brittany, Author at Decisely

In part 2 of our 3 part series learn how franchises can avoid the legal ramification and potential missteps associated with an association health plan. If you missed Part 1 – What’s an AHP?, click here!

What is Joint Liability and How Can Franchisors Avoid It?

Joint Liability is a long-standing area of legal risk in the world of franchising. It occurs when a franchisor is perceived to be in direct control of the employees of its franchises. If this is judged to be the case, then the franchisor is considered a single, joint employer and can be exposed to lawsuits, collective bargaining, and fines for wrongs committed by franchise employees.

Joint Liability is a relevant concern for businesses considering collective benefits sourcing strategies under current DOL guidelines or taking advantage of proposed Association Health Plan (AHP) guidelines when promulgated. Under these new guidelines, more small businesses and franchise operations would be eligible to collectively join forces to pursue improved employee benefits plans available in an AHP.

But if you’re a franchisor, how do you balance the opportunity to take advantage of Association Health Plans that reduce the cost of benefits for your Franchise ecosystem with the risk of Joint Liability exposure?

To avoid Joint Liability missteps in setting up and managing this Trust, we generally recommend five things to clients:

Leverage an existing association or Trust. If there is no existing association, you can create a dedicated AHP Trust as long as you keep it at arm’s length.
The AHP/Trust must be sponsored by franchisees, not the franchisor. The franchisor can help initiate the exploration of collective benefits sourcing through an AHP, but should leave the decision and its establishment to the franchise members.
The AHP/Trust must be managed by franchise members participating in the AHP/Trust. All ongoing management and decisions of the Trust should fall to the Trust Leadership, not the franchisor. And franchisors can only sit on the Board of a Trust or AHP in an advisory and non-voting status.
The AHP/Trust should hire a program administrator– an outside firm that manages the AHP – at the Trust level that reports to the Trust Board, not the franchisor.
Finally, the AHP/Trust should select a multi-faceted program administrator that can offer services other than just benefits. Associations and Trusts can mitigate the issue of Joint Liability by offering other independent HR functions beyond just the AHP, such as payroll, recruiting, retirement plans, employee handbooks, and more.

Want even more information on Joint Liability? See our white paper: Keeping At Arms Length.

In October 2017 the Department of Labor proposed a rule that will make it easier for small businesses to join together to purchase health insurance. This three-part series-The Association Health Plan Opportunity – examines why Franchisors and their small business franchisees should seek to capitalize on this expanding opportunity but do so carefully.

What is an AHP?

An Association Health Plan – or AHP– is the strategy for individual member companies of an association or Trust to secure collectively-sourced group health benefits. Individually, most franchises, unless big multi-unit operators, are usually too small to qualify for the most competitive benefit plans, but as an aggregated group single store and even multi-unit operators can drive real cost savings and improvements to benefits offerings to aid employee attraction and retention in a tight labor market. The benefits of aggregated sourcing are enormous, as health benefits group purchased can typically deliver as much as 10-30% savings compared to individual small employer purchasing, often with better, broader benefits.

Historically, not all Associations or Franchisees would qualify for collective sourcing, or “Trusts” under strict definition guidelines regarding common business ground necessary to form an association or Trust. Current Employee Retirement Income Security Act (ERISA) guidelines allow only groups of businesses with “common business interests,” such as an industry or a franchise group, to form collective benefits sourcing programs. Further, businesses are prohibited from grouping together for the sole purpose of buying medical benefits – in general, the collective sourcing “Trust” must add other value to its Members than just Medical insurance purchasing

However, an effort underway at the Labor Department would dramatically increase the number of small businesses and their employees that would qualify for an AHP. By changing the definition of “common business interests” in the current ERISA guidelines and broadening its applications, the government is loosening restrictions on who can pursue collective benefits sourcing programs. An amended rule would make it possible for more small businesses, franchises and small associations with less stringent industry, geographic or professional affiliations to form an AHP.

This change would mean that much wider groups of small businesses, franchises, smaller associations, and even sole proprietors could qualify for collective sourcing of benefits through an AHP. For example, groups of restaurants in the same or different states might qualify – something that would not have been possible prior to the modification.

Ultimately, broader requirements of existing regulations will expand the universe of employers that can offer company-sponsored benefits plans. This will widen the pool of available benefits to employers and employees and can reduce the administrative overhead of millions for small businesses. It will also help small businesses become more competitive in attracting and retaining talent because they can now offer benefits on par with larger companies.

Prepare Now for Association Health Plan (AHP) Rule Changes

By Kevin Dunn CEO, Decisely

Small business owners and HR teams know that a competitive benefits program can be a difference maker when recruiting top new hires or attempting to retain homegrown talent. But limited resources often leave small businesses frustrated and fighting for attention from advisors or cobbling together their own plans. Fortunately, a proposed rule modification for Association Health Plans (AHPs) is about to completely reverse this dynamic.

