Association Health Plans and Their Potential Impact in the Small Business Market

Francis Perkins Department of Labor building, Constitution Avenue, Washington, DC

Background

Last October President Trump signed an Executive Order directing federal agencies to assuage ERISA rules redefining Association Health Plans (AHPs), expanding short term limited duration (STLD) policy time frames and promoting additional individual market options through enhancing Health Reimbursement Accounts (HRAs).

For purposes of this article I will focus on the AHPs and their potential impact in the small business market as defined by employers with less the 50 full time equivalents (FTEs).

Association health plans have been in existence for many years. I sold and implemented AHPs in the 1980s. These plans are defined by their own set of rules governed by the Department of Labor (DOL). A bona fide association qualifies as an “employer” for ERISA purposes. As such, the AHP is considered a single health plan.

The DOL has strict rules defining the parameters of an association succinctly codified into two tests that must be met for an association to be considered an “employer”.

• Employer members of the association must share a common interest
• Employers must exercise control over the association

Three contributing factors driving interest:

1. The final ruling relaxes these requirements, specifically in the area of common interest, making it easier to establish AHPs. For example, employers participating in the AHP will share commonality of interest if in the same trade, line of business or profession.
2. The pricing dynamic in the small employer market. Many small businesses have stopped offering group sponsored plans due to cost and access. Theoretically, they now will have access to nationwide programs offering them a range of coverage and cost options.
3. The individual market is drying up in terms less choices for individual consumers by geography. The reintroduction of AHPs with their more lenient rules should be a welcomed addition for small business owners and sole proprietors who have secured coverage in this market for reasons mentioned above.

Potential impact on small business programs

Let’s assume that AHPs can mitigate the cost per unit of healthcare – and they won’t. Let’s assume that they can reduce the carriers administrative cost based on volume – maybe, with a marginal effect since the administrative cost pales in comparison to the cost of claims. Let’s assume AHPs can offer a level of benefits that are commensurate with their theoretical efficiencies of volume – not likely since pre-existing medical conditions will still be covered. Let’s also assume these arrangements will help reduce the increased utilization trends that we’ve seen in the modern healthcare system – not a chance.

However, the most illuminating value is the potential access to additional local, regional and national programs not otherwise offered to small businesses. If, and a big “if”, we see carrier adoption. Remember carriers are dealing with a host of other regulatory issues and it remains to be seen if they will be reinvigorated by the new AHPs guidelines.

Conclusion

I applaud the administration in its intent to help small business gain access to a better selection of healthcare options; however, until we deliver and practice effective methods to reduce the supply side cost of healthcare economics, small employers will continue to manage their group health insurance programs as they do today-year by year. Because access simply isn’t enough.

Bob DePriest is Vice President of Employee Benefits for Select Choice Benefits in Atlanta, GA.

Feel free to reach out to Bob with your comments.