- The U.S. DOL has proposed to expand access to health coverage by allowing more employers to form association health plans.
- The proposal includes expanding who may form an association, allowing sole proprietors to join associations, allowing self-funding, and various changes to market rules.
- Businesses could avoid certain ACA mandates, but plans would still have to comply with state insurance laws.
- Businesses should continue performing due diligence when deciding if and how to offer health benefits to employees.
On Jan. 4, 2018, the U.S. Department of Labor (DOL) issued proposed regulations that would expand access to health coverage by allowing more employers to form association health plans (AHPs). The DOL was expected to issue this guidance in response to President Trump’s executive order in October, which directed the DOL to consider proposing regulations for revising guidance on AHPs. The deadline for comment on the proposed regulations is March 6.
Who can form association plans?
Association plans generally allow smaller groups to band together to purchase health coverage, spreading claims risk similar to the risk pooling of large-group coverage. Current law allows AHPs to form, but limits them to members who are part of a similar trade or profession. Associations can’t be formed for the sole purpose of offering health insurance to employer members.
Proposed changes for forming AHPs
The DOL’s proposal would change the rules on how association plans are formed by:
- Allowing association plans to form solely for the purpose of its employer member;
- Expanding who may form an association including those in the same trade, industry, line of business, or profession. They could also form if businesses are in the same state or multi-state metropolitan area;
- Allowing sole proprietors and self-employed individuals to join associations as an employer, with restrictions. This is currently prohibited.
Keep in mind, associations must have a formal organizational structure with a governing body and by-laws, where the functions and activities of the associations are controlled by employer members. This remains largely unchanged from the current rule’s requirements.
Proposed changes to market rules
Current law allows employer members of an insured AHP to be placed within the small or large group market based on each member’s respective employee count. As an example, if an employer member has 15 employees, while another has 200 employees, the former can obtain coverage from the small group market, while the latter can obtain coverage from the large group market.
In general, the proposal would change which market rules employer members are subject to by:
- Redefining the employer as the association itself rather than its members. If an employer previously had 15 covered individuals on their health insurance policy, but is part of an association plan with 200 covered individuals, the new rule would place them in the large group market.
- Applying non-discrimination protections to association plans. Employer membership in an AHP cannot be based on any health factor of a current or former employee or any employee’s family members. Similarly, the health plan cannot discriminate in premiums or contributions based on any health factor.
Compliance with federal and state laws
Each market has different federal and state rules and requirements. Businesses or AHPs within the large group market could avoid certain Affordable Care Act (ACA) mandates like essential health benefits. However, insured AHPs would still have to comply with state insurance laws, including those that provide more expansive protections than the ACA (e.g., New York state has extensive essential health benefits requirements that apply to the large group market).
The effects of usurping various ACA requirements are largely dependent on the state the association plan is supporting and how robust its large market requirements are. This means a patchwork experience for the impact of these changes.
The proposed rule allows AHPs to form regardless of funding mechanism (insured or self-insured). Small businesses could pool their resources to self-insure rather than seek large group coverage from an insurer. In this instance, employer members could exempt themselves from other ACA requirements that still apply in the large group market but do not apply to self-insured businesses, including the Medical Loss Ratio (MLR) provision. However, self-insuring is a significant administrative and financial burden, even when the costs and risk are spread across multiple organizations.
Several open questions still need to be addressed regarding AHPs, including:
- How would proposed federal regulations interact with already-enacted state-level laws on association plans? Several states have existing statutes that directly conflict with the proposed changes to the federal rules around AHPs.
- How would associations in a metropolitan area follow multiple state laws?
- How will association plans contend with issues of adverse selection? An employer with a generally young and healthy population would not stay in an association plan with employers that have less healthy employees and likely higher premiums. Conversely, plans that offer less in terms of benefits (in states where this is permitted) would attract healthy individuals and discourage the less healthy individuals who need more robust coverage, further segmenting the pool of healthy and unhealthy.
The proposed changes could reignite the risk of AHP solvency that appeared in the early 2000s, when many AHPs went bankrupt due to the mismanagement of funds and investigations of fraudulent practices. This resulted in more stringent federal and state requirements that this regulation now seeks to loosen.
Employers still need to determine if and how to offer health benefits
Small employers still need to determine if and how they cover their employees’ health care needs. When looking at alternatives such as an AHP, this assessment should not be done in a vacuum, since other complex considerations also come into play. Depending on the final rules around AHPs, this may be one more factor that businesses need to evaluate.