than one State).
    One commenter disagreed with the proposal's rejection of the 2018 
AHP Rule's geography-based commonality standard.\99\ This commenter 
argued that the proposal failed to offer good reasons for rejecting 
this standard and that geography-based business groups have been a 
feature of the American economy for many generations. The commenter 
stated that businesses often share an interest in the existence of 
prosperity, safety, a thriving economy, and a skilled and abundant 
workforce within their shared State or urban area. While the proposal 
mostly critiques the reasoning of the 2018 AHP Rule, according to this 
commenter, in order to make this affirmative change, the Department 
must offer its own reasons why

[[Page 34120]]

geographic commonality does not create the requisite commonality.
---------------------------------------------------------------------------

    \99\ See comment from Paul J. Ray (Dec. 22, 2023) last accessed 
at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00001.pdf.
---------------------------------------------------------------------------

    Conversely, many commenters on this issue supported the rescission 
of the geography-based commonality standard, with several of these 
commenters noting that this standard is so broad that employers with no 
common interests whatsoever, other than existing within the same 
boundaries, could participate in an AHP, making such an AHP 
indistinguishable from commercial insurance arrangements. These 
commenters, for example, argued that mere shared existence within a 
service area does not meaningfully correspond to a sufficient, or 
necessarily any, employment-based nexus of the caliber required by 
ERISA. In stark contrast, the commonality standards recognized in the 
Department's longstanding pre-rule guidance (such as commonality based 
on industry, trade, or occupation) effectively ensure common bonds that 
mitigate the danger of discriminatory (and commercial) rating 
practices, asserted the commenters.
    Similarly, another commenter observed that the geography-based 
commonality standard in the 2018 AHP Rule essentially allowed an AHP to 
operate like an insurance company, rather than an association acting 
``in the interest of'' participating employer members, except that 
self-funded AHPs would not be subject to the protective insurance 
market rules, including certain rating rules, that commercial insurance 
is required to comply with.\100\ The commenter argued that this outcome 
not only may negatively impact many consumers but is also hard to 
square with the widely held view that ERISA requires a genuine 
employment relationship to sponsor an AHP. Yet another commenter 
observed that the 2018 AHP Rule would permit ``agglomerations of wildly 
dissimilar businesses with different or even potentially conflicting 
needs and priorities,'' whereas what is needed and required by ERISA is 
commonality of interest among members to assure that the association 
will act, employer-like, in the interest of the people whose coverage 
it is sponsoring.\101\ Finally, many commenters expressed concern that 
the inclusion of the State-based geography standard for commonality 
would create uncertainty in enforcement for AHPs operating across State 
lines; more specifically, these commenters asserted that loosening the 
commonality standard in the way permitted by the rule (e.g., permitting 
an AHP to establish commonality based on its employer members all 
operating in a common metropolitan area that crosses State lines) 
likely would lead to more fraud, abuse, and insolvencies.
---------------------------------------------------------------------------

    \100\ See comment from the Center on Budget and Policy 
Priorities (Feb. 20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00035.pdf.
    \101\ See comment from the Partnership to Protect Coverage (Feb. 
20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00044.pdf.
---------------------------------------------------------------------------

    The Department shares the concerns of these commenters that the 
geographic commonality test in the 2018 AHP Rule has significant 
shortcomings in terms of meaningfully restricting coverage to 
associations of employers with a sufficient employment nexus. Although 
the Department acknowledges that employers within the same geographic 
locale can share other factors that rise to the level of sufficient 
economic and representational interest, the Department does not believe 
that the 2018 AHP Rule articulated a sufficient basis for treating 
common geography alone as a shared interest with respect to the 
employment relationship. Just as would be the case for associations 
consisting of employers whose membership is based on common business 
size, recognizing an AHP as an association composed of unrelated 
employers all operating in any specific State, with no other 
commonality, does not go far enough in ensuring that AHPs are operating 
in the interest of employers and are not merely operating as 
traditional health insurance issuers in all but name without having to 
meet the state regulatory standards that traditional health issuers are 
subject to.\102\ Plumbers, social workers, seed companies, yoga 
instructors, and mining companies are unlikely to share any special 
common interest or bond merely because they are all located in a single 
State like New York, California, or Pennsylvania (or in a single 
metropolitan multi-state area).
---------------------------------------------------------------------------

    \102\ The preamble of the 2018 AHP Rule states, ``[A] test that 
would treat all nationwide franchises, all nationwide small 
businesses, or all nationwide minority-owned businesses, as having a 
common employment-based nexus--no matter the differences in their 
products, services, regions, or lines of work--would not be 
sufficient to establish commonality of interest for a national group 
or association and AHP because it would be impossible to define or 
limit (e.g., business owners who support democracy) and, in the 
Department's view, would effectively eviscerate the genuine 
commonality of interest required under ERISA.'' 83 FR 28912, 28926 
(June 21, 2018).
---------------------------------------------------------------------------

    Accordingly, after considering all of the comments, the view of the 
Department in this final rule is that a commonality requirement based 
on common geography alone (same State or multi-State area) does not 
represent the best approach to interpreting the statutory definition of 
employer because such commonality does not ensure that the AHP is not a 
commercial health insurance entity in practice. Although it may be one 
relevant factor to consider along with other factors, the Department's 
reconsidered view is that geography alone should not be the sole test 
for commonality under section 3(5) of ERISA.

C. Business Purpose Standard

    The ``business purpose'' standard of the 2018 AHP Rule provided, in 
relevant part, that a group or association of employers must have at 
least one ``substantial'' business purpose unrelated to offering and 
providing health coverage or other employee benefits to its employer 
members and their employees, even if the primary purpose of the group 
or association is to offer such coverage to its members. While the 2018 
AHP Rule did not include a definition of ``substantial,'' it did 
provide a safe harbor for an association that would be a ``viable 
entity'' without sponsoring a health plan. Without addressing 
substantiality, it also clarified that ``a business purpose'' includes 
promoting common economic interests in a given trade or employer 
community and is not required to be a for-profit activity. Thus, 
regardless of the safe harbor, associations that merely sponsor 
conferences or offer classes or educational materials on business 
issues of interest to the association members would be deemed to pass 
the business purpose test.
    Several commenters explicitly supported the rescission of this 
standard. One commenter argued that the 2018 AHP Rule's definition of 
``employer'' is at odds with the text and purpose of ERISA, by 
``hollowing out'' the longstanding business purpose standard under pre-
rule guidance such that the business purpose standard and viability 
safe harbor would fail to ensure a sufficient employment nexus.\103\ A 
State insurance regulator emphasized that an AHP rule should contain a 
requirement that ties employer members together for business reasons 
other than health care coverage, and eligibility should be legitimately 
employment-based.\104\
---------------------------------------------------------------------------

    \103\ See comment from the Partnership to Protect Coverage (Feb. 
20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00044.pdf.
    \104\ See comment from the Pennsylvania Insurance Department 
(Feb. 20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00045.pdf.

