John Locke Update / Research Brief

Association Health Plans and the Future of Insurance

posted on in Health Care, Health Care & Human Services
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During the 2016 campaign cycle, many candidates, including Donald Trump, promised voters that they would work to repeal the Affordable Care Act (ACA) and replace it with a system that provided similar levels of protection for those individuals who are most vulnerable, lowered costs for healthcare in general, and opened up access and options for American’s that have not benefitted from the ACA. Although the “repeal and replace” plan hasn’t received full support by many in Congress, the Trump administration has utilized federal tools to provide relief to people struggling to find affordable coverage while much of the ACA remains intact. One way the administration has bolstered more choices for Americans choosing their health coverage is by creating opportunities for easier access to Association Health Plans (AHP).

What is an Association Health Plan?

Association health plans are health benefit plans offered by a business or trade association to its members. In an AHP, several small businesses, self-employed owners, or industry groups that have a common business interest could band together and offer health benefits to their members. Association health plans are regulated under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA was amended in the 80s to give the states regulatory authority over multiple employer welfare arrangements, which includes AHPs.

Association health plan benefit arrangements, which are considered group health plans under ERISA, are subject to consumer protections put in place to combat the possibility that plans fail to pay claims. These types of plans are also subject to the provisions in laws that govern group health plans such as the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), Health Insurance Portability and Accountability Act (HIPAA), the Affordable Care Act (ACA) and many others (and their acronyms). State insurance regulators and the Department of Labor jointly regulate these types of plans. States have the authority to regulate all self-insured health plans and regulate many aspects of the fully-insured plans. Any AHP is also subject to specific state health insurance regulations as well as the rules that insurers must follow.

Rule Changes for AHPs

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.

Before the rule change by the Trump administration, self-insured AHP’s were governed by a “look through” doctrine. The law “looked through” the association providing benefits and viewed the employee members as individuals, therefore subject to the small group and individual market requirements. After the rule change, the “look through” doctrine would no longer apply for self-insured plans, which are the type of plans that the administration is trying to expand access to. 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.

AHPs At the State Level

Each state will play a substantial role in regulating how employer and trade associations may set up a group health plan that is now allowed under the new rules. Most of the regulatory oversight is there to provide guidelines for associations that organize to provide health benefits, something that is now allowed under the new rule. As of this writing, 10 states – California, Connecticut, Illinois., Iowa, Louisiana, Massachusetts, New Hampshire, New York, Pennsylvania, and Oregon – have passed legislation or finalized guidance for the process of creating these plans. Some of these states have codified the “look through” doctrine into state law, some have clarified who can join together to become an association and offer health benefits, and some have plainly banned the creation of new AHPs.

Although much of the AHP regulation will be done at the state level, expanded rules at the federal level will create a situation where more people will be buying federally regulated health benefits. State health insurance markets will work best if the state regulators have full autonomy over its operation. Therefore, Congress should use its power to complement the expanded access to these plans with a more decentralized regulatory approach to the health care system in general. However, in a world where the ACA is the law of the land, the states will play an even more important role in creating the most favorable regulatory requirements to incentivize people to create and utilize these plans.

Looking Forward

North Carolina already has regulations in place to dictate the operation of fully-insured and self-insured AHPs. With the new rule in place, the state is considering the need to change the way these group health plans are regulated. The most favorable way that the state could regulate these plans would be to keep the reporting, advertising, insolvency, and fiduciary duties in place to protect against the possibility of fraud in these plans. Further, the state should not restrict the ability of self-funded plans to operate and provide benefits to their members.

Association health plans aren’t going to be the answer to cure all American health care woes. These plans aren’t for everyone. They require an extra level of scrutiny from consumers because they will not offer all of the benefits that ACA plans are required to provide. However, these plans may help many people. Association health plans are part of a larger effort to expand options to individuals who were harmed by Obamacare and can’t afford the coverage they desire. The Congressional Budget Office estimates that four million people will join AHP’s by 2023 and of those individuals, an estimated 400,000 that will join would otherwise not have health insurance coverage.

Once again, this is not the end of the ACA. This is not the end of plans that offer protection to those with pre-existing conditions. This new rule will level the playing field by giving small businesses the equal ability to enjoy the bargaining power, economies of scale, and administrative benefits that are enjoyed by large employer plans to provide better coverage than their members need. This is an initiative that will expand the freedom of people to band together with individuals that share the same industry and provide health benefits to association members.

Jordan joined the Locke Foundation in the summer of 2018 as Health Care Policy Analyst. He analyzes state and national health policy issues with an eye toward removing government barriers and instead infusing health care with free-market solutions that encourage… ...

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