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Association Health Plans – Will They Deliver?

Whoever coined the phrase, “The more things change, the more they stay the same,” hit a bullseye – especially as it relates to association health plans (AHPs).

The theory behind AHPs is quite simple: Enable small businesses to join together at an association level and pool their employees as a group to take advantage of the additional value (e.g. purchasing power) and reduced administrative expenses enjoyed by large group plans. In short, gather a large number of small employers to give them the buying power to keep health premiums down.

An AHP can be established under one of the following ‘umbrellas’:

  • Professional or trade association – offering health coverage is incidental to why the association exists for its members
  • Professional Employer Organization (PEO)
  • Captive Association of an insurance company
  • Multiple Employer Welfare Arrangement (MEWA)
  • ERISA Association Health Plan

AHPs are not new. They have been around for decades. Some have been successful, while others have failed – some failing in fraudulent proportions. Expectations by small employers are commonly high that AHPs will tamper down health premiums to a more affordable level compared to other available insurance options. These expectations, however, are often unrealistic and can harm those who think there is a ‘free lunch’ involved when purchasing this coverage. But, as with any consumer market, it is definitely ‘buyer beware.’

On June 19, the Labor Department unveiled the AHP final rule that allows small businesses and self-employed individuals to band together to buy health insurance. This rule is the latest action by the Trump Administration to encourage competition in the health insurance markets with the intent to lower the cost of coverage. The rule redefines how an association can be established for the purpose of offering health insurance to its members. The rule was in response to the executive order issued by President Trump on October 12 that directed federal agencies to expand the availability of AHPs, short-term limited duration insurance policies and Health Reimbursement Arrangements (HRAs).

The final rule broadens the definition of an employer under the Employee Retirement Income Security Act of 1974 (ERISA), allowing more smaller groups to form association health plans and bypass rules under the Affordable Care Act (ACA). In contrast to earlier AHPs that typically required association members to share an economic or other common purpose beyond purchasing health insurance, the final rule allows new AHP members to connect via common geography alone or by business and professional interests.

Iowa’s New Legislation on AHPs

To provide new options for small employers to purchase lower-cost coverage, on April 2, Iowa Gov. Kim Reynolds signed legislation (Senate File 2349) to become law effective July 1. This new law authorizes associations or related businesses to form MEWAs, which will be regulated by the Iowa Insurance Division (IID). The IID requested comments from the public for rule-making relating to MEWAs on April 4, with an April 27 deadline.

The purpose of insurance is to appropriately manage the risks of those who are insured while ensuring the plan remains solvent. Proper local regulation of insurance is paramount to ensure the plan is fundamentally financially stable, and that it attracts the ‘good’ risk of insureds (in addition to the ‘poor’ risks).

10 Key Features Regarding the New AHPs

  1. Main purpose of forming an AHP can be to offer health insurance to its members, although the final regulations require that a group or association of employers have at least one substantial business purpose unrelated to the provision of health coverage or other employee benefits.
  2. Applicability Date of new AHPs can be phased in on September 1, 2018 for fully-insured plans and January 1, 2019 for existing self-insured AHPs. New self-insured AHPs can begin on April 1, 2019.
  3. For the first time, working owners without other employees (including sole-proprietors) and their families will be permitted to join AHPs.
  4. Preexisting medical conditions will still be covered by new AHPs – sick individuals cannot be discriminated against. Additionally, AHPs may not cancel coverage because an employee becomes ill.
  5. Premiums can vary depending on industry of insured, gender, age and location.
  6. Essential health benefits covered by ACA are not required to be included in new AHP plans. For example, mental health and substance abuse disorder services can become optional under new AHPs.
  7. Maternity benefits must be covered in new AHPs for employers with at least 15 employees. Employers with fewer than 15 employees can opt out of this benefit.
  8. Occupation ‘discrimination’ can happen whereby individuals could be charged different premiums based on their occupation or other factors not related to their health status – if their employer chooses to do so.
  9. State insurance officials have the authority to oversee AHPs – even for those headquartered in other states.
  10. During the next five years, national AHPs are estimated to siphon as many as 4 million people from individual and small group plans, including 400,000 people who previously did not have insurance coverage.

Free Lunch?

Finally, will AHPs ‘deliver’ to small businesses and individual owners with no employees? It depends.

