With the election of President Trump, speculation began about how he might fulfill his campaign promise of repealing Affordable Care Act and increasing the availability of health insurance across state lines. The speculation ramped up with his Executive Order directing the adoption of rules for Association Health Plans. And now that the proposed rules have been published, there is finally some…more speculation.
Obviously proposed rules are not final. But some of the more drastic ideas speculated within the health benefits community do not seem to be on the table. Rather than sweeping deregulation of Multiple Employer Welfare Arrangements, or heavy constraints on state Departments of Insurance, the proposed