---------------------------------------------------------------------------

[[Page 34121]]

    A number of commenters strongly objected to the provision in the 
2018 AHP Rule explicitly allowing the primary purpose of the group or 
association to consist of offering health coverage to its members. 
According to these commenters, this provision makes AHPs functionally 
indistinguishable from health insurance issuers, invites unscrupulous 
promoters to enter the market with mismanaged and inadequately funded 
AHPs, and could increase the prevalence of fraudulent and abusive 
practices. They registered their concern that permitting an AHP to be 
created for the primary purpose of offering health coverage is 
equivalent to setting up an insurance company, but without the 
standards that apply to insurance issuers to ensure that promises are 
kept, bills are paid, and consumers are protected. One commenter \105\ 
argued that such an outcome contradicts congressional intent 
articulated with the addition to ERISA of section 514(b)(6) (referred 
to as the ``Erlenborn amendment''): ``[C]ertain entrepreneurs have 
undertaken to market insurance products to employers and employees at 
large, claiming these products to be ERISA covered plans. For instance, 
persons whose primary interest is in the profiting from the provision 
of administrative services are establishing insurance companies and 
related enterprises. . . . They are no more ERISA plans than any other 
insurance policy sold to an employee benefit plan.'' \106\
---------------------------------------------------------------------------

    \105\ See comment from the District of Columbia Health Benefit 
Exchange Authority (Feb. 20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00033.pdf.
    \106\ House Committee on Education and Labor, Activity Report of 
Pension Task Force (94th Congress 2d Session, 1977) quoted in Cong. 
Rec. (daily ed. May 21, 1982) (statement of Rep. Erlenborn). States, 
prior to 1983, were effectively precluded by ERISA's broad 
preemption provisions from regulating any employee benefit plan 
covered by Title I of ERISA. As a result, a State's ability to 
regulate MEWAs was often dependent on whether the particular MEWA 
was not an ERISA-covered plan. In an effort to address this problem, 
the U.S. Congress amended ERISA in 1983 (Sec. 302(b), Pub. L. 97-
473, 96 Stat. 2611, 2613 (29 U.S.C. 1144(b)(6); ``Erlenborn-Burton 
Amendment'') to establish an exception to ERISA's preemption 
provisions for MEWAs. This exception was intended to eliminate 
claims of ERISA-plan status and Federal preemption as an impediment 
to State regulation of MEWAs by permitting States certain regulatory 
authority over MEWAs that are ERISA-covered employee welfare benefit 
plans.
---------------------------------------------------------------------------

    While no commenter explicitly defended the 2018 AHP Rule's business 
purpose standard, one commenter suggested it could be revised to 
require that members have a ``shared business and economic purpose,'' 
provided the group or association was organized for purposes unrelated 
to the provision of benefits.\107\ Examples provided include ``a common 
interest in promoting a vibrant local economy'' or having ``a common 
interest in local, state, and federal regulations of business 
practices.'' \108\
---------------------------------------------------------------------------

    \107\ See comment from The Coalition to Protect and Promote 
Association Health Plans (Feb. 19, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00019.pdf.
    \108\ Id.
---------------------------------------------------------------------------

    The Department shares the commenters' concerns that the business 
purpose standard and accompanying viability safe harbor are too loose 
to ensure that the group or association sponsoring the AHP is actually 
acting in the employers' interest or to effectively differentiate an 
employee health benefit program offered by such an association from a 
commercial insurance venture. Although the rule provided that a 
business purpose had to be ``substantial,'' the preamble's discussion 
of what counts as ``substantial'' was confusing and in some tension 
with the word's ordinary meaning. At one point, the preamble suggested 
that merely ``offering classes or educational materials on business 
issues of interest to members'' was per se sufficient to qualify as 
substantial.\109\ In addition, a weakened business purpose standard 
also can hinder efforts by States to regulate MEWAs, including AHPs, 
within their borders. On reexamination, the Department's reconsidered 
view is that the 2018 AHP Rule's relaxed business purpose test, 
especially when combined with the rule's other loosened standards on 
commonality of interest and working owners, cannot be counted on to 
sufficiently differentiate bona fide employer groups or associations 
acting as an employer from commercial insurance ventures despite the 
rule's control and nondiscrimination standards.
---------------------------------------------------------------------------

    \109\ 83 FR 28912, 28918 (June 21, 2018).
---------------------------------------------------------------------------

D. Working Owners

    The 2018 AHP Rule allowed certain self-employed persons without any 
common-law employees to participate in AHPs as ``working owners.'' It 
did this by establishing wage, hours of service, and other conditions 
for when a working owner would be treated as both an ``employer'' and 
``employee'' for purposes of participating in, and being covered by, an 
AHP.\110\ Commenters on the proposed recission of the 2018 AHP Rule 
disagreed on whether to rescind the ``working owner'' provision, with 
most commenters in favor of rescission.
---------------------------------------------------------------------------

    \110\ 29 CFR 2510.3-5(e).
---------------------------------------------------------------------------

    Commenters opposing the rescission offered little reasoning as to 
why the working owner provision, specifically, should be retained. One 
commenter suggested that the provision should be retained and clarified 
to include interns and apprentices of trades regardless of whether such 
individuals work a full-time schedule or are paid for their work.\111\
---------------------------------------------------------------------------

    \111\ See comment from the National Association of Home Builders 
(Feb. 20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00056.pdf.
---------------------------------------------------------------------------

    Most commenters on the working owner provision, however, supported 
its full rescission. Several commenters, for example, pointed to the 
inclusion of ``working owners'' in an AHP comprised only of working 
owners as clearly inconsistent with ERISA. One of these commenters 
added that such inclusion also is inconsistent with court decisions 
interpreting the terms ``employer'' and ``employee'' under ERISA. 
Further, according to the commenter, the Department's regulation at 29 
CFR 2510.3-3, which provides that an ERISA plan does not include a 
program under which no employees are participants covered under the 
plan, and the decision in Yates v. Hendon, recognize the longstanding 
position of Federal agencies that an ERISA plan must have at least one 
employee participant other than the owner to be a group health 
plan.\112\ Indeed, a couple of commenters observed that one person 
cannot be in an employment relationship with themselves, and that AHPs 
should not include working owners that do not have common-law 
employees. Some commenters stated that allowing an AHP comprised only 
of sole proprietors will necessarily lead to more fraud and 
insolvencies. Acknowledging that the 2018 AHP Rule included some 
``minimal standards'' for AHPs--for example, that AHPs have a formal 
organizational structure, and that participating employers have some 
level of control over the AHP--one of the commenters argued that sole 
proprietors are not in a position to exert meaningful control over an 
AHP because they are not in a position to determine whether the person 
setting up and running the AHP has the needed skills and

