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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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