by Jordan Roberts
Government Affairs Associate, John Locke Foundation
From Medicaid expansion to the State Health Plan fight, health care issues in this legislative session have been in the spotlight. Now another policy issue seems to have attracted attention because of an anticipated veto from Governor Cooper. (Editor’s Note: On August 26, 2019, S.B. 86 became law without Gov. Roy Cooper’s signature.)
The bill in question is SB 86: Small Business Health Care Act, which would provide new opportunities for small businesses and self-employed owners to be classified as a large employer and thus able to purchase health insurance through an association. These are called association health plans (AHP). I have written before (see here and here) about restrictions on these plans and the executive order from President Trump that opened up access to this type of health coverage:
President Trump signed an executive order in late 2017 which directed the U.S. Department of Labor to expand access to association health plans as well as short-term, limited duration insurance (STLDI) and health reimbursement accounts. The individual market, small-group market, and large-employer markets are each regulated separately under the ACA. Large-employer plans enjoy a much more favorable regulatory treatment compared to small-group and individual plans that are sold in state marketplaces. At the heart of the debate surrounding association health plans is the question of when an association group should be classified as a large-employer to receive the same beneficial regulatory treatment.
To do this, the Department of Labor reinterpreted the language that determined who could be called an “employer” and the minimum requirement for a group to have a “common business interest.” The new rule will broaden the definition of employer to give power to associations to operate as large-group plans. Also, the rule will make it easier for those businesses that are in the same industry to join together and offer a health benefit plan under ERISA.
The key element of this policy issue is the matter of who can be considered a large group. Large group health plans are legal and used regularly. Consider this example. Imagine there are two neighbors, Jim and Bob. Their age, health status, and income level are the same. Jim works for an accounting firm, a corporation that provides an employer-sponsored health plan. Because the business has more than 50 employees, its health plan is considered a “large group” health plan and is therefore exempt from many burdensome regulations that Obamacare placed on small group and individual plans. Bob owns his own landscaping company and is one of five employees. However, his only option for health insurance is in the small group market where premiums are far higher than in the large group market because his company employs fewer than 50 individuals.
Why should Bob not have the same choices of purchasing health insurance as Jim when the only difference between them is the size of the business? AHPs provide a remedy to this problem by allowing Bob to partner with other self-employed or small landscaping companies and purchase health insurance in a large group plan through an association. By purchasing insurance through an association, he may obtain far cheaper insurance or even regain coverage that he dropped due to the cost of plans on the small group market.
Critics of these plans claim that they can deny coverage to people with pre-existing conditions and won’t offer the same benefits that were mandated by Obamacare on all other plans. These objections have no merit. First, these plans have to abide by all the same rules that current large group plans that are being sold and used right now in North Carolina do, including all of the protections for those with pre-existing conditions and other non-discriminatory requirements.
What about the plans that have been offered under this new rule? Are they offering skimpy coverage as critics have claimed they would? The answer is no. The plans that were sold before a federal judge put them on hold were offering comprehensive coverage absent a government mandate. So much so that the Washington Post’s health policy expert said, “A crop of new health insurance plans enabled under regulations from the Trump administration appears more consumer-friendly and less like “junk” insurance than Democrats originally charged.” For example, look at the Land O’ Lakes AHP that was set up. Contrary to what many individuals in the health care debate propose, government mandates and strict regulations are a costly and unnecessary method of providing good health coverage. Allowing the market to work will bring many of the same benefits.
The decision to allow AHPs in North Carolina is about providing our citizens with choices for health care. Too many individuals in the small and individual markets struggle to afford the current options being offered to them through the ACA exchanges. There is nothing in the bill that says one must join an AHP or that the presence of AHPs in North Carolina would deny someone access to the ACA exchanges. In fact, 110,000 individuals could possibly join AHPs. We should not assume that we know the health care needs of these individuals better than they do themselves. Let’s give them the option to choose for themselves whether or not an AHP is the right health plan for them and their families.