by Jordan Roberts
Director of Government Affairs, John Locke Foundation
Given the legislative logjams created by a divided federal government, it’s safe to say that the chances of major health care reform in Congress are very low. Fortunately, the states are in a unique position to take the lead on health care reform. Although federal laws dictate the boundaries of what health care reform could look like, states control their health care markets. However, states do have some flexibility to reform insurance markets. One possible reform is to further open up access to associations health plans (AHP).
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.
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.
In 2011, to push as many people into the small group market, the Obama administration made it almost impossible for AHPs to form. Self-insured AHPs were not subject to the 2011 U.S. Department of Health and Human Services guidance. There was only one exception for fully insured AHPs.
The Employee Retirement Income Security Act (ERISA) was a federal law passed to regulate the use of private employee benefit plans, including health benefits. Under ERISA, if a fully insured AHP met the definition of a “bona fide group or association of employers,” then they would be considered a “large group” of individuals for the purpose of purchasing health benefits under Obamacare. The interpretation of “bona fide” group under the Obama administration was very narrow.
Through an executive order, the Trump Administration ordered the Department of Labor (DOL), which oversees the enforcement of ERISA, to broaden the use of these plans. The new Trump administration guidance made it much easier for groups of small employers to meet the requirements of an AHP under ERISA in two ways. First, a group of small business and self-employed owners in the same geographic area would be considered a “bona fide” group employers. Second, a group of employers in the same industry would be considered a “bona fide” group and would be considered a large group under ERISA. Large group plans will still have to comply with all the state regulations for these type of plans in the states which they exist.
Small group plans and individual plans have to abide by numerous Obamacare regulations. They are expensive and place an enormous burden on individuals, those who own small businesses, those who are self-employed and want to offer insurance to their small pool of employees. Fortunately, AHPs will give all of these groups options to purchase affordable coverage that reflects the actual needs of those groups.
Critics of these plans claim that they amount to “junk” insurance and are not as consumer friendly as Obamacare plans. However, the truth is that AHPs must abide by many of the same consumer protections. The provisions that require disclosure of benefits, no out-of-pocket spending on preventative services and coverage for those with pre-existing conditions all still apply to AHPs.
The main benefit that these plans would offer is to empower people with the freedom to choose health insurance that fits their needs. Individuals and small businesses that were hit the hardest by Obamacare’s restrictive and expensive small and individual group markets regulations are now allowed to enjoy the same benefits that large group plan members do.
State insurance regulators and potential insurers that would sell these products must work together to ensure their easy access and consumer protections. That’s exactly what the case was in Nebraska with the Land O’ Lakes AHP. The company is located in Minnesota, but many of the farmers in the Land O’ Lakes network live in Nebraska. Why shouldn’t all of these employers be able to band together to buy insurance? Well, now they can. According to a recent article published by the Heartland Institute, the Land O’ Lakes plan will offer its 44,000 members health insurance plans that are 20-30 percent less expensive than comparable exchange plans.
Most of the associations that will offer these plans are long-standing organizations that not only have close relationships with their members but also have an interest in offering their members the best health benefits possible. To be self-insured, organizations that are offering the plans have an incentive to control costs for their members. AHPs create a system of accountability within the plan, given that all of the members share similar interests to see the plan succeed.
Only a hand full of states have aligned their insurance codes with the DOL’s additional AHP flexibilities. Some states are in limbo, and now are trying to determine the best way to move forward. North Carolina is one of them. The General Assembly and the Department of Insurance have an opportunity to allow North Carolina to continue to be a leader in state-level health care reform. If North Carolina would allow AHPs to operate with more flexibility and offer more consumers a lower-cost health benefit plan that still includes various consumer protections, more small employer groups may begin forming their own AHPs. Many uninsured people who struggle to find affordable insurance (or who struggle to afford their current insurance premiums) would have more choices of insurance products to purchase.
This worthwhile health care reform should be taken up by the North Carolina General Assembly immediately. Expanding the freedom of association to include health care reform would bring relief to many who simply can’t afford the limited options currently provided in the health insurance market.