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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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Will Association Health Plans Fix Our Ailing Healthcare ‘System’?

After at least six failed attempts to repeal and replace the Affordable Care Act (ACA), President Trump and some Republicans, notably, Kentucky Sen. Rand Paul, are poised to resurrect the quest to fix our ailing healthcare-cost conundrum. This new attempt, issued on October 12 through an executive order, discontinues cost sharing reductions for many low-income Americans, expands short-term, limited-duration medical plans, and expands access to association health plans (AHPs).

The AHP is really an old approach, shrouded in anecdotal arguments that sound hopeful – at least in theory.

AHPs would allow small-employer groups and individuals to join newly-created federal-certified associations based on certain types of professional, trade or interest groups – that offer insurance coverage to its members. The plans would be sold across state lines and have reduced state oversight. It should be noted that many states already have interstate agreements that allow their residents to purchase out-of-state plans. According to supporters, AHPs allow small employers to have more bargaining clout with insurance companies and be exempt from the ACA’s requirements on having to offer essential benefits. The argument is that AHPs will increase product options for insurance shoppers and, in doing so, lower health insurance premiums.

AHP History

The idea of AHPs has been around for decades, often cloaked in different names depending on how they are funded (fully-insured vs. self-insured). For example, ‘small business health plans’ are also known to be AHPs. These plans are proposed to operate outside state insurance regulatory authority and beyond the reach of state consumer protections and solvency laws. Another name given to AHPs in the past are multiple-employer welfare arrangements, or MEWAs. Self-insured MEWAs have a checkered past, largely due to having no clearly-defined regulatory authority. This caused a great deal of problems when multiple MEWAs went bankrupt and consumers had problems addressing financial responsibilities.

Adverse Selection

Opponents of AHPs are concerned with a two-word nemesis found in the insurance world – adverse selection. In health insurance, adverse selection happens when sicker people buy health insurance while healthier people don’t buy coverage. The American Academy of Actuaries, an organization that provides actuarial advice on risk and financial security issues for policymakers, is justifiably concerned that if AHPs are given preferential treatment on regulatory insurance rules, other individual and small group markets will be adversely impacted by having more costly Americans maintain coverage in alternative, non-AHP plans.

Through AHPs, young, healthy Americans would likely gravitate to acquiring cheaper, non-ACA insurance plans that would offer fewer comprehensive benefits. On the other hand, older, sicker Americans would desire to keep the more comprehensive ACA plans, thereby remaining with the alternative non-AHP plans. Over time, the insurance rates would increase for the older Americans and become more unaffordable. In the insurance world, this adverse-selection phenomenon creates a ‘death spiral’ that will eventually drive insurance companies out of the non-AHP markets.

Based on my past work in the benefits world, I have found AHP-type arrangements to be long on anecdotal promises, as mentioned above, but seldom provide the desired outcomes in a highly dysfunctional healthcare ‘system.’ Yes, removing some restrictive regulatory barriers may possibly shave a few percentage points off premiums, but this approach does little to nothing in reforming the complexities and inefficiencies found within the delivery of healthcare – where most time and energy must be spent to control costs and improve quality-of-care outcomes.

If AHPs can survive legal challenges from states and federal courts, AHPs may possibly serve one instructive role – the eventual demonstration that this ‘market-based’ silver bullet won’t fix the crux of our healthcare woes.  Broad competition currently happens between health plans, provider networks, hospital groups, physicians and clinics. How well has this level of competition ‘fixed’ our cost and quality problems? It has not.

In their 2006 book, Redefining Health Care, Michael E. Porter and Elizabeth Teisberg argue that the ‘right’ level of competition should be addressing particular medical conditions over the “full cycle of care, including monitoring and prevention, diagnosis, treatment, and the ongoing management of the condition.” The authors believe that if we want competition in healthcare, we must push for better ways for physicians and hospitals to compete – making them the best at addressing a particular set of medical conditions.

The value in healthcare comes from the delivery of the care, rather than relying on insurance approaches that merely attempt to carve up an already-bloated pie. The centric goal in healthcare should be to improve the quality of health outcomes per dollar spent. This is known as healthcare’s true ‘value.’

Embracing AHPs does little to address this value.

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