by Jordan Roberts
Director of Government Affairs, John Locke Foundation
The newly elected members of the North Carolina General Assembly have hit the ground running in the legislative session. As such, a significant piece of health care legislation was introduced earlier this week.
Legislators unveiled the Small Business Health Care Act, which would bring North Carolina’s insurance regulations more in line with the federal Department of Labor guidelines for employee benefit plans. Specifically, the Small Business Health Care Act would make it easier for those who get their health insurance in the small group and individual market an opportunity to purchase health insurance from an association as part of a large group.
I have described association health plans (AHP) in a previous research update:
AHPs are a type of group health plan in which a business or trade association offers health benefits to their member-employers. AHPs allow groups of individuals, small businesses, or self-employed owners to group for the purpose of purchasing health insurance. And they are already allowed to exist under federal law. There are self-insured AHPs and fully-insured AHPs. When an AHP is fully insured, it means that an insurance company handles claims, sets rates, and assumes costs. When an AHP is self-insured, it means the groups’ owners bear operational and fiscal responsibilities.
These plans are not new, but their use declined when the Department of Labor guidance issued during the Obama administration made them hard to access. Through a Trump administration executive order, the guidelines which govern these plans were reinterpreted to make it easier for small businesses and individuals to form an association that would be recognized as a large group.
Why is it important for these small businesses and self-employed owners to have the power to band together to purchase insurance as a large group? As I have written previously:
When the Affordable Care Act, or Obamacare, was implemented, it separated the insurance market into the “large group” market and the “small group and individual” market. The large group and small group markets are regulated differently. Small group plans have to abide by all of the insurance regulations placed on plans sold in the Obamacare exchanges. Large group plans are usually self-insured, which means they don’t have to comply with community rating, health benefit mandates, and other Obamacare regulations that add expenses to the bottom line.
These plans are not meant to sabotage the Affordable Care Act markets. In fact, these plans are private and thus require no subsidies from the federal government. They are not intended to be a complete solution to all of the healthcare cost and access problems that Americans face. Instead, these plans offer relief to many small businesses and working owners. Now small business will have more of an incentive to join an association to provide their employee’s insurance – many of which do not have insurance currently. Working owners and sole-proprietors now have more affordable options to purchase insurance compared to the individual market.
Some critics of these plans refer to them as “unregulated,” but that is not the case. There are many consumer protections and guidelines these plans have to follow to meet the requirements of a legal AHP.
Based on the language of the bill proposed by the Senate this week, an association has to comply with many requirements to be compliant under the proposed new insurance code. This includes being a nonprofit association with at least 500 members and have been in existence for at least two years. In addition, these plans are not allowed to use health status to determine premiums and they must comply with solvency requirements. These plans would have to follow the ACA requirements that mandate coverage for preventative services, cover children up to age 26, not impose lifetime and annual limits, and not deny coverage to people with pre-existing conditions. There are also many state requirements including state insurance mandates. Plans must have a board of trustees in control and must carry stop-loss insurance.
Under the Affordable Care Act, the people who were hurt the most were individuals, small businesses, self-employed owners, and virtually anyone who was not a part of a business with more than 51 employees. Large employers were exempt from many of the requirements placed on those who would buy insurance in the small group markets. Allowing AHPs in North Carolina would give those who would otherwise be subject to the onerous regulations in small group and individual markets the power to band together and purchase insurance as a large group. Moreover, large groups that purchase health insurance can reduce administrative costs, offer more flexibility when determining group plan premiums, and provide coverage that more closely reflects the needs of its members.
The Congressional Budget Office projects the federal government will save $450 million over 10 years from allowing people to join AHPs. Another study estimated 110,000 people could benefit from allowing AHPs to operate more freely in North Carolina. Members of the North Carolina General Assembly should work with all stakeholders to find the best way to allow small businesses and working owners to maximize access to these affordable plans.
Note: An earlier version of this research update conflated the findings from CBO budget projections and estimates of the number of North Carolinians who could benefit from AHPs. We apologize for the error.