[[Page 34122]]

experience or to provide adequate oversight of the AHP's 
operations.\113\
---------------------------------------------------------------------------

    \112\ See comment from Timothy Stoltzfus Jost (Feb. 15, 2024) 
last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00011.pdf.
    \113\ See comment from the District of Columbia Health Benefits 
Exchange Authority (Feb. 20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00033.pdf.
---------------------------------------------------------------------------

    The Department has reexamined the 2018 AHP Rule's treatment of 
working owners and determined, as suggested by many commenters, that 
ERISA's text, fundamental purpose, and pre-rule guidance counsel 
against the appropriateness of the alternative criteria codified by the 
2018 AHP Rule. In this regard, the Department has concluded that the 
better reading of the statute requires a consistent focus on 
employment-based relationships, as distinct from commercial ventures 
formed to market health benefits to unrelated parties, including 
individuals who are not even in an employment relationship. The pre-
rule guidance rightly insisted on the existence of an employment 
relationship and on a common employment nexus between entities 
participating in a bona fide employer association. By departing from 
these standards, the 2018 AHP Rule undermined ERISA's employment-based 
focus and wrongly treated as ``employers'' entities whose primary 
purpose was the marketing of health benefits to unrelated employers and 
individuals.

E. Total Rescission Versus Partial Rescission

    An overwhelming majority of commenters support rescission of the 
2018 AHP Rule in some fashion. A few commenters discussed whether, if 
the Department decides to rescind the 2018 AHP Rule, the Department 
should rescind the rule in whole or in part. One commenter asserted 
that the Department should not rescind the entire 2018 AHP Rule, but 
instead should rescind only the provisions that the court held 
invalid.\114\ This commenter suggested that a total rescission would 
provide a less comprehensive framework than a partial rescission. 
Further, this commenter argued that a total rescission would cause a 
reversion to the prior body of applicable law, composed entirely of 
guidance documents issued over many decades and restricted by their 
terms to the parties and specific factual scenarios at issue. A 
different commenter suggested that the rule should stand at least with 
respect to AHPs meeting the same trade, industry, line of business or 
profession test.\115\ Another commenter urged the Department not to 
rescind the rule but rather work to improve it.\116\
---------------------------------------------------------------------------

    \114\ See comment from Paul J. Ray (Dec. 22, 2023) last accessed 
at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00001.pdf.
    \115\ See comment from Bernstein, Shur, Sawyer & Nelson, P.A. 
(Feb. 20, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00041.pdf.
    \116\ See comment from the Council for Affordable Health 
Coverage and Health Benefits Institute (Feb. 20, 2024) last accessed 
at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00037.pdf.
---------------------------------------------------------------------------

    By contrast, many commenters favored a total rescission of the 2018 
AHP Rule. Some reasoned that the rule would be nonsensical if codified 
without the sections that were held invalid by the district court. 
Others reasoned that the remaining portions would not be sufficient to 
prevent mismanagement, underinsurance, and potential harm to consumers. 
A number of commenters argued that only a full rescission would restore 
the status quo ante, which aligns with judicial precedent, is supported 
by State regulatory infrastructure, respects the ACA, and has created 
an effective regulatory framework to support legitimate AHPs for the 
past 30 years.
    The Department agrees that a full rescission, as proposed, is the 
best course of action. If the Department simply eliminated the 
provisions that the district court held invalid in its decision in New 
York v. United State Department of Labor, the provisions remaining 
would not provide an adequate definition of ``employer'' that properly 
reflects the limits of ERISA's definition of ``employer'' in section 
3(5) and Congress' focus on employment-based arrangements, as opposed 
to the ordinary commercial provision of insurance outside the 
employment context. The remaining provisions also would be missing key 
elements necessary for a comprehensive framework for a group or 
association to demonstrate that it is acting ``indirectly in the 
interest of an employer'' within the meaning of section 3(5) of ERISA. 
Following the district court's decision, described above, the 
Department considered the severability clause issue raised by the 
district court and concluded that, without the core provisions that the 
district court held invalid, the 2018 AHP Rule could not be 
operationalized and would provide no meaningful guidance.
    Even if considered imperfect to some commenters, the pre-rule 
guidance establishes criteria intended to distinguish bona fide groups 
or associations of employers that provide coverage to their employees 
and the families of their employees from arrangements that more closely 
resemble State-regulated private health insurance coverage. This 
rescission does not affect the ability to operate or form an AHP 
pursuant to the pre-rule guidance. The Department's pre-rule guidance 
is consistent with the criteria articulated and applied by every 
appellate court, in addition to several Federal district courts, that 
considered whether an organization was acting in the interests of 
employer members.\117\ Moreover, to the Department's knowledge, no 
court has found, or even suggested, that its longstanding pre-rule 
guidance criteria too narrowly construe the meaning of acting 
``indirectly in the interest of an employer'' under section 3(5) of 
ERISA.
---------------------------------------------------------------------------

    \117\ See supra note 2.
---------------------------------------------------------------------------

F. Defense of the 2018 AHP Rule in Court

    A few commenters in favor of the 2018 AHP Rule asserted that the 
Department should abandon or withdraw the proposed rescission, leave 
the 2018 AHP Rule in place, and defend the rule in the U.S. Court of 
Appeals for the D.C. Circuit. However, the Department is no longer of 
the view that the business purpose standard, geography-based 
commonality standard, and working owner provision in the 2018 AHP Rule, 
even as bolstered by the nondiscrimination standards in paragraph 
(d)(4) and the control requirements, are sufficient to distinguish 
between meaningful employment-based relationships and commercial 
insurance-type arrangements whose purpose is principally to market 
benefits and identify and manage risk. The Department continues to be 
mindful of the unique risks to individuals, small employers, and health 
care providers in the context of AHPs and any other form of MEWAs. 
These concerns underscore the need to limit ERISA-covered AHPs to true 
employee benefit plans that are the product of a genuine employment 
relationship and not artificial structures marketed as employee benefit 
plans, often with an objective of attempting to sidestep otherwise 
applicable insurance regulations or Federal law applicable to the 
individual and small group markets. Such arrangements are not 
``employee benefit plans'' as defined in section 3(3) of ERISA, nor, as 
explained above, would it be consistent with the purpose of the statute 
to treat them as such.
    In sum, upon further evaluation and consistent with the sound 
administration of ERISA, the Department has concluded that it