Traditionally, small businesses have few options when it comes to providing affordable healthcare benefits for their employees. The cost per employee is prohibitive – especially compared to larger organizations – and managing these benefits can be more complicated and time consuming.

As a result, employer-sponsored benefits for small businesses have dropped by 25% since 2010, and a recent Wall Street Journal editorial noted that roughly 11 million small business employees do not have access to employer-sponsored benefits. This leaves many workers to source coverage for themselves on the individual market or through state and federal exchanges.

Fortunately, there is an effort underway at the Labor Department that could throw a lifeline to small businesses and their employees. By changing the definition of “common business interests” in the current Employee Retirement Income Security Act (ERISA) and broadening its applications, the government is loosening restrictions on who can pursue collective benefits sourcing programs. An amended rule would make it possible for more small businesses, franchises and small associations with less stringent industry, geographic or professional affiliations to form an AHP.

For these businesses, the benefits would be tremendous. Employer-sponsored benefits will now be within their reach because health benefits that are group purchased can typically deliver 10-30% savings compared to individual small employer purchasing. It will also widen the pool of available benefits to employers and employees, and can reduce their administrative overhead. Instead of being the small client for a broker, forming an AHP will make them a much bigger fish with access to greater professional management, consulting, oversight and advocacy resources.

These new plans can then return the competitive advantage to some businesses and organizations. As Jack Calabrese from our AHP client, NAPA Insurance Center explained: “Offering benefits gives our NAPA owners a competitive edge when trying to hire and hold on to great employees. The NAPA Insurance Center helps our owners offer benefits to their employee at lower rates than the owners could source themselves.”

Small business owners and HR managers should begin preparing now to maximize these advantages and to take advantage of the rule change as soon as possible. Fortunately, a proven playbook already exists for how best to deliver these association style benefits. This playbook will need to expand to a broader qualified set of small business over time as the Department of Labor regulations are released towards the end of 2018 or early 2019.

Today, an AHP or Trust can be sponsored by a group member association and overseen by members of this organization. The AHP’s job is to aggregate and manage member needs to secure coverage on behalf of its members. The AHP often contracts with a broker specializing in small business and program management to create a benefits portfolio for the members, negotiate with insurers on its behalf, and provide program management. The goal is a turnkey solution for the collective sourcing of small business benefits.

An AHP can be set up using three different structures for medical and other benefits:

Fully Insured Medical: This is the easiest plan to administer and communicate. It requires no initial capital reserves and does not share risk among the members. Instead, the insurer takes on all risk with little or no financial outlay from the AHP at startup.
Self-Funded Medical: Insurers prefer this approach because it requires the AHP to fund some initial capital or financial reserves. This means the association assumes a collective financial risk for providing health care benefits to its members through an earmarked fund to pay claims. The advantage to the AHP is group-wide savings if the collective group has good claims experience over time.
Hybrid Medical: Also called a Minimum Premium Program, this approach blends risk for all parties and allows dividends or gain sharing for members based on good loss performance.

We have found that more than 90% of our association customers at Decisely opt for Self-Funded Medical plans because even though it brings with it some upfront costs, the potential savings over time are much greater. That cost-benefit calculation will vary for associations, so members should be thoughtful about their choice.

In general, benefits leaders should plan for roughly 6 months from contracting with a program creator/administrator, through insurer negotiations, to the final launch of any group purchasing plan. This will include formalizing the association’s intended structure, including the formation of an AHP if one does not already exist. A qualified ERISA attorney can guide this formation process to ensure proper compliance and governance.

Next, the association should consider sourcing an external program manager to help collect the appropriate data for underwriting AHP members, develop the benefits offering, negotiate with insurers, and initiate the marketing and administration of the AHP program. Once this plan is finalized, the program administrator can begin activating the strategies, tactics and program management required by AHP members, including call centers, website, reporting, enrollment, and administration. At this point, the new AHP is ready for launch for members and employees.

Ultimately, broader requirements of existing regulations will expand the universe of employers that can offer company-sponsored benefits plans. Small business, franchise, and association benefits teams should be planning now to ensure they are leading this wave of change and making the most of the AHP opportunity.

As the CEO of Decisely, Kevin Dunn is building Decisely as the new standard in the benefits technology and brokerage insurance space. Decisely is a trusted advisor and turnkey SaaS technology for small business in the US. Kevin joined Decisely from Mercer, where he created and implemented the strategy and marketing for Mercer Health & Benefits private exchange technology. He graduated with a B.B.A. in economics and a MBA from Georgia State University. Kevin also serves on the board of directors at Innovative Student Loans Solutions, a private equity backed firm in Cleveland, Ohio.

Originally published at HR Daily Advisor on March 1, 2018.