Association Health Plans- Big Deal… or Not?

The Trump administration made access and implementation of Association Health Plans (AHPs) easier by signing an Executive Order in October of 2017. This essentially allows widespread access for small businesses and self-employed workers to band (pool) together to buy insurance that, in doing so, would lower small business healthcare costs.

Would scaling back restrictions on AHPs attract healthy people out of the ACA markets, thus leaving the unhealthy causing increasing rates? What level of coverage would AHPs provide? Potentially not the same level of coverage as the regulated by the ACA.

AHPs have been around for years. They are in structure what is called a Multiple Employer Welfare Association (MEWA). I sold MEWAs back in the 1980s when I was with Blue Cross Blue Shield of Ohio.

MEWAs allow small employers to essentially band together to create larger insurance pools of employees to take advantage of the “law of large numbers” for risk stability and in theory reduced administrative costs. The premise is by forming the association- the premium costs should be lower than if each entity tried to get insurance on their own.

When President Trump signed the Executive Order he essentially ordered the Department of Labor (DOL) to loosen restrictions on these types of MEWAs. The order exempts association health plans from ACA regulations requiring basis essential health coverage and “loosens” the rules in terms of who can form an AHP. Among other things, it would allow employers to band together across state lines. It would allow sole proprietors to form together instead of being forced to buy insurance through the ACA exchanges.

This new ruling requires employers to understand the important details before entering into such an agreement. There must be distinct contrast between single plan AHPs and private health insurance arrangements. The proposed rule requires AHPs to satisfy the following conditions:

  • The group or association exists for the purpose, in whole or in part, for sponsoring a group health plan that it offers to its employer members;
  • The group or association has a formal organizational structure with a governing body and has by laws or other similar indications of formality;
  • The group or association’s member employers control its functions and activities, including the establishment and maintenance of the group health plan, either directly or through the regular election of directors, officers or similar representatives: and
  • Only employees and former employees of the employer members (and family members of those employees and former employees) may participate in the group health plan sponsored by the association.

The proposed ruling would also require AHPs to comply with the pre-existing condition and nondiscrimination mandates already set forth in the ACA. In other words, AHPs could not restrict membership based on health factors nor could the association health plan require an employer or its employees to pay different premiums based on the member’s health.

Here’s why it’s not such a big deal…

The EO was a thoughtful attempt to allow for a broader access of coverage by bolstering options available in the small market. Carriers are very leery about how this expansion may impact their risk in an already highly regulated ACA market, where among other things that are held to keep claim cost and administrative costs in line the medical loss ratios (MLRs).

It’s important to note forming an AHP is serious business. When absent, compliance with the aforementioned ACA compliance requirements and any binding documents, AHPs must have a way to consistently maintain and grow their base to ensure stability in the pool and reduce adverse selection.

In other words, in my experience, I have seen more AHPs implode upon their own weight that have been successful. The main reason is that healthy risk finds more cost effective plans leaving a less than desirable pool.

For these reasons, fundamentally nothing has changed from a risk bearing perspective since 1980s for the insurance carriers. Actually, the EO may have provided less incentive for insurance companies to embrace the new Executive Order.

In the end, the move was well intended….just not a big deal.

To learn more about AHPs, contact Select Choice Benefits today.

By Bob DePriest, CHC, RHU, REBC

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