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ARIZONA STATE SENATE
Fifty-Seventh Legislature, Second Regular Session
AMENDED
insurance; bona fide associations; qualifications
Purpose
Modifies requirements to qualify as a bona fide association. Specifies that a statewide chamber of commerce and statewide business league that meets specified criteria is not prohibited from operating a self-funded multiple employer welfare arrangement (MEWA). Requires the Arizona Department of Administration (ADOA) to conduct a feasibility study on state employee and public school district employee health insurance plans in Arizona and outlines requirements for the feasibility study.
Background
An association health plan (AHP) is a health plan that is sponsored by a group or association of employers to provide health care coverage for their employees. AHPs are regulated by state and federal law and allow qualified small employers to join together to buy coverage similar to large employers.
Current statute qualifies an association as a path 1 bona fide association if the association: 1) has been formed and maintained in good faith for purposes other than obtaining insurance and does not condition membership on the purchase of insurance that is sponsored by the association; 2) has a constitution and bylaws; 3) insures at least 25 members, employees or employees of members of the association for the benefit of persons other than the association or its officers or trustees; 4) does not condition membership on any health status-related factor relating to an individual, including an employee of an employer or a dependent of an employee, and clearly states this information in all membership and application materials; and 5) does not make health benefits plans offered through the association available other than in connection with a member of the association and clearly states this information in all membership and application materials (A.R.S. § 20-2324).
Laws 2019, Chapter 194 established a path 2 bona fide association that aligned with the U.S. Department of Labor (U.S. DOL) 2018 AHP Rule, which established criteria under the federal Employee Retirement Income Security Act (ERISA) for determining when employers may join together in a group or association of employers to be treated as the employer sponsor of a single multiple-employer welfare benefit plan and group health plan.
The U.S. District Court for the District of Columbia largely invalidated the 2018 AHP Rule in a 2019 decision in New York v. U.S. Department of Labor. The U.S. DOL appealed the ruling and announced a temporary safe harbor from enforcement in April 2019, which allowed AHPs that were established in good faith reliance on the 2018 AHP Rule to continue operations necessary to wind down the AHP by the end of the applicable plan year or contract term.
In 2024, the U.S. DOL rescinded the 2018 AHP Rule following the U.S. DOL determination's that the core provisions of the 2018 AHP Rule were not consistent with the best reading of ERISA’s statutory requirements governing the definition of employer for purposes of establishing group health plans (29 C.F.R. § 2510.3-5 (2018) (rescinded 2024); U.S. DOL).
Federal law defines a MEWA as an employee welfare benefit plan, or any other arrangement, which is established or maintained for the purpose of offering or providing specified benefits through the purchase of insurance to the employees of two or more employers, including one or more self-employed individuals, or to their beneficiaries.
ERISA defines employer as 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 (29 U.S.C. § 1002).
There is no anticipated fiscal impact to the state General Fund associated with this legislation.
Provisions
1. Qualifies an association as a bona fide association if the association meets the requirements of an employer as defined in ERISA, rather than the requirements outlined in the 2018 AHP Rule.
2. Specifies that the bona fide association qualifications and requirements do not limit or prohibit the operation of a self-funded MEWA in Arizona through a statewide chamber of commerce or statewide business league that:
a) has a constitution or bylaws;
b) was organized and has been maintained in good faith for a continuous five-year period for purposes other than providing for or obtaining insurance; and
c) is exempt from federal taxation pursuant to section 501(c)(6) of the U.S. Internal Revenue Code.
3. Specifies that the definition of small employer applies to health benefits plans issued through a statewide chamber of commerce or statewide business league, if an insurer elects to issue coverage to small employer groups of one.
4. Requires ADOA to conduct a feasibility study on the state employee and public school district employee health insurance plans in Arizona (feasibility study).
5. Requires ADOA to:
a) review, analyze, and consider relevant state and national data for individual coverage health reimbursement arrangements (ICHRAs) that include coverage options, costs, utilization, enrollment trends and administrative impacts;
b) ensure greater choice and flexibility for employees;
c) create cost certainty for employers;
d) evaluate how an ICHRA may expand employee choice among health insurance plan options while allowing the state and public school districts to establish a predictable employer contribution and to improve long-term budget stability;
e) compare ICHRAs with other available coverage options to analyze employee choice, affordability, flexibility, state and school district cost predictability, administrative complexity and short-term and long-term fiscal impacts;
f) obtain stakeholder feedback and input from employees, insurers, benefits administrators, school districts and consumer advocates; and
g) identify implementation considerations that include administrative requirements, market impacts, statutory changes, budget changes and regulatory changes that include cost savings.
6. Requires ADOA to submit a report of its findings and recommendations by January 1, 2027, to the Governor, Speaker of the House of Representatives, President of the Senate, Chairpersons of the Senate and House Health and Human Services Committees, Chairpersons of the Senate and House Appropriations Committees and to provide a copy to the Secretary of State.
7. Specifies that the requirements for ADOA's feasibility study do not require the implementation of an ICHRA or the replacement of an existing health coverage option.
8. Allows ADOA to accept and spend gifts, grants or donations provided from public or private sources to conduct or contract with a third-party entity to conduct the feasibility study.
9. Repeals the feasibility study requirements on July 1, 2027.
10. Defines ICHRA.
11. Makes technical and conforming changes.
12. Becomes effective on the general effective date.
Amendments Adopted by Committee
1. Requires ADOA to conduct a feasibility study and outlines requirements for the study.
2. Requires ADOA to submit a report of its findings and recommendations to the Governor and Legislature by January 1, 2027.
3. Allows ADOA to accept and spend gifts, grants and donations to conduct or contract with a third-party to conduct the feasibility study.
4. Repeals the feasibility study requirements on July 1, 2027.
House Action Senate Action
COM 1/27/26 DPA 8-1-2-0 FIN 3/9/26 DPA 5-1-1
3rd Read 2/23/26 40-17-3
Prepared by Senate Research
March 10, 2026
MG/SJ/hk