Will DOL Health Plan Changes Help or Hurt Your Franchise? Experts explain impacts of health plan regulations on certain areas of the franchise industry.

Author:LaWer, Anne

Small businesses, which make up the backbone of the franchise business model, have been constrained to offer health plans to employees with the same cost structure and benefit provisions as large employers. In an effort to "even the playing field" between large and small businesses, the U.S. Department of Labor recently issued a final rule expanding the availability of association health plans ("AHPs"). This is good news for franchises, especially because the final rule specifically clarifies that providing health coverage through an AHP will not subject employers to joint employer liability under any federal or state law, rule or regulation. If independent franchisees participate in an AHP with their franchisor, it cannot be used to implicate joint employer liability.

AHPs provide franchise employers an opportunity to offer plans with larger risk pools spreading costs among its members, and they allow greater flexibility in plan design under the large group rules. According to DOL, AHPs will "expand employer and employee access to more affordable, high-quality coverage." However, self-insured AHPs will be regulated under state law as multiple employer welfare arrangements (MEWAs), and AHPs remain subject to other mandates including coverage of mental health conditions, no lifetime or annual limits on certain benefits, and nondiscrimination provisions.


Under existing guidance, multiple employers are treated as a single "employer" under the Employee Retirement Income Security Act of 1974 (ERISA) if they are members of a bona fide group or association of employers. To qualify as a bona fide association, the employer members must have a "commonality of interest" which was narrowly defined by the DOL.

The new rule expands prior DOL guidance regarding what constitutes a "commonality of interest," providing that the association members have a "commonality of interest" if they are: (1) in the same "trade, industry, line of business or profession," or (2) are located in "same state or metropolitan area...." The determination as to what constitutes a trade, industry, line of business or profession is based on "all relevant facts and circumstances." While the DOL declined to sanction specific industry classifications, the preamble provides some examples of classifications that will not meet the new rule's "commonality of interest" standard such as ownership characteristics, business models or structures, size of employer, or...

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