[[Page 34123]]

should rescind the 2018 AHP Rule in its entirety. The Department now 
believes that the provisions of the 2018 AHP Rule that the district 
court found inconsistent with the APA and in excess of the Department's 
statutory authority under ERISA are, at a minimum, not consistent with 
the best reading of section 3(5) of ERISA. As the court noted in 
Wisconsin Educ. Ass'n Ins. Trust v. Iowa State Board of Public 
Instruction, ``[t]he definition of an employee welfare benefit plan is 
grounded on the premise that the entity that maintains the plan and the 
individuals that benefit from the plan are tied by a common economic or 
representation interest, unrelated to the provision of benefits.'' 
\118\
---------------------------------------------------------------------------

    \118\ Wisconsin Educ. Assn. Ins. Trust v. Iowa State Bd. of 
Public Instruction, 804 F.2d 1059, 1063 (8th Cir. 1986)
---------------------------------------------------------------------------

G. Effect of Rescission on the 2019 Association Retirement Plan Rule

    The proposal addressed only the 2018 AHP Rule. It did not solicit 
comments on whether to simultaneously rescind the Department's final 
rule on association retirement plans (2019 ARP Rule).\119\ However, the 
proposal acknowledged the existence of the 2019 ARP Rule; that it was 
issued after the 2018 AHP Rule and after the district court decision in 
New York v. United States Department of Labor; and that it includes 
commonality, business purpose, and working owner provisions that 
parallel the provisions in the 2018 AHP Rule.\120\ The proposal also 
acknowledged that ERISA has parallel language in the definitions of 
pension and welfare plan and does not explicitly provide a basis for 
distinguishing between the AHP and ARP rules.\121\ However, the 
proposal stated that because there are specific retirement plan 
considerations that involve issues beyond the scope of the proposed 
rescission, the Department decided not to address the 2019 ARP Rule in 
the proposal.
---------------------------------------------------------------------------

    \119\ 29 CFR 2510.3-55; Definition of ``Employer'' Under Section 
3(5) of ERISA--Association Retirement Plans and Other Multiple-
Employer Plans, 84 FR 37508 (July 31, 2019).
    \120\ 88 FR 87968, 87978-79.
    \121\ Id. See also 29 U.S.C. 3(1) (defining ``welfare plan''), 
3(2) (defining ``pension plan''), and 3(5) (defining ``employer'').
---------------------------------------------------------------------------

    A couple of commenters disagreed with this decision, asserting that 
it would be arbitrary and capricious not to address the 2019 ARP Rule 
given that the same applicable statutory text, the definition of 
``employer'' in section 3(5) of ERISA, is the subject of both rules. In 
support of this position, one of the commenters quoted the Department's 
reasoning from the preamble to the 2019 ARP Rule, which stated as 
follows: ``It makes sense to have consistent provisions for AHPs and 
[ARPs], because the Department is interpreting the same definitional 
provisions in both contexts and because many of the same types of 
groups or associations of employers that sponsor AHPs for their members 
will also want to sponsor [ARPs].'' \122\ Noting some take-up success 
under the 2019 ARP Rule, one of the commenters implied that the 
Department is being arbitrary and capricious by ignoring the 
possibility of a similar level of success for AHPs absent the 
rescission.\123\
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    \122\ 84 FR 37508, 37513.
    \123\ See comment from Paragon Health Institute (Feb. 17, 2024) 
last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00015.pdf.
---------------------------------------------------------------------------

    That the Department has deliberately decided to proceed with the 
rescission of the 2018 AHP Rule, while reserving judgment on the 2019 
ARP Rule, is neither probative nor suggestive of an arbitrary and 
capricious process either in the case of this final rule or with 
respect to future action, if any, taken on the 2019 ARP Rule. In much 
the same way that the Department exercised its discretion to promulgate 
the two rules on separate timelines, it has similar discretion to 
undertake additional regulatory action with respect to the 2019 ARP 
Rule on a different timeline. Moreover, unlike the 2018 AHP Rule, the 
2019 ARP Rule extends coverage to ``bona fide professional employer 
organization'' arrangements in addition to association retirement 
plans. Given the different scope, provisions, and policy considerations 
associated with the two rules, and the fact that only the AHP Rule has 
been held invalid in judicial proceedings, the Department believes it 
is appropriate to initially proceed with rescission of the 2018 AHP 
Rule, and to reserve judgment on any additional action with respect to 
the 2019 ARP Rule for a separate rulemaking effort.
    Also, as the Department explained in the preamble to the proposal, 
retirement plans raise different issues from group health plans. 
Retirement plans and group health plans are subject to an array of 
different laws, regulators, and market forces. As just one example 
highlighted by commenters on the proposal, group health plans generally 
are subject to the ACA and retirement plans are not. Additionally, 
multiple employer retirement plans do not have a history of financial 
mismanagement or abuse to the same extent as multiple employer group 
health plans.\124\ Although this final rule rescinds the 2018 AHP Rule, 
the Department has made no decision on whether to rescind or modify the 
2019 ARP Rule, which was promulgated through a separate notice and 
comment process. However, if the Department decides to make changes to 
the 2019 ARP Rule, it will do so separately and through a notice-and-
comment rulemaking process as was done with the final rule being 
adopted today.
---------------------------------------------------------------------------

    \124\ Supra note 41.
---------------------------------------------------------------------------

H. Effect of Rescission on Access to Health Coverage Through 
Association Health Plans

    Commenters are concerned that rescinding the 2018 AHP Rule will 
undermine the use of AHPs as a means of gaining access to health 
benefits. One commenter asserted that after the 2018 AHP Rule went into 
effect, small businesses created new associations and offered health 
coverage at premium rates significantly lower than previous small-group 
plans.\125\ This commenter, however, did not address whether any of the 
purported savings attributed to newly formed AHPs resulted from AHPs 
that were formed following the 2018 AHP Rule but in accordance with 
pre-rule guidance, from AHPs formed pursuant to the alternative 
criteria under the 2018 AHP Rule, or some combination thereof, or 
whether any AHPs formed pursuant to the alternative criteria would have 
also satisfied the pre-rule criteria (and therefore could have 
continued to operate under the pre-rule guidance, regardless of the 
decision in New York v. United States Department of Labor). This 
commenter also asserted that newly created AHPs produced savings of 
nearly 30 percent for some employers. However, the Department is unable 
to independently validate the savings asserted by this commenter, or 
the extent to which those savings, if any, were attributable to less 
generous benefits, risk selection or other practices that were 
potentially harmful to the larger market for health benefits, or 
individuals being covered by low-quality, limited plans.\126\
---------------------------------------------------------------------------

    \125\ See comment from the Opportunity Solutions Project (Feb. 
2, 2024) last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00003.pdf.
    \126\ The savings reported by the commenter was based on a 2019 
study of 28 newly formed, active AHPs established under the 2018 AHP 
Rule provisions. The savings claims are described as ``the maximum 
savings'' though the term is not defined. The study compares each 
business's current non-AHP plan to the business's AHP plan options 
(the study also reported that the average number of plan options 
(e.g. PPO, HMO, HDHP) was 11). The ``average maximum savings'' of 
the 4 self-funded AHPs was 29 percent, and the average maximum 
savings for the 24 fully insured AHPs was 23 percent. Association 
Health Plans, First Phase of New Association Health Plans Revealing 
Promising Trends. www.associationhealthplans.com/reports/new-ahp-study/ accessed on March 12, 2024. This finding is not the average 
savings across all employers in the AHPs and does not account for 
differences in insurance coverage richness.

