A change in the government’s restrictive policy regarding Association Health Plans (AHPs) opens another path for employers to slash health insurance costs.
President Trump signed an executive order in October making it easier to use AHPs as part of his efforts to replace Obamacare by allowing insurance to be sold across state lines. In January the Department of Labor (DOL) issued proposed rules for the formation and management of these kinds of health insurance programs.
DOL claims that the proposed rules could potentially create an overall positive impact on the health coverage of 44 million people, based on 2015 statistics. It further predicts that up to 11 million uninsured individuals who work for small businesses or who are self-employed could directly benefit from the proposed reform.
Most existing plans tend to serve large groups of employers and/or employees, such as the regional Teamsters union conferences’ health and welfare plans, where the level of employer contributions is set by collective bargaining.
At present for multiple companies to band together and be deemed an “employer” for purposes of sponsoring a group medical plan, there must be a bona fide business relationship between the various companies, such as participating in the same trade association or similar organization.
Under the current rules, DOL requires that such an association be established for some purpose or function unrelated to providing health benefits. It also must be organized for a common economic or representational interest for its members, and the members must control the association. In addition, an association cannot include self-employed individuals or what are called non-common law employees, such as partners in a partnership.
DOL’s proposed rule for AHPs eliminates the business relationship barrier with the intention of encouraging employers without any previous connection to each other to organize into a group that can sponsor a group medical plan. The goal here is to allow these employers to obtain better rates and more favorable coverage options from insurers by spreading the risk among a larger group of individuals.
Under the proposed rules, the association would be required to have a formal organizational structure. Each individual employer within the association must employ at least one employee under the plan. In addition, the association would not be able to provide health coverage to anyone other than employees and former employees of the various employers within that association.
Changes to Obamacare
DOL’s proposed regulations state that AHPs cannot discriminate against plan participants based on health factors, which is similar to the non-discrimination concepts imposed by the Affordable Care Act (aka Obamacare).
However, the rules do change restrictions that been imposed by the ACA, which held that plans in the individual and small group markets (with 50 or fewer employees) must provide all of what are deemed “essential health benefits.”
• Ambulatory patient services
• Emergency services
• Maternity and newborn care
• Mental health and substance use disorder services, including behavioral health treatment
• Prescription drugs
• Rehabilitative and habilitative services and devices
• Laboratory services
• Preventive and wellness services and chronic disease management.
• Pediatric services, including oral and vision care
At present, plans that cover employers in the large group market (51 or more employees) are not required to provide all of these same essential health benefits, although many of them choose to do so.
The proposed rules provide much greater freedom of choice for AHPs, allowing them to customize benefits packages and reduce costs by offering less comprehensive coverage—in particular, by choosing to exclude certain essential health benefits that would otherwise have to be covered in the individual and small group markets.
The main purpose of the proposed rule is to allow more and different kinds of employer associations to qualify as bona fide employer associations under the law. This, in turn, will allow more AHPs to operate as single group health plans in the large group market, which do not have to provide essential benefits and may be rated on different criteria.
Help for Free-Lancers, Small Biz
“Sole proprietors, small employers, trade associations and regional associations interested in exploring AHPs should take a close look at the proposed rule and provide comments by March 6,” recommends attorney Jeffrey A. Herman of the law firm of Greensfelder Hemker & Gale.
The ultimate goal is to expand the kind of flexibility that will encourage cost containment, points out attorney Alex H. Glaser of the Phelps Dunbar law firm. “It is expected that some of these associations may join together and ‘self-insure’ a plan, in an attempt to save money in a rising cost environment.”
The recently-enacted tax reform legislation repealed the individual mandate that had been imposed under ObamaCare. This means that individuals are no longer required to purchase health insurance or pay a penalty to the federal government. “Self-employed individuals will have to decide whether to participate in AHPs or forego health insurance altogether,” Glaser adds,
Not everyone views the future prospects of such arrangements as inevitably rosy, depending on how they are organized, managed and, most of all, how they are funded, according to attorney Alden Bianchi of the law firm of Mintz Levin Cohn Ferris Glovsky and Popeo.
A properly designed and executed self-funded group health plan enjoys some significant advantages over its fully-insured counterparts. These include minimization of the amount of fixed or sunk costs, lowering of administrative costs, elimination of carrier profit margins and risk charges, as well as the freedom from federal and state taxes and state-insurance mandates.
“Fully-insured AHPs will still have to pay state premium taxes, retention and other carrier overhead, and overly conservative underwriting practices, which are not uncommon, may hobble the ability of fully-insured AHPs to produce real savings when compared to small group rates,” Bianchi says.
“In contrast, the savings under a self-funded regime will be substantial when compared to small group rates in a clear majority of cases. Consequently, we expect that adoption rate of self-funded AHPs would be far higher than that of fully-insured AHPs,” he notes. “If groups and associations have the option to self-fund, it is a safe bet that they will flock to self-funded arrangements. The savings are too big to pass up.”