If there is too much ambiguity in the final rules and state/federal regulatory oversight practices, unscrupulous individuals will find loop holes to take advantage of innocent clients. AHP detractors are rightfully concerned that skimpy plans offered by AHPs may attract younger, healthier individuals and small employers, leaving individual and small group markets outside the AHP with poor risk – and eventually higher insurance premiums.

Yes, there are no free lunches available when purchasing health insurance coverage. With AHPs, there will be both winners and losers – depending on how the insurance markets are carved up within each state. Regulatory oversight will be critical to allow for common sense consumer protections, while still allowing for creative innovations.

The good news is that the new rules allow existing and successful AHPs to continue to function in their normal routine that has allowed for stability over the years. One Iowa-related AHP that I have long admired is the Iowa Bankers Benefit Plan. It has truly acted in the best interest of its members (40 years and counting) and continues to provide the stability that employers hope to achieve when purchasing health coverage.

Of course, fixing the ‘delivery’ of healthcare would fundamentally lower the cost of ALL health insurance plans – regardless of how and where it is purchased.

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By 2025, 38 Percent of State & Local Budgets will be Consumed by Healthcare

Do you ever wonder why so many of my blogs are about healthcare? It’s actually quite simple. The healthcare ‘problem’ is constant, unbridled, unsustainable, frustrating and largely because it is covered in green – money green.

The cost of healthcare has been, and continues to be, the bane of existence in our lives. It has become the new ‘weather’ in our discussions, as most everyone talks about it, but very little has been done to change it.

Another example of just how dangerous healthcare costs have become was recently reported by Fitch Ratings, a financial information services organization with operations in more than 30 countries. Their analysis states (suggests) that rising health insurance costs and retirement rates will increase budgetary pressure on U.S. state and local governments – which will adversely impact their financial ratings.

Developing their own 10-year scenario analysis for state and local budget allocations, Fitch assumed that healthcare and pension expenses would continue to grow rapidly while no policies would be implemented to offset this growth. From this, Fitch found that healthcare and social services would increase from annual budgets of 27.6 percent in 2005 to an estimated 38.3 percent by 2025. Consequently, budgets for state and local spending for education, transportation/public safety/environmental and housing would each decrease, largely due to being crowded-out by growing healthcare costs.

Inaction during this time (2018-2025) by local and state policymakers and administrators will only cause this problem to fester – the proverbial “can being kicked down the road” for later generations to tackle. State and local budgets cannot afford this to happen, not now, and certainly not in the future.

One need look no further than what is happening in our public-school systems here in Iowa and around the country. Paychecks for teachers have become skimpier, causing school teachers, students and supporters to strike. A recent story by Kaiser Health paints a very realistic picture of what Fitch’s findings reveal for our state and local communities in the months and years to come.

On top of the Fitch analysis, a PricewaterhouseCoopers report on employer-sponsored healthcare projects a six percent medical-cost growth in 2019. Although this growth rate is similar to the past five-year trend in medical cost growth, it nonetheless continues to exceed the annual consumer price index (CPI). This presents the “unsustainable” cost paradigm for consumers and employers who foot the majority of the medical bills through higher premiums, deductibles and charges. Having access to healthcare remains important, but so too, are controlling the cost of the care received. Healthcare prices are largely opaque, requiring a persistent push for price and outcome transparencies that have so far eluded the healthcare industry.

As far back as 442 B.C., Sophocles expressed the message don’t blame the person who brings bad news. With that said, hey, I’m only the messenger – don’t shoot me!

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Direct Primary Care (DPC) – New Iowa Healthcare Law Flies Under the Radar

During the 2018 session, the Iowa legislature and governor passed and signed legislation that affects Iowa law on a number of healthcare-related issues – specifically banning nearly all abortions, changing the state mental health system, developing association health plans and allowing the Iowa Farm Bureau Federation to work with Wellmark Blue Cross and Blue Shield to sell health insurance plans that are exempt from state-regulation scrutiny. All have received a great deal of public interest and varied opinions – both from supporters and detractors.

Direct Primary Care (DPC)

But, there was another Iowa health-related bill (HF 2356) signed into law on March 28 – that has not received the amount of attention that it potentially deserves. This particular law is the Direct Primary Care arrangement, or DPC. To date, 25 states have passed DPC laws, including Iowa. Five other states have introduced DPC into their legislation process. Suffice it to say this ‘movement’ has reached a critical tipping-point in the U.S.