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[[Page 34124]]

    The Department recognizes that a number of AHPs were established 
and briefly existed as a result of the 2018 AHP Rule. However, after 
the district court's decision holding the 2018 AHP Rule invalid, and 
the Department's subsequent guidance that parties should cease 
establishing AHPs (under the alternative criteria pursuant to the 2018 
AHP Rule) and to wind down any that were in existence, commercial AHPs 
permitted under the 2018 AHP Rule halted by the end of 2019. Therefore, 
the rescission itself has no effect independent of the effects of the 
district court's opinion and the expiration of the winding-down period 
provided in the Department's long expired temporary safe harbor from 
enforcement.

I. Costs of Rescinding the 2018 AHP Rule

    A couple of commenters discussed potential costs associated with 
rescinding the 2018 AHP Rule. One commenter stated that the proposal 
does not acknowledge certain costs that such a rescission would 
entail.\127\ This commenter suggests that the proposal overlooks the 
investments made in dozens of new AHPs organized under the 2018 AHP 
Rule and how their rescission ``materializes losses from investments 
with delayed returns.'' This commenter also asserted that the 
rescission limits the AHP market to AHPs established pursuant to the 
Department's pre-rule guidance and suggested the uncertainties 
attendant to that guidance may discourage new investments in AHP-
related technology and ventures, stifling innovations and the savings 
they might produce. This commenter also suggested that the rescission 
systemically reinforces higher than necessary health insurance costs 
for small businesses, money that might otherwise be spent on new hiring 
or raises. The commenter further suggested that higher premiums, in 
turn, discourage small businesses from offering coverage, increasing 
the Government's cost as more people must rely on ACA premium tax 
credits. But a different commenter was of the view that, because AHPs 
established under the 2018 AHP Rule had little opportunity to exist due 
to the district court's opinion, there is little real-world evidence of 
the effect the 2018 AHP Rule would have had on the market.\128\ In 
addition, a significant number of commenters articulated a preference 
for the pre-rule guidance.
---------------------------------------------------------------------------

    \127\ See comment from Paragon Health Institute (Feb. 17, 2024) 
last accessed at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00015.pdf.
    \128\ See comment from AHIP (Feb. 20, 2024) last accessed at 
https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00043.pdf.
---------------------------------------------------------------------------

    After the district court invalidated the 2018 AHP Rule, the 
Department gave AHPs established under the rule a temporary safe harbor 
from enforcement to allow such existing AHPs to wind down and announced 
that new AHPs should not be established in reliance on the rule. That 
temporary safe harbor from enforcement has long expired, and the 
Department is not aware of any AHPs that currently exist under the 
framework of the 2018 AHP Rule. Because the 2018 AHP Rule was never 
fully implemented and any AHPs established in reliance on the rule have 
long since terminated, the Department is unable to definitively 
determine any costs and benefits that would have been incurred in 
response to the approach taken in the 2018 AHP Rule.

J. Need for Future Rulemaking

    In addition to comments on rescission of the 2018 AHP Rule, the 
proposal also solicited comments on whether the Department should 
propose a rule for group health plans that codifies and replaces the 
pre-rule guidance. This solicitation included a request for views on 
whether to issue additional guidance clarifying the application of the 
Department's longstanding pre-rule guidance as it relates to group 
health plans (including, for example, the HIPAA nondiscrimination rule 
application to AHPs), propose revised alternative criteria for multiple 
employer association-based group health plans, or pursue some 
combination of those or other alternative steps. The intent was that 
the public comments would inform the Department's decision on whether 
to finalize the proposal to rescind the 2018 AHP Rule and would also 
assist the Department in determining if it should engage in future 
rulemaking on AHPs under section 3(5) of ERISA. Overall, comments were 
mixed on whether future rulemaking is necessary or appropriate, with no 
clear consensus.
    Many commenters expressed a preference for rescission but no future 
rulemaking on AHPs under section 3(5) of ERISA. These commenters 
suggested that the facts-and-circumstances approach of the pre-rule 
guidance (buttressed with State regulatory infrastructure) is adequate, 
has worked well to honor ERISA's employment-based nexus, and that no 
formal notice-and-comment rulemaking is needed.\129\ Some of these 
commenters were concerned that a future rulemaking effort might 
negatively impact existing bona fide AHPs.\130\ Others cautioned that 
the Department should not engage in rulemaking to create new and 
separate requirements around rating practices within the AHP market, 
suggesting that rulemaking of that type would be reaching beyond the 
Department's statutory authority.
---------------------------------------------------------------------------

    \129\ New rulemaking could, according to these commenters, 
undermine the best practices built by employers over decades under 
the pre-rule guidance and disrupt the balance upon which bona fide 
associations, employers, and insurers rely. Some of these commenters 
noted that attempting to codify pre-rule guidance issued over 
several decades would likely result in gaps and ambiguities, 
creating more confusion for small employers. One of these commenters 
further asserted that the lengthy, formal rulemaking process would 
hinder the Department from contemporaneously responding to industry 
trends while also restricting industry exploration of new 
arrangements that could pool employers' resources more efficiently 
to maximize the healthcare benefits available to employees and their 
dependents.
    \130\ Several commenters argued that any future codification of 
the pre-rule guidance must preserve the structure of existing MEWAs 
that were set up in good faith in accordance with pre-rule guidance, 
including the ability to use experience ratings of their employer 
members consistent with State insurance law (which they say is 
essential for them to offer affordable and comprehensive coverage), 
without adding any new requirements that would necessitate expensive 
restructuring of these MEWAs.
---------------------------------------------------------------------------

    Other commenters, however, recommended that the Department give 
serious consideration to codifying the core principles in the 
Department's pre-rule guidance into the CFR through notice-and-comment 
rulemaking following this rescission. These commenters focused on the 
benefits and efficiencies of transparency and streamlining access to 
these principles.
    Still others suggested that future rulemaking could both 
incorporate and expand upon the core principles in the Department's 
pre-rule guidance. Ideas for expansion included provisions on more 
effective MEWA enforcement, mandatory benefit levels (incorporating 
provisions that mirror the ACA small group market requirements into any 
future rulemaking), enhanced financial reporting by AHPs, restrictions 
on alternative coverage arrangements that undermine and threaten 
progress under the ACA, and disclosures by AHPs to participating 
employers and enrollees regarding the extent to which the AHP coverage 
includes the ACA's essential health benefits.

