Before you join an association health plan, ask who the employer is.

What An Association Health Plan Is.

An association health plan, or AHP, is group health coverage offered to the member employers of a trade group, chamber, professional society or similar organization. Instead of each employer buying its own policy, members take coverage through one arrangement the association sponsors. The usual pitch is pooled buying power and simpler administration. Whether that holds depends on how the arrangement is built, and that starts with how ERISA defines an employer.

ERISA section 3(5), 29 U.S.C. 1002(5), says the term “employer” includes a group or association of employers acting for an employer in relation to an employee benefit plan. ERISA section 3(40), 29 U.S.C. 1002(40), defines a multiple employer welfare arrangement, or MEWA, as a plan or other arrangement that provides welfare benefits such as medical care to the employees of two or more employers. The statute excludes arrangements set up under collective bargaining agreements and by certain rural cooperatives. An AHP is, in practice, a MEWA.

The employer question matters because it decides whether the association sponsors one plan for all members or whether each member is treated as sponsoring its own. That choice drives which reporting, market and state rules apply.

The Employer Test Today.

The Department of Labor has long asked whether a group is a bona fide employer group or association using a facts-and-circumstances review. In its 2024 rescission, the Department describes three recurring criteria from its advisory opinions: the group has a business purpose beyond providing benefits, its members share a genuine commonality of interest, and the participating employers control the benefit program in form and substance. Factors include how members were solicited, who may join and how the group was formed.

There is no regulation text at 29 CFR 2510.3-5 to rely on any more. The 2018 rule that created that section was removed in its entirety, as the next section explains. What remains is the statute and the Department’s earlier guidance, which is why the answer for a given association turns on its own facts.

The 2018 Rule And What Happened To It.

The Department published its final rule, “Definition of ‘Employer’ Under Section 3(5) of ERISA: Association Health Plans,” on June 21, 2018, at 83 FR 28912. It took effect August 20, 2018, with applicability dates of September 1, 2018 for fully insured AHPs, January 1, 2019 for existing self-insured AHPs and April 1, 2019 for new self-insured AHPs. It loosened the employer test and let working owners with no employees take part.

On March 28, 2019, in New York v. United States Department of Labor, 363 F. Supp. 3d 109, the U.S. District Court for the District of Columbia held the rule’s definition of a bona fide group or association, and its working-owner provision, invalid. The Department appealed. According to the Department’s 2024 rulemaking, the appeal was docketed as No. 19-5125 on May 31, 2019, was held in abeyance on February 8, 2021 and remained stayed, with no appellate ruling.

On April 30, 2024, the Department published a final rule, at 89 FR 34106, rescinding the 2018 rule in its entirety, including the related change to 29 CFR 2510.3-3. The rescission took effect July 1, 2024.

How An AHP Differs From A Plan You Buy Yourself.

When you buy a fully insured group plan yourself, you are the plan sponsor. You hold the contract with a licensed carrier, and your own headcount decides whether you are a small or large group. In an AHP, the association or the arrangement it creates sits between you and the coverage. You join as a member, and the governing documents, the fee schedule and who controls decisions come from that arrangement.

CMS addressed group size in a September 1, 2011 bulletin on coverage sold to or through associations. In the usual case it looks through the association to each member employer, so each employer’s own employee count decides small or large group status. In the rare case where the association itself is the employer, the combined employees of all participating employers decide. The bulletin also says members of one association may land in different markets. Ask the carrier in writing which basis it used for you.

Form M-1 And State Regulation.

ERISA section 101(g), 29 U.S.C. 1021(g), directs the Secretary of Labor to require MEWAs that provide medical care to register before operating in a state. The rule, 29 CFR 2520.101-2, requires the administrator to file Form M-1 at least 30 days before operating in a state and annually by March 1. It exempts an entity licensed as a health insurance issuer in every state where it covers employees. Civil penalties for failing to file arise under ERISA section 502(c)(5).

States have a role too. Under ERISA section 514(b)(6), 29 U.S.C. 1144(b)(6), state insurance law may apply to a fully insured MEWA to the extent it sets reserve and contribution standards, and to other MEWAs in addition to ERISA where not inconsistent with it.

Michigan’s Insurance Code of 1956 addresses MEWAs in chapter 70. MCL 500.7004 requires a person establishing or maintaining an employee welfare benefit plan that is a MEWA to hold a certificate of authority, and says the chapter does not apply to a plan or MEWA that is fully insured. MCL 500.7010 sets out the application, which includes governing documents, financial statements and proof of a fidelity bond. Read the statute or ask counsel how it applies to a specific arrangement.

Due Diligence Questions For Employers.

These questions do not call for legal conclusions. They get you documents to hand to your attorney.

1. Who is the plan sponsor, and what documents show the association’s purpose beyond selling coverage?

2. How do member employers control the benefit program in practice?

3. Is the coverage fully insured or self-funded, and who is the carrier or stop-loss insurer?

4. Has Form M-1 been filed, and may we see the filing and any state certificate of authority?

5. Will our group be rated as small or large group, and on what basis?

6. What happens to our coverage, and to claims in process, if the arrangement fails or is challenged?

7. What fees, commissions and reserves sit inside the premium?

8. Who is the named fiduciary, and who produces the Form 5500?

General information, not legal or tax advice.

Eight Pages To Read Alongside This One.

Quick Answers.

Brief answers to what employers ask about association health plans, each linked to a fuller page.

Where To Read Next.