What is DPC, you ask?

At the state level, DPC provides a viable legal arrangement for physicians to provide primary care to patients at a lower cost than traditional practice models typically available through insurance plans. Generally, with DPC, a primary care physician or group practice charges patients a membership fee (also known as a medical retainer) ranging from $30 to $500 a month giving patients most primary care services – including chronic care management – for no additional payment when they need it. Advocates of DPC arrangements suggest that market forces will set the price for services based on demand instead of relying on distant third-party payers and central planners. Patients who use medical services outside the DPC arrangement will still need to purchase high-deductible insurance coverage to cover other non-primary care services, such as hospitalization, specialized care, prescription drugs, etc. NOTE: To provide premium relief to DPC patients, it would be ideal for them to eventually purchase high-deductible plans that EXCLUDE primary care services from its’ premium pricing.

DPC arrangements are not considered insurance contracts. This means that no insurance company is involved between the primary care physician and the patient – reducing the red tape hassles of reimbursement costs that require both time and money. DPC advocates claim there is a dramatic cost reduction using this approach, in addition to allowing the physician to spend more time with patients and improving the quality of care.

DPCs are typically exempt from scrutiny by state insurance regulators, and in return, are restricted from billing insurers for consultations on a traditional fee-for-service basis. Additionally, DPC laws – Iowa included – require a valid written agreement between the provider and patient that outlines the following agreement requirements:

  • Must be in writing
  • Be signed by the direct provider (or provider agent) and the direct patient (or patient representative)
  • Describe scope of primary care health services covered by the provider
  • State the location(s) of the direct provider and any out-of-office primary care services covered by the agreement
  • Specify the direct service charge, frequency and payment terms
  • Specify any additional costs not covered by this arrangement
  • Specify the duration of the agreement, and whether renewal is automatic
  • Terms and conditions under which this agreement can be terminated by the direct provider or the patient
  • Include a notice in bold, twelve-point font that states this agreement is NOT health insurance and is NOT a plan that provides health coverage for purposes of any federal mandates. Recommends the patient obtain health insurance to cover healthcare services not covered under the DPC agreement

One key feature within the Iowa law is that a direct care provider cannot refuse to accept a new direct patient OR “discontinue care of an existing direct patient based solely on the new patient’s or the existing direct patient’s health status.”

DPCs Can Be Funded by Third Parties

Another very interesting portion of this law states that direct providers “may accept payment of a direct service charge for a direct patient either directly or indirectly from a third party.”

Employers can be involved with DPC under the following approach:

“A direct provider may accept all or part of a direct service charge paid by an employer on behalf of an employee who is a direct patient of the direct provider. A direct provider shall not enter directly into an agreement with an employer relating to a direct primary care agreement between the direct provider and employees of the employer, other than an agreement to establish the timing and method of the payment of a direct service charge paid by the employer on behalf of the employee.”

Based on the above language, this arrangement opens up the possibility of third parties being not only employers, but public payers, such as Medicaid and/or Medicare.  In fact, in just the last two weeks, America’s Physician Groups, an association of medical groups, submitted to the Centers for Medicare and Medicaid Services (CMS) a provider contracting model that would allow a provider network to receive Medicare funds upfront to manage their patients’ care – through the DPC method.

It is common knowledge that many physicians and healthcare staff are operating within the current medical environment under great stress – if not burnout conditions. In fact, from the results of our 2017 Iowa Patient Safety Study, patients feel a large reason that medical errors occur are directly linked to overworked (and stressed) medical staff. For many physicians who have adopted DPCs in other states, they praise DPC because it allows them to spend more time with patients and less time dealing with the bureaucracy of filing claims to various insurance vendors that do not provide the value patients are hoping to have when seeking care.

Currently, Iowa does not appear to have many primary care physicians operating on a medical retainer basis. However, this new law will most likely generate more interest from primary care physicians wishing to deliver more affordable care while enhancing a direct relationship with their patients. Not surprisingly, insurance companies and other critics of DPCs claim that direct providers may withhold necessary services to be profitable. However, according to DPC advocates, this concern has been unwarranted in other states with DPC laws.

The implications of this new Iowa law will play out over time. Given that healthcare price transparency is such a hot topic, and rightfully so, this new legislation is intriguing for both patients and payers alike.

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