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This article was updated on 11/8/18 to clarify that the five Multiple Employer Welfare Arrangement (MEWA) AHP’s authorized by the state of California are exempt from the changes to the definition of “eligible employee” enacted in SB 1375.
In June of 2018, the Department of Labor issued a final rule significantly relaxing the requirements for forming Association Health Plans (AHPs). This rule is expected to create a new, lower-cost market for health coverage for many small businesses (read our article).
However, states retain considerable control in regulating insurance and almost immediately, California’s legislators expressed concern about the relaxed rules for AHPs and particularly wanted to protect the smallest businesses from the perceived risk of having inadequate coverage or signing on with a plan that was poorly funded.
With these concerns in mind, State Senator Ed Hernandez authored SB 1375 which modifies existing law by redefining “eligible employee” to specifically exclude sole proprietors and their spouses and partners and their spouses when there are no other employees in the business. These excluded individuals are not permitted to purchase small group health plans and instead must purchase coverage in the individual market.
From a practical standpoint, this means that “owner-only” groups where there are no other employees or where the spouse is the only other employee, will not be able to purchase coverage in the small group market nor in any current AHP or in any AHP established in the future. However, SB 1375 specifically excludes members of AHPs known as MEWAs (Multiple Employer Welfare Arrangements) from the “eligible employee” redefinition and as such SB 1375 does not impact MEWAs or their members.
Bloomberg: Calif. Takes Another Swipe at Trump Small Business Health Rule
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