Is an Association Health Plan Right for Your Company?

Association health plans (AHPs) are health benefit policies made available to small employers through a group purchasing arrangement for the benefit of association members and their employees. Under the old rules, AHP availability was limited to tightly linked employers (such as parent-child companies). Under new regulations issued by the Department of Labor on June 19, “an AHP now could offer coverage to some or all employers in a state, city, county, or a multi-state metro area, or it could offer coverage to businesses in a trade or industry group nationwide.”

The term “now” in that statement is somewhat misleading, as AHPs won’t kick in until April 2019 for new associations creating self-funded plans. Existing AHPs will be able to reconstitute themselves under the new regulations in September.

Small-Employer Focus

Under the new regulations, AHPs are being promoted as a way to make less costly health coverage available to small employers. Small employers (defined as having fewer than 50 employees) aren’t, of course, required to offer health coverage under the Affordable Care Act (ACA). But for small companies that decide to offer plans issued by a health insurance carrier, the plans must cover the ACA’s 10 “essential health benefits.”

Large self-insured employers (those with at least 50 employees) that offer health benefits aren’t required to cover all the 10 essential health benefits, although typically they do so because of other facets of the ACA as well as competitive forces in the labor market.

Being self-insured generally isn’t feasible for small employers, but associations formed to offer health plans have the collective size that makes self-insurance possible. Even if they aren’t self-insured, the total number of employees covered by an AHP would be counted the same way as employees of a single-employer’s plan. Because they’ll cover the lives of more than 50 individuals in their combined membership’s employee headcount, AHPs, like large employers, will also avoid the ACA’s required 10 essential health benefits.

Better Care, Lower Cost?

In a recent speech to small business owners that touched on the new AHP regulations, President Trump told the audience they may be able to “save massive amounts of money and have much better health care.”

What makes these plans cost less? The primary reason is that AHPs won’t be subject to the required 10 essential health benefits. Another factor is that, the larger the AHP, the greater its purchasing power. This brings added leverage for negotiating competitive rates from medical groups, hospitals and other providers.

Under the new rules, AHPs can also be joined by — and thus provide coverage to — self-employed individuals with no employees.

According to the Labor Department, the same consumer protections and anti-discrimination safeguards applicable to large employers today “will also apply to AHPs organized under this rule.” In announcing the new rules, the Labor Department asserted that AHPs cannot:

• Charge higher premiums or deny coverage to people because of preexisting conditions,
• Cancel coverage because an employee becomes ill,
• Charge different premiums to employees based on their health status,
• Charge different rates to employers based on the health status of their workforce, or
• Cherry-pick members or discriminate against potential members based on their employees’ health or prior conditions.

The regulation of AHPs will be performed by both by the states and by the federal government.

Potential Downsides

The new regulations haven’t received universal praise. The American Cancer Society, for example, expressed concern that some AHPs would “exclude coverage for prescription drugs or other essential health benefits, cap coverage based on the number of hospital days, and cover less than 60% of a patient’s medical costs.”

While AHPs won’t be able to deny benefits based on preexisting conditions, the final rules do “allow such plans to impose different rates on different groups based on the age, gender, group size and location of enrollees.” They can also exclude geographic areas from membership.

Finally, the American Cancer Society worries that more streamlined coverage available from AHPs would be particularly attractive to employers with healthy employees. That would leave a higher concentration of less healthy employees and the associated cost burden on other plans. “This rule will erode the availability of affordable comprehensive coverage in most states’ individual and small-group markets,” the American Cancer Society predicted.

Wait and See

Whether critics or proponents of the new AHP rules are correct won’t be apparent for months or even years. However, no plan is without some wrinkles. How it all shakes out could vary considerably by geography, employer size, industry and possibly other unforeseen factors. Still, employers looking for alternatives to their current health benefit strategies would do well to monitor local AHP developments.