[[Page 34125]]

    Other ideas for regulatory expansions in a future rulemaking 
project under section 3(5) of ERISA included strong nondiscrimination 
protections, provisions on working owners (some commenters recommended 
prohibitions on working owners being able to join AHPs, but others 
recommended including them), provisions requiring associations to 
disclose compensation they receive from the AHPs they sponsor or from 
the participating employers or enrollees obtaining coverage, provisions 
delineating concurrent State and Federal enforcement roles, and 
provisions codifying and enforcing the CMS ``look-through rule.'' \131\
---------------------------------------------------------------------------

    \131\ Supra note 9.
---------------------------------------------------------------------------

    The commenters' ideas and suggestions on a potential future 
rulemaking project involving AHPs are not directly relevant to the 
Department's rescission of the 2018 AHP Rule. Moreover, some of their 
ideas for expansion are beyond the scope of a rulemaking project 
defining ``employer'' under section 3(5) of ERISA. However, the 
Department will take the recommendations for future rulemaking under 
advisement.

VI. Regulatory Impact Analysis

A. Relevant Executive Orders for Regulatory Impact Analyses

    Executive Orders (E.O.s) 12866 \132\ and 13563 \133\ direct 
agencies to assess all costs and benefits of available regulatory 
alternatives and, if regulation is necessary, to select regulatory 
approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects; distributive impacts; 
and equity). E.O. 13563 emphasizes the importance of quantifying costs 
and benefits, reducing costs, harmonizing rules, and promoting 
flexibility. E.O. 13563 directs agencies to propose or adopt a 
regulation only upon a reasoned determination that its benefits justify 
its costs; tailor their regulations to impose the least burden on 
society, consistent with obtaining regulatory objectives; and select, 
in choosing among alternative regulatory approaches, those approaches 
that maximize net benefits. E.O. 13563 recognizes that some benefits 
are difficult to quantify and provides that, where appropriate and 
permitted by law, agencies may consider and discuss qualitatively 
values that are difficult or impossible to quantify, including equity, 
human dignity, fairness, and distributive impacts.
---------------------------------------------------------------------------

    \132\ 58 FR 51735 (Oct. 4, 1993).
    \133\ 76 FR 3821 (Jan. 21, 2011).
---------------------------------------------------------------------------

    Under E.O. 12866 (as amended by E.O. 14094), the Office of 
Management and Budget's (OMB) Office of Information and Regulatory 
Affairs determines whether a regulatory action is significant and, 
therefore, subject to the requirements of the E.O. and review by OMB. 
As amended by E.O. 14094, section 3(f) of E.O. 12866 defines a 
``significant regulatory action'' as a regulatory action that is likely 
to result in a rule that may: (1) have an annual effect on the economy 
of $200 million or more; or adversely affect in a material way the 
economy, a sector of the economy, productivity, competition, jobs, the 
environment, public health or safety, or State, local, Territorial, or 
Tribal governments or communities; (2) create a serious inconsistency 
or otherwise interfere with an action taken or planned by another 
agency; (3) materially alter the budgetary impact of entitlements, 
grants, user fees or loan programs or the rights and obligations of 
recipients thereof; or (4) raise legal or policy issues for which 
centralized review would meaningfully further the President's 
priorities or the principles set forth in the Executive order.
    OMB has designated this action a ``significant regulatory action'' 
within the meaning of section 3(f)(1) of E.O. 12866, as amended, and 
reviewed the final rule in accordance with E.O. 12866. Key to this 
designation is that the Department is rescinding a rule that was itself 
significant under section 3(f)(1).
    It should be noted that the 2018 AHP Rule was never fully 
implemented.\134\ While the Department gave AHPs established under the 
2018 AHP Rule a temporary safe harbor from enforcement after the 
district court's March 28, 2019 decision holding invalid the core 
provisions of the 2018 AHP Rule, that time has long expired, and the 
Department is not aware of any AHPs that currently exist under the 
framework of the 2018 AHP Rule.
---------------------------------------------------------------------------

    \134\ Consistent with the applicability date provision in the 
2018 AHP Rule, fully insured plans could begin operating under the 
rule on September 1, 2018, existing self-insured AHPs could begin 
operating under the rule on January 1, 2019, and new self-insured 
AHPs could begin operating under the rule on April 1, 2019. The 
preamble explained that this phased approach was intended to allot 
some additional time for the Department and State authorities to 
address concerns about self-insured AHPs' vulnerability to financial 
mismanagement and abuse. See 83 FR 28912, 28953 (June 21, 2018).
---------------------------------------------------------------------------

    Consequently, any costs and benefits that would have been 
anticipated in response to the approach taken in the 2018 AHP Rule were 
never fully experienced and have long since lapsed for those plans that 
formed and briefly existed pursuant to the 2018 AHP Rule. The 2018 AHP 
Rule hypothesized that plans serving small employers and their 
participants potentially would have benefitted from the ability to band 
together to offer tailored plans that omit certain benefits, and thus 
reduce their costs. At the same time, however, other plans and 
participants were assumed to bear the costs, with the 2018 AHP Rule's 
economic analysis projecting that those employers and participants that 
remained in the small-group and individual markets could face premium 
increases between 0.5 and 3.5 percent, resulting in an increase in the 
number of uninsured individuals caused by those that exited the 
individual market due to higher premiums.
    The Department's regulatory impact analysis accompanying the 2018 
AHP Rule did not encompass the litigation or the district court's 
decision, which largely nullified the assumed costs and benefits. 
Accordingly, the Department assumes that the costs of this rulemaking, 
the rescission of the 2018 AHP Rule, would effectively be zero, while 
the benefits would be limited to settling any uncertainty caused by the 
litigation surrounding the regulation and the Department's 
reexamination of the appropriate criteria for a group or association of 
employers to sponsor an AHP.
    The Department, in response to the proposal, received a comment 
arguing that in assessing the cost of the rulemaking, the Department 
should have used partial implementation of the 2018 AHP Rule as its 
baseline.\135\ The commenter argued that the Department should have 
implemented those parts of the 2018 AHP Rule that the district court 
did not hold invalid. The cost of rescinding the 2018 AHP Rule would 
then be the foregone benefits for individuals who would have relied on 
a scaled-down version of the 2018 AHP Rule.
---------------------------------------------------------------------------

    \135\ See comment from Paul J. Ray (Dec. 22, 2023) last accessed 
at https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AC16/00001.pdf.
---------------------------------------------------------------------------

    The Department has explained why it determined that full rescission 
of the 2018 AHP Rule was appropriate, as discussed above in Section 
V.E. Because of the district court's decision, and the fact that 
parties are not relying on the 2018 AHP Rule to operate AHPs, the costs 
and benefits of the 2018 AHP Rule assessed against the baseline 
suggested by the commenter would be especially uncertain. Accordingly, 
the Department's analysis mostly reflects the fact that the 2018 AHP 
Rule was

[[Page 34126]]

never fully implemented and the Department, therefore, reiterates that 
the costs of this rulemaking, the rescission of the 2018 AHP Rule, 
would effectively be zero relative to the baseline projected from 
current prevailing conditions, while the benefits would be limited to 
settling any uncertainty caused by the litigation surrounding the 2018 
AHP Rule and the Department's reexamination of the appropriate criteria 
for a group or association of employers to sponsor an AHP. 
Additionally, as observed in Section II.E. above, the district court 
held invalid the core provisions of the 2018 AHP Rule. Without the 
stricken provisions, the 2018 AHP Rule could not be operationalized and 
would provide no meaningful guidance.

