Association health plans and MEWAs: what small employers need to know

An association health plan (AHP) is a group health plan sponsored by a trade or professional association so that its member employers can buy coverage together. Any arrangement that provides health benefits to the employees of two or more unrelated employers is a multiple employer welfare arrangement (MEWA) under ERISA, and MEWAs are regulated by both the Department of Labor and the states. Since the Department of Labor (DOL) rescinded its 2018 AHP rule in 2024, a new association plan has to qualify as a "bona fide group or association of employers" under older, stricter guidance, and it cannot assume it will be treated as one large group.

What a MEWA is

ERISA section 3(40) defines a MEWA as an employee welfare benefit plan, or any other arrangement, established or maintained to offer medical or other welfare benefits to the employees of two or more employers. There are two ways it avoids that label. Plans maintained under collective bargaining agreements (for example, many union multiemployer plans) and plans of a bona fide employer-controlled group are carved out. An association health plan is a MEWA that claims it is a single employer plan under ERISA because the association is the bona fide "employer."

That distinction decides almost everything: which rating rules apply, who regulates it, and who is personally exposed if the money runs out.

The 2018 rule and what replaced it

In June 2018 DOL issued a rule loosening the test for when a group of employers, and working owners with no employees, could form an AHP. Eleven states and the District of Columbia challenged it, and in New York v. U.S. Department of Labor, 363 F. Supp. 3d 109 (D.D.C. 2019), the court struck down key parts, including the new definition of a bona fide group and the treatment of working owners. DOL proposed rescission on December 20, 2023 and announced the final rescission on April 29, 2024, effective June 29, 2024. DOL said it was unaware of any AHPs operating in reliance on the 2018 rule (DOL fact sheet).

What governs now is the pre-2018 facts-and-circumstances guidance that DOL has applied since at least 1979. A group is bona fide only if:

1. It has business or organizational purposes beyond providing benefits.
2. The member employers share a commonality of interest and a genuine organizational relationship beyond the benefits.
3. The participating employers control the program in form and substance.

An association formed mostly to sell insurance, or open to anyone who pays a membership fee, fails those tests. Working owners with no common-law employees are generally not eligible to be covered as employees of a single-employer AHP.

Why the label matters: rating and regulation

If the association qualifies as a single employer, the plan can be rated as one large group, which can mean fewer of the ACA small-group rating rules (age bands, community rating) and essential-health-benefit requirements. If it does not qualify, the arrangement is treated as a MEWA covering many small employers, and each member's coverage is evaluated by its own size. A fully insured MEWA must generally follow the state small-group rules when the underlying coverage is small group.

Regulation is split:

• Federal. ERISA applies to the plan: fiduciary duties, reporting, prohibited transaction rules, and the group health requirements of HIPAA and the ACA. MEWAs must file Form M-1 with the DOL. Per the form's instructions, a MEWA registers by filing before it begins operating in a state, then files annually by March 1 for the prior calendar year, and again within 30 days of specified events such as entering another state. Late filers face daily civil penalties, and DOL offers a reduced-penalty correction program for delinquent filers.
• State. ERISA section 514(b)(6) lets states regulate MEWAs. A fully insured MEWA is subject to state insurance law to the extent consistent with ERISA. A self-funded MEWA can be regulated by the state as an insurer, with licensing, reserve and solvency rules. Some states bar self-funded MEWAs outright or require a license. The rules vary a great deal, so check your state department of insurance and workers' comp and benefits requirements by state.

The failure mode regulators worry about

Self-funded MEWAs have a long record of insolvencies where members were left with unpaid claims, sometimes with no notice. The risk is structural: premiums are collected from many employers, the entity pays claims out of that pool, and a bad claims year or thin reserves can collapse it. In a fully insured arrangement the carrier is the backstop, subject to state guaranty-fund rules. In a self-funded arrangement, the backstop is stop-loss insurance and the reserves, and each member employer's own obligation to its employees does not simply go away.

DOL and state regulators also warn about promoters who describe a product as an AHP when it is really a discount card, a limited-benefit plan or an unlicensed insurer. A plan that does not provide major medical coverage may not meet the ACA's minimum essential coverage standard for the employer mandate.

A worked example (hypothetical)

Say a state landscapers' association with 400 member companies offers a plan. A 9-employee member gets a quote 14% under the small-group market. Before signing, the owner or the broker asks:

• Is the plan fully insured, or self-funded with stop-loss? By whom, and with what specific and aggregate attachment points?
• Which state regulates it, and is the association licensed or exempt? Where is the Form M-1 on file (it is searchable on the DOL's Ask EBSA site)?
• Is the quote rated on the member's own demographics and claims, or pooled across the association? If pooled, what happens at renewal when a few large claims hit?
• If the plan folds mid-year, who pays claims already incurred, and what happens to deductibles accumulated?
• Does the plan meet minimum value and affordability tests if the employer has 50 or more full-time equivalents?

An answer of "we are an ERISA plan so state law doesn't apply" is a red flag, not an answer.

When an association plan makes sense, and when it doesn't

An established plan from an industry or professional group with real governance and a fully insured contract can add purchasing leverage and service for a small employer. It is less compelling if the savings come from underwriting individual members out of the pool, or if the association has no history. Alternatives for a very small employer include the individual-market options reimbursed through an ICHRA, a level-funded plan, and the The small business health care tax credit (Form 8941): rules and 2026 figures through the SHOP marketplace, which an association plan cannot replace. group health insurance for small businesses: how it works and what it costs walks through the standard options.

Professional employer organizations and other MEWAs

A PEO that sponsors one health plan for all its client companies has historically been treated as a MEWA unless it qualifies as the common-law employer of the worksite employees. The same questions apply: who is the plan sponsor, who is licensed, and who stands behind the claims. See ERISA basics for small employers: what the law requires of your benefit plans for the fiduciary side.

Key takeaways

• A MEWA is any arrangement covering employees of two or more unrelated employers; an AHP is a MEWA that argues it is a single employer under ERISA.
• DOL rescinded the 2018 AHP rule in 2024, effective June 29, 2024, after a federal court struck key parts in 2019. The older three-part bona fide group test controls.
• MEWAs file Form M-1 with DOL, and states may license and regulate them, especially when self-funded.
• Before joining, ask who bears claim risk, which regulator oversees it, how renewals are priced, and what happens if the plan fails.