Will Regulation About Association Health Plans Satisfy the Intent?

Commenters about the Department of Labor’s regulation say it could result in state restrictions, ratings that will make costs unequal and may provide no inclusion for all small businesses that could benefit from it.

The Department of Labor (DOL) has received 722 comment letters thus far about its regulations for Association Health Plans (AHPs).

Some have expressed concern that it will take health employees out of the Affordable Care Act (ACA) health exchange, and that it will drive up costs for health benefits for larger employers. Still others say the regulations will not be workable or helpful unless certain changes are made.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

In its comment letter, Gravie, Inc. addresses two aspects of the Proposed Rule: The nondiscrimination protection that would prohibit an AHP from developing different premium rates for different employer members, and a class exemption that would exempt self-insured AHPs from non-solvency requirements of a state laws regulating these arrangements.

Gravie explains that each participating employer in an AHP represents a distinct group of similarly situated employees that may be rated separately based on aggregate claims experience. The Health Insurance Portability and Accountability Act (HIPAA) does not restrict a health insurance issuer from charging a higher rate to one group health plan (or employer) over another. An issuer may take health factors of individuals into account when establishing blended, aggregate rates for group health plans (or employers). This may result in one health plan (or employer) being charged a higher premium than another for the same coverage through the same issuer.

Gravie suggests the regulations should allow AHPs to separately rate groups of similarly situated employees, which it says is consistent with HIPAA and other existing federal law. Rating employers separately improves the solvency of AHPs, will improve competition and choices in the market, and will permit AHPs to act in the “best interest” of participants, Gravie says.

The company explains that Employee Retirement Income Security Act (ERISA) section 514(b)(6)(A)(ii) provides that states may regulate self-funded multiple employer welfare arrangement (MEWAs) to the extent “not inconsistent” with ERISA. According to the DOL’s MEWA Guide, this means that states may:

  • Require self-funded AHPs to meet more stringent standards of conduct;
  • Require self-funded AHPs to provide state mandated benefits; and
  • Require self-funded AHPs to obtain a license or certificate of authority—which may ultimately be at the discretion of state insurance regulators—or face taxation, fines and other civil penalties, including injunctive relief.

Gravie notes that the Executive Order issued by President Donald Trump says the goal of AHP reform is to permit small employers to overcome the “competitive disadvantage” with large employers and “allow more small businesses to avoid many of the [ACA]’s costly requirements.” But as of 2014, at least 46 states have enacted and signed more than 175 laws specific to ACA health insurance implementation, including mandated “essential health benefits.” And nearly all states have existing “anti-MEWA” statutes on the books.

“Without an exemption from non-solvency rules, self-funded AHPs based on geography will be limited to a handful of states without restrictive anti-MEWA laws, and it may be unfeasible for those AHPs to provide coverage for metropolitan areas that cross state lines. And due to the patchwork of state laws and regulations throughout the United States, it will be virtually impossible to establish self-funded AHPs that cross state lines for workers in the same industry, line of business or profession,” Gravie says. “The Department should issue a class exemption for self-insured MEWAs under Section 514(b)(6)(B) of ERISA.”

The National Federation of Independent Business (NFIB) says, “Small business employers, in particular, would benefit from expanded availability under ERISA of multiple employer Association Health Plans, as small businesses may not have any other means to gain access to large group insurance contracts.” However, the group expresses concerns about the definition of employer under ERISA for the AHP regulations.

According to the NFIB, Section 3(5) of ERISA defines the term “employer” to mean “any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.” The DOL’s proposed definition of the statutory term “group or association of employers,” modifies the statutory phrase with the term “bona fide.” NFIB says that term was initiated by the DOL in its advisory opinions to distinguish between associations that met the requirements to establish a multiemployer employee welfare benefit plan (which the DOL labeled “bona fide” associations) and associations that did not meet those requirements, which the DOL viewed as akin to private commercial insurance marketers. The NFIB suggests the DOL remove the term “bona fide” from its AHP proposed regulations.

In addition, the NFIB suggests the DOL include small business size as a “commonality-of-interest” The DOL has advised that “[t]he representational link between employees and an association of employers in the same industry who establish a trust for the benefit of those employees” supplies the “requisite connection” to meet the commonality-of-interest requirement. The DOL would find the requisite connection if employer members are in the same trade, industry, line of business, profession, state or metropolitan area, whether in a single state or not. NFIB wants this to include “employers being small in size, as measured by the number of their employees.”

In its comment letter, the NFIB also recommends expanding governance alternatives and allowing demonstration in other ways than “control” that an association acts “in the interest of” employer members.

All comment letters sent to the DOL may be viewed here.

Investment Product and Service Launches

Northern Trust Creates Private Equity and Hedge Fund Service Group; Impax Introduces ESG-Focused Fund; OneAmerica to Offer Russell Investments Managed Accounts; and more.  

ProShares has created its Online Retail exchange-traded fund (ETF), an effort to invest in larger retailers selling through online or other non-store channels, from Amazon to Alibaba.

 

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

“Retail shopping is increasingly moving away from bricks-and-mortar stores and going digital, and the companies driving sales in this rapidly growing marketplace present an opportunity for investors,” says Michael Sapir, co-founder and CEO of ProShare Advisors, LLC, the adviser to ProShares. “Rather than investing in an individual company, investors can now get exposure to Amazon, Alibaba and other global leaders in online retail with a single ticker: ONLN,” Sapir said.

