Short answer: An AHP can cut costs by letting small employers buy coverage as one larger group, but most AHPs are legally multiple employer welfare arrangements (MEWAs), which have a history of insolvencies and fraud. Because of that, they are regulated under both federal ERISA rules and state insurance laws, so it is important to confirm an AHP is properly licensed and financially sound before joining.
An association health plan lets members of a trade or professional association pool together for health coverage. When such an arrangement provides benefits to the employees of two or more different employers, it generally meets the federal definition of a MEWA, which means an employee welfare benefit plan, or any other arrangement, that offers welfare benefits to the employees of two or more employers. That status is what triggers extra oversight.
MEWAs, including most AHPs, fall under the U.S. Department of Labor’s framework for the regulation of multiple employer welfare arrangements, and states retain broad authority to apply their insurance solvency and licensing rules to them. The federal rules on exactly which groups may form an AHP have shifted more than once in recent years, so the safest approach is to verify the plan’s state licensing, its reserves, and its claims-paying history before enrolling your business.