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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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