 

ONLN expands ProShares’ lineup of Retail Disruption ETFs, including ProShares Decline of the Retail Store (EMTY) and ProShares Long Online/Short Stores ETF (CLIX).
 

ONLN tracks the ProShares Online Retail Index, designed to measure the performance of publicly traded companies that principally sell online or through other non-store channels, such as mobile or app purchases, rather than through brick-and-mortar store locations. The index uses a modified market-capitalization weighting approach. The ProShares Online Retail Index’s constituents may include U.S. and non-U.S. companies listed on a U.S. stock exchange. Companies in the index must: be classified as an online retailer, an e-commerce retailer, or an internet or direct marketing retailer, according to standard industry classification systems; have a market capitalization of at least $500 million; and have a six-month daily average value traded of at least $1 million and meet other requirements.
 

Northern Trust Creates Private Equity and Hedge Fund Service Group

 

Northern Trust has launched North America Alternative Fund Services, a new group establishing private equity and hedge fund service businesses to address complex operational and strategic needs of the alternative asset management industry.

North America Alternative Fund Services provides fund administration, accounting and data solutions to hedge funds, private equity managers and managed account platforms. It offers specialized expertise in complex valuations, cash, collateral and liquidity management, as well as analytics and transparency into portfolios that increasingly combine hedge fund strategies with fund structures traditionally used by private equity firms.

The group will be led by Peter Sanchez, head of Northern Trust Hedge Fund Services since 2011. Jeff Boyd has been promoted to lead Hedge Fund Services in North America, reporting to Sanchez.

“Investment managers face new operational challenges as they move across asset classes to more complex portfolio construction approaches – incorporating private equity, real estate, infrastructure as well as hedging strategies in the search for yield,” says Pete Cherecwich, president of Corporate & Institutional Services at Northern Trust. “Under Peter’s proven leadership, our North America Alternative Fund Services group provides a sophisticated technology platform, operational expertise and service model that delivers unrivalled support to the most innovative asset managers and their clients.”

Impax Introduces ESG-Focused Fund

 

Impax Asset Management LLC, investment adviser to Pax World Funds, has launched Pax Global Opportunities Fund (PXGOX), sub-advised by its London affiliate, Impax Asset Management Ltd. This is the first product introduction since Pax World Management was acquired by Impax Asset Management Group plc in January.

 

The Pax Global Opportunities Fund seeks to deliver capital growth by investing in companies positioned to benefit from the transition to a more sustainable global economy. Impax believes that demographic change, resource scarcity, inadequate infrastructure and environmental constraints will disrupt private-sector markets profoundly in the coming years, creating opportunities for well-positioned companies and increased risk for companies unable or unwilling to adapt.

 

The fund aims to identify and invest in companies that possess sustainable competitive advantages and track records of consistent returns on investment. Environmental, social and governance (ESG) analysis is an integral part of Impax’s investment research and process, providing risk mitigation and important insight into the character of a company.

 

“We have two proprietary tools to help us identify companies well positioned to benefit from the transition to a more sustainable economy. A series of financial tests helps us find companies that we believe offer consistent, predictable returns, while the Impax Sustainability Lens provides us with unique insights into evolving trends and involves deep analysis of the risks involved in the transition to a more sustainable economy. It is a framework that facilitates the discovery of the best growth companies where the opportunities outweigh the risks,” says Kirsteen Morrison, co-portfolio manager for the Pax Global Opportunities Fund.

 

The investment managers intend to take a five-year view of a company’s prospects before investing, hold a concentrated portfolio of 35 to 45 companies, and run the fund with a low level of turnover. The portfolio has broad geographic and sector exposure and is overweight to mid-cap companies relative to the MSCI ACWI benchmark. In addition to the U.S. mutual fund, Impax Asset Management Ltd. has begun offering the strategy to European institutional and wholesale investors.

 

OneAmerica to Offer Russell Investments Managed Accounts

 

Global asset manager Russell Investments has reached an agreement with OneAmerica to distribute Russell Investments’ Adaptive Retirement Accounts (ARA) on behalf of defined contribution (DC) plan clients. The managed account option will be available to the OneAmerica open architecture trust business, which includes U.S. corporations, nonprofit organizations and public-sector entities. 

 

“This alliance with Russell Investments to bring ARA to the OneAmerica platform means a customized solution for individual retirement plan participants and more options for retirement plan sponsors,” says Terry Burns, assistant vice president of Products and Investments for OneAmerica Retirement Services. “It’s a new option to help participants optimize their pursuit of retirement income.” 

 

According to Andrew Scherer, senior director, defined contribution at Russell Investments, the tool may work for those benefiting of customized investment strategies geared towards future targeted replacement income, as ARA considers retirement accounts and assets outside of the plan sponsor’s retirement plan, along with factors catered to participants.

 

Each participant’s customized asset allocation is assessed quarterly and adjusted as needed based on progress toward his or her targeted retirement income goal. The ARA option is scheduled to be available in the fourth quarter 2018 to new and existing clients. 

«