B. Background

    An AHP is a health plan formed by a group or association of 
employers to provide health care coverage for their employees. AHPs 
have been in existence for some time and are a subset of MEWAs. Under 
the pre-rule guidance, to qualify as a bona fide employer group or 
association capable of establishing a single group health plan under 
ERISA, the group or association had to satisfy the business purpose 
standard, commonality standard, and control standard, which, along with 
factors that may be considered in applying these standards, are 
described above in Section II.B. of this preamble. If these standards 
are not satisfied, a health care arrangement offered by the group or 
association is not treated as a single group health plan, and the group 
or association is disregarded in determining whether health insurance 
coverage offered to an individual or employer member of the association 
is individual, small group, or large group market coverage for purposes 
of Title XXVII of the PHS Act. The scope of these standards, additional 
nondiscrimination and working owner provisions, and how treatment of 
AHPs is different under the 2018 AHP Rule are discussed in Section 
II.D. of the preamble.
    As noted in Section II.E. of this preamble, on March 28, 2019, the 
U.S. District Court for the District of Columbia held invalid the 2018 
AHP Rule's definition of bona fide employer groups or associations and 
the working owner provisions. In response, the Department announced its 
temporary enforcement policy designed to minimize undue consequences of 
the district court's decision on AHP participants.\136\
---------------------------------------------------------------------------

    \136\ See supra note 31.
---------------------------------------------------------------------------

C. Need for Regulatory Action

    As discussed in Section II.E. of this preamble, the district court 
held invalid the 2018 AHP Rule as inconsistent with ERISA's definition 
of persons ``acting indirectly in the interest of an employer.'' The 
district court concluded that the 2018 AHP Rule's standards for 
determining ``employer'' status were overbroad and inconsistent with 
Congress' intent to draw a distinction between employment-based 
arrangements, on the one hand, and commercial entities marketing 
benefits to unrelated employers, on the other.\137\ After further 
consideration, the Department has concluded that the 2018 AHP Rule does 
not comport with the best interpretation of ERISA's text and animating 
purposes and should be rescinded while the Department reconsiders its 
specific provisions and possible different regulatory approaches. The 
Department's rescission of the 2018 AHP Rule in its entirety also 
provides clarity to entities that wish to sponsor an AHP with respect 
to the need to rely upon the criteria in the Department's longstanding 
pre-rule guidance and court decisions on the ERISA section 3(5) 
definition, as opposed to the terms of the 2018 AHP Rule.
---------------------------------------------------------------------------

    \137\ See supra at Section II.E. of this preamble for a 
discussion of the decision in New York v. United States Department 
of Labor.
---------------------------------------------------------------------------

D. Affected Entities

    The Department does not believe that any entities currently rely 
upon the 2018 AHP Rule, given that the district court has held invalid 
most of the 2018 AHP Rule and the temporary enforcement policy period 
has long expired. Rescinding the 2018 AHP Rule simply maintains the 
status quo. At the time the Department first promulgated the 2018 AHP 
Rule, the Department identified 153 entities as potential ``early 
adopters'' that had signaled their intent to form an AHP under the 2018 
AHP Rule. Of these early adopters, 112 of these entities ultimately 
submitted the required Form M-1,\138\ one other entity advised the 
Department that it intended to file a Form M-1, two indicated they were 
not required to file a Form M-1, 15 told the Department that they were 
not pursuing an AHP, one was under investigation for reasons unrelated 
to the early adopter program, and the remainder were unresponsive to 
further Department outreach.
---------------------------------------------------------------------------

    \138\ The Form M-1 is a report for MEWAs and Certain Entities 
Claiming Exception (ECEs) that offer medical benefits, including 
AHPs. MEWAs are required to file annual reports with the Department, 
as well as special filings associated with certain events. In 
particular, all MEWAs that provide medical benefits, including AHPs 
that intend to begin operating, are required to file an initial 
registration Form M-1 at least 30 days before engaging in any 
activity. Such activities include, but are not limited to, 
marketing, soliciting, providing, or offering to provide medical 
care benefits to employers or employees who may participate in the 
AHP. This filing alerts the Department and State insurance 
regulators to new entrants into insurance markets, which can give 
States and regulators time to communicate with these new entities 
before they begin operation. For additional information on the Form 
M-1 see https://www.dol.gov/sites/dolgov/files/EBSA/employers-and-advisers/plan-administration-and-compliance/reporting-and-filing/forms/m1-2023.pdf.
---------------------------------------------------------------------------

E. Benefits

    The final rule rescinds the 2018 AHP Rule and provides clarity to 
parties about the continuing unavailability of the 2018 AHP Rule as an 
alternative to the Department's longstanding pre-rule guidance. At the 
time the 2018 AHP Rule was finalized, the Department also anticipated 
that it would have to increase dramatically its MEWA enforcement 
efforts and enhance its coordination with State regulators because of 
the anticipated increase in the number of AHPs attributable to the new 
2018 AHP Rule. Because the 2018 AHP Rule was held invalid by the 
district court, the Department has not had to address a dramatic 
increase in the number of insolvent MEWAs, although existing fraudulent 
and mismanaged MEWAs remain a significant challenge to the agency.

F. Costs

    Although the 2018 AHP Rule was finalized, it was never fully 
implemented, and no parties appear to currently rely on the 2018 AHP 
Rule, given the district court's decision and the expiration of the 
Department's temporary enforcement policy. As a result, the Department 
does not believe that rescinding the 2018 AHP Rule would result in any 
costs.

VII. Paperwork Reduction Act

    The 2018 AHP Rule was not subject to the requirements of the 
Paperwork Reduction Act of 1995 \139\ because it did not contain a 
collection of information as defined in 44 U.S.C. 3502(3). Accordingly, 
this final rule to rescind the 2018 AHP Rule also does not contain an 
information collection as defined in 44 U.S.C. 3502(3).
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    \139\ 44 U.S.C. 3501 et seq.
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VIII. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \140\ imposes certain 
requirements on rules subject to the notice and comment requirements of 
section 553(b)

[[Page 34127]]

of the APA or any other law.\141\ Under section 604 of the RFA, 
agencies must submit a final regulatory flexibility analysis (FRFA) of 
a final rule that is likely to have a significant economic impact on a 
substantial number of small entities, such as small businesses, 
organizations, and governmental jurisdictions. However, because the 
2018 AHP Rule was never fully implemented and the Department is not 
aware of any existing AHP that was formed in reliance on the rule, this 
rescission of the 2018 AHP Rule will not have a significant economic 
impact on a substantial number of small entities.
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    \140\ 5 U.S.C. 601 et seq.
    \141\ 5 U.S.C. 551 et seq.
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    Pursuant to section 605(b) of the RFA, the Assistant Secretary of 
the Employee Benefits Security Administration hereby certifies that the 
final rule will not have a significant economic impact on a substantial 
number of small entities. As discussed above, at the time the 
Department first promulgated the 2018 AHP Rule, the Department 
identified only 153 entities as potential ``early adopters'' that had 
signaled their intent to form an AHP under the 2018 AHP Rule. 
Ultimately, 112 of these entities submitted the required Form M-1, one 
other entity advised the Department that it intended to file a Form M-
1, two indicated they were not required to file a Form M-1, 15 told the 
Department that they were not pursuing an AHP, one was under 
investigation for reasons unrelated to the early adopter program, and 
the remainder were unresponsive to further Department outreach. Since 
the district court held invalid the 2018 AHP Rule and the temporary 
enforcement policy period has expired, any AHPs that formed before the 
decision in reliance on the 2018 AHP Rule should have wound down, and 
the Department is not aware of any new AHPs that have formed in 
reliance on the 2018 AHP Rule. Accordingly, rescission of the 2018 AHP 
Rule will not have an impact on existing AHPs formed in accordance with 
the pre-rule guidance.

IX. Unfunded Mandates

    Title II of the Unfunded Mandates Reform Act of 1995 requires each 
Federal agency to prepare a written statement assessing the effects of 
any Federal mandate in a proposed or final agency rule that may result 
in an expenditure of $100 million or more (adjusted annually for 
inflation with the base year 1995) in any one year by State, local, and 
Tribal governments, in the aggregate, or by the private sector.\142\ In 
2024, that threshold is approximately $183 million. For purposes of the 
Unfunded Mandates Reform Act, this final rule does not include any 
Federal mandate that the Department expects would result in such 
expenditures by State, local, or Tribal governments, or the private 
sector.\143\
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    \142\ 2 U.S.C. 1501 et seq. (1995).
    \143\ 58 FR 58093 (Oct. 28, 1993).
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X. Federalism

    E.O. 13132 outlines the fundamental principles of federalism. It 
also requires Federal agencies to adhere to specific criteria in 
formulating and implementing policies that have ``substantial direct 
effects'' on the States, the relationship between the National 
Government and States, or on the distribution of power and 
responsibilities among the various levels of government. Federal 
agencies promulgating regulations that have these federalism 
implications must consult with State and local officials and describe 
the extent of their consultation and the nature of the concerns of 
State and local officials in the preamble to the proposal. The preamble 
to the 2018 AHP Rule included a discussion of federalism implications 
of the rule, which largely focused on and confirmed that the 2018 AHP 
Rule did not modify State authority under section 514(b)(6) of ERISA, 
which gives the Department and State insurance regulators joint 
authority over MEWAs, including AHPs, to ensure appropriate regulatory 
and consumer protections for employers and employees relying on an AHP 
for health care coverage. Because the 2018 AHP Rule was never fully 
implemented and the Department is not aware of any entities currently 
relying on the 2018 AHP Rule, the Department does not believe its 
rescission will have a substantial direct effect on the States, on the 
relationship between the National Government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government that were discussed in the 2018 AHP Rule. Nonetheless, the 
Department notes that the level and type of State regulation of MEWAs 
vary widely. The Department is aware that some States have enacted or 
are considering State laws modeled on the 2018 AHP Rule that are 
intended to recognize AHPs as employee benefit plans for purposes of 
State regulation.\144\
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    \144\ For example, CMS, on behalf of HHS, issued a final 
determination pursuant to section 2723(a)(2) of the PHS Act, section 
1321(c)(2) of the ACA, and 45 CFR 150.219 that the Commonwealth of 
Virginia has not corrected the failure to substantially enforce 
certain Federal market reforms with respect to issuers offering 
health insurance coverage through an association of real estate 
salespersons under Virginia State law, specifically section 38.2-
3521.1 G of the Code of Virginia, as enacted by HB 768/SB 335 
(2022). The CMS letter, dated September 6, 2023, is available at 
www.cms.gov/files/document/letter-virginia-governor-and-insurnace-commissioner-hb-768sb-335-2022-final-determination.pdf.
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XI. Congressional Review Act

    Pursuant to Subtitle E of the Small Business Regulatory Enforcement 
Fairness Act of 1996 (also known as the Congressional Review Act, 5 
U.S.C. 801 et seq.) OIRA has determined that this rule meets the 
criteria set forth in 5 U.S.C. 804(2). Accordingly, this rule has been 
transmitted to the Congress and the Comptroller General for review.

List of Subjects in 29 CFR Part 2510

    Employee benefit plans, Pensions.

    For the reasons stated in the preamble, the Department of Labor 
amends 29 CFR part 2510 as follows:

PART 2510--DEFINITIONS OF TERMS USED IN SUBCHAPTERS C, D, E, F, G, 
AND L OF THIS CHAPTER

0
1. The authority citation for part 2510 is revised to read as follows:

    Authority:  29 U.S.C. 1002(1), 1002(2), 1002(3), 1002(5), 
1002(16), 1002(21), 1002(37), 1002(38), 1002(40), 1002(42), 
1002(43), 1002(44), 1031, and 1135; and Secretary of Labor's Order 
No. 1-2011, 77 FR 1088. Secs. 2510.3-101 and 2510.3-102 also issued 
under sec. 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 
(E.O. 12108, 44 FR 1065, 3 CFR, 1978 Comp., p. 275) and 29 U.S.C. 
1135 note.


0
2. Section 2510.3-3 is amended by revising paragraph (c) introductory 
text to read as follows:


Sec.  2510.3-3  Employee benefit plan.

* * * * *
    (c) Employees. For purposes of this section and except as provided 
in Sec.  2510.3-55(d):
* * * * *


Sec.  2510.3-5  [Removed and Reserved]

0
3. Remove and reserve Sec.  2510.3-5.

    Signed at Washington, DC, this 22nd day of April, 2024.
Lisa M. Gomez,
Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. 2024-08985 Filed 4-29-24; 8:45 am]
BILLING CODE 4510-29-P