Benefits experts say allowing small businesses more latitude to purchase health insurance through association plans, as the Trump administration has proposed, could be a beneficial option for providing benefits for businesses that employ up to 150 workers. However, there are a number of downsides to consider as well.
Although AHPs have existed for nearly a decade, the Jan. 4 proposal by the Employee Benefits Security Administration would ease regulations that often hindered the creation of association health plan offerings on a wide scale. Namely, these plans would be exempt from several rules in the Affordable Care Act, particularly requirements to provide comprehensive healthcare coverage. They would, for example, not have to provide certain “essential health benefits” like mental healthcare, emergency services, maternity and newborn care and prescription drugs.
“It will be attractive to those smaller employers that want to band together and be able to take advantage of populations with good health,” says Katy Stowers, managing director and general counsel for benefit brokerage and consulting firm FirstPerson in Indianapolis.
Small businesses with younger and presumably healthier employees would benefit the most from these types of plans, she says.
“You’ve got a lot of technology startups that are hiring younger folks who are relatively healthy but they’re not able to take advantage of [buying health insurance] because they’re community rated in the whole risk pool,” Stowers says. “If you are able to pull them together and get them into large groups so that they’re rated on their own experience, that’s going be beneficial.”
These types of plans have a number of advantages for small employers. Perhaps most importantly, the rule gives small employers a vehicle or incentive to offer affordable healthcare options leveling the playing field with large employers. The rule requires that health plans include the preservation of nondiscrimination provisions under HIPAA and the ACA, putting the quality of small employer plans in line with those of larger companies, says Chatrane Birbal, senior adviser of government relations at the Society for Human Resource Management.
Association health plans also have the potential to lower administrative costs because employers are spreading the burden among more participants instead of just one employer buying insurance in a marketplace on a government exchange, says Jack Kwicien, managing partner of brokerage consultancy Daymark Advisers in Baltimore.
“And finally, because you’re aggregating employee populations either by geography or by occupational or demographic group, you have the potential to have better risk pools,” Kwicien says. “That means lower claims costs.”
However, there are downsides to association health plans, industry experts warn. For instance, once these plans are in place, employees could become frustrated by the limited offerings of these low-cost plans, says Suzanne McGarey, managing principal for Ascende, a division of EPIC.
“It will be interesting to see if employees who are offered these plans opt for comprehensive coverage through the individual markets over time. Additionally, even plans that limit certain benefits to lower cost initially may not experience lower trends over time — other factors may contribute to steeply rising costs,” she says.
There’s also the concern of some employers in the group driving up costs for the entire plan.
The proposed rule clarifies that a group or association cannot restrict membership based on any health factor and cannot treat member employers as distinct groups of similarly-situated individuals, which would protect some small businesses from being denied access to plans.
It’s one thing when you’re all part of one employer, but when you’re separate entities and the only connection is the health plan, what happens when there is one employer driving up the costs rates for everyone else?” asks Edward Leeds, a healthcare lawyer with Ballard Spahr.
“I don’t know how content everyone is going to be, but the nondiscrimination means you can’t make decisions based on that,” he says, of another employer’s employee health pool. “You can’t kick an employer or prevent them from coming into the plan.”
In order to avoid some friction, Leeds advises these associations may want to find other commonalities than just sharing a healthcare plan.
Birbal adds there are some clarifications she would like to see from the DOL as the rulemaking process continues.
For example, the health plans could be organized along the lines of an industry, enabling them to market anywhere in the country. Or they could be set up to serve geographical areas, such as the tri-state New York-New Jersey-Connecticut area.
“I think there will be needed clarification with concerns about associations manipulating geographical areas that are expected to incur more costly health claims,” she notes. “SHRM will thoroughly review the proposed rules and will submit comments.”
