Are Association Health Plans the Right Solution for Individuals and Employers?
Depending on who’s doing the talking, the recent loosening of requirements for forming association health plans (AHPs) will either dramatically improve or worsen the health care benefits landscape. Proponents say it will greatly expand coverage for employees of smaller employers. Meanwhile, detractors contend it will lead to widespread fraud and inferior benefits for those same employees. The truth may lie somewhere in between.
One thing’s for sure: September 1, 2018, marked the starting date for existing AHPs to reinvent themselves under the liberalized rule, finalized by the Department of Labor (DOL) back in June. And new AHPs established under the new rule can be launched next April — assuming a lawsuit filed in late July by 11 states’ attorneys general doesn’t get in the way.
In simple terms, an AHP is a health plan offered by an employer membership organization. The concept is simple: strength in numbers. By banding together under a common organizational umbrella, small employers can reduce administrative costs on a per-employee basis.
Plus, with more covered lives and claims experience to look at, carriers can have greater confidence in offering competitive rates. At least that’s the anticipated value proposition.
The problem, as the Trump administration and many Republicans in Congress saw the matter, was that too few small employers have been able to join AHPs. Why? Because DOL regulations required AHPs to restrict their memberships to employer groups that had a principal reason for existing other than offering a health plan. In addition, under the old rule, employers within the association had to have things in common, such as being in the same industry or same geographic location.
Those restrictions are being dropped, thereby enabling many more small employers to form or join AHPs. The Congressional Budget Office predicts that, under the new rule, 400,000 more people will gain health coverage. According to a DOL fact sheet, AHPs now will be able to “offer coverage to some or all employers in a state, city, county, or a multi-state area, or can offer coverage to a business in a trade or industry group nationwide.” Also, sole proprietors will be able to take advantage of AHPs for the first time.
Granting choice and access
AHPs can either self-insure or contract with a carrier for fully insured health insurance. “Association health plans are about more choice, more access, and more coverage,” says Alexander Acosta, the Secretary of Labor. The DOL is sensitive to criticism (explained below) of certain facets of AHPs. Its fact sheet states that AHPs can’t:
- Charge higher premiums or deny coverage to people because of pre-existing conditions,
- Cancel coverage because an employee becomes ill, or
- Cherry-pick or discriminate based on health or prior conditions.
According to the DOL, the same “consumer protections and healthcare anti-discrimination protections that apply to large businesses will also apply to AHPs organized under this rule.” (Participating in an AHP doesn’t subject employers to joint liability for any misdeeds committed by other members of the association sponsoring the health plan.)
Perhaps one reason why the DOL has emphasized the new rule’s consumer protections is that, under the Affordable Care Act (ACA), AHPs are typically treated as applicable large employers. (This assumes the AHP has at least 50 or, in some states, 100 covered employees.) As such, an AHP isn’t subject to, among other things, the ACA’s ten “essential health benefit” (EHB) requirements.
Catching up with EHBs
In case you’re a little foggy on the EHB roster, here it is:
- Ambulatory patient services,
- Prescription drugs,
- Emergency care,
- Mental health services,
- Rehabilitative services,
- Preventive and wellness services,
- Laboratory services,
- Pediatric care, and
- Maternity and newborn care.
The fact that applicable large employers are exempt from the EHB requirements hasn’t been a big concern in the past because large employers’ health plans almost always cover them anyway. But small employers that want to offer health benefits — even if not subject to the ACA’s employer mandate — might find health plans that omit only some EHBs attractively enough priced to be affordable.
Studying the complaint
Other facets of the regulation are also a problem, according to the attorneys general of New York, Massachusetts, California, Delaware, Kentucky, Maryland, New Jersey, Oregon, Pennsylvania, Virginia and the District of Columbia. In a complaint filed with the U.S. District Court for the District of Columbia, they assert: “The rule will destabilize state insurance markets, increase fraud and abuse, decrease comprehensive health coverage, and substantially increase costs to the states.”
The complaint also claims that the new AHP rule is “unlawful in many respects” and that its “purpose and effect are simple: to shift, through manipulation of ERISA, a large number of small employers and individuals into the large group market because the ACA’s core protections do not apply to that market.”
Asking the right questions
Where the courts ultimately will land on the issue is anyone’s guess. Meanwhile, if you’re considering joining an association to access an AHP under the new rule, you’ll need to ask a variety of important questions:
- If the plan is self-insured, what sort of stop-loss coverage will you need to have in place?
- How will state regulations impact the AHP’s operations?
- What is my network of providers?
- Will it be required to file a DOL Form M-1?
- What functions can be outsourced to a third-party administrator?
Perhaps most important, you’ll need to carefully study whether and how buying coverage through an AHP will affect your compliance with federal laws such as HIPAA and COBRA, as well as the ACA itself.
Exploring the details
Any decision about whether to join an AHP requires careful review and guidance from your benefits advisors and attorney. It could be the right move for some small employers, but look for the devil as you explore the details.