Employers will have a new way to control health insurance costs when final rules issued by the U.S. Department of Labor (DOL) governing Association Health Plans (AHPs) go into effect starting this September.
President Trump paved the way in October 2017 when he signed an executive order directing DOL to issue proposed rules for governing the formation and management of these kinds of health insurance programs. Although such plans already exist to some extent, they previously had been severely restricted, making them virtually impossible for small businesses and individuals to use.
The change embodied by the new DOL rules also is seen as another body blow to the Affordable Care Act (Obamacare,) which the Trump Administration has sought to undermine administratively in various ways since the Republican-controlled Congress failed to pass repeal legislation. No sooner were the final rules issued than the state attorneys general of New York and Massachusetts announced that they will sue to overturn them.
The new rules will allow small businesses to band together, bound by geography or industry to create a health plan that will function the same as those used widely by single large employers. In addition, AHPs will not be subject to Obamacare’s requirement that they provide a long list of essential health benefits, which include mental health and substance abuse treatment, maternity care and ambulance rides.
“AHPs are about more choice, more access and more coverage,” said Secretary of Labor Alex Acosta. “Many of our laws, particularly Obamacare, make healthcare coverage more expensive for small businesses than large companies.” He predicted that as many as four million people will gain coverage under the new plan offerings in the coming years.
DOL reports that the families of up to 11 million people who work for small businesses or who are sole proprietors of their own businesses currently lack employer-sponsored insurance. The Congressional Budget Office also estimates that 400,000 previously uninsured people will gain coverage under AHPs.
Associations that currently represent employers hailed the development. “We’ve been advocating for association health plans for almost 20 years, and we’re pleased to see the department moving aggressively forward,” said David French, National Retail Federation senior vice president for government relations.
“This is an important step toward expanding affordable healthcare options for small businesses and lowering costs for their employees,” French added. “We will carefully review the final rules and stand ready to work with the department to help make association health plans a reality for small retailers nationwide.”
Chatrane Birbal, the Society for Human Resource Management’s director of congressional affairs for health and employee benefits policy, commented that AHPs “could provide an option for small employers to offer competitive and affordable health benefits to their employees, thereby increasing the number of Americans who receive coverage through their employer.”
Thomas J. Donohue, president of the U.S. Chamber of Commerce, called the AHP final rule “good news at last for the millions of small businesses nationwide that have struggled to find affordable health insurance. Previously, the unequal treatment of large and small companies left smaller employers with a stark choice: either pay for high-priced comprehensive plans or offer no health coverage at all.”
How AHPs Work
AHPs have existed for many years, but federal regulations have limited the ability of businesses and independent professionals to join together for the purpose of buying health insurance. For example, under the ACA law and previous regulations, an AHP must have an overwhelming commonality of interest and involvement in programs and other services to their members unrelated to the provision of health insurance benefits.
Under the previous rules, DOL further required 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 could not include self-employed individuals or what are called non-common law employees, such as partners in a partnership.
As a result, 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 contributions made by employers is set by the terms of collective bargaining agreements.
Another restriction that’s been imposed by the ACA law dictated that plans in the individual and small group markets (with 50 or fewer employees) must provide all of what are deemed “essential health benefits”—the same as those required for state insurance exchanges created by the law.
At present, plans that cover employers in the large-group market (51 or more employees) are not required to provide these same essential health benefits, although many of them choose to do so. Dropping the essential health benefits requirement for AHPs has drawn the ire of Obamacare supporters, who fear that it will further undercut state exchanges which are already in danger of disappearing, and spur single-business plans to drop many benefits they now provide.
“The rule has raised concerns that certain health plans now violate the ACA, an allegation the DOL firmly denies,” notes Kristine M. Woliver, an attorney with the law firm of Squire Patton Boggs. “DOL claims that association health plans are considered large group health plans, which are not subject to the ACA.”
No Pre-Existing Condition Bans
One major change in the existing scheme that was proposed was dropped from the final rules. AHPs will continue to be prohibited from refusing to cover individuals with pre-existing conditions or charge those who have them more in premiums. This was one of the biggest sticking points for critics regarding the AHP proposed rules when they were put forward earlier by the Trump Labor Department.
Starting in September, essential health benefits AHPs now can choose not to provide include prescription drugs, rehabilitative services and devices, laboratory services, preventive and wellness services, and pediatric services, including oral and vision care, among others.
One important caveat that could become a real stumbling block for organizing new AHPs is that states also exert regulatory control over them and share in enforcement efforts with the federal government. State-level regulations may limit employers’ flexibility to exclude certain essential health benefits—or even not allow them to create AHPs at all.
Some states completely ban AHPs, while others permit self-funded AHPs that comply with requirements to ensure their financial stability. In addition, some states that may want to embrace the new flexibility for association health plans at the federal level could choose to amend their state laws to more closely align them with the new DOL rules.
The final rule also requires that any association organizing an AHP must have at least one substantial business purpose unrelated to providing health coverage. A substantial business purpose exists if the association would be a viable entity in the absence of sponsoring an employee benefit plan. Commonality of interest can be established based on coverage of a state or a metropolitan area, even if it extends over state lines. AHPs also are not required to cover an entire state or metro area.
The final rule changes are scheduled to take effect in three phases, beginning Sept. 1, 2018, for new fully-insured association plans to start recruiting members, Jan. 1, 2019, for existing self-funded association plans, and April 1, 2019, for new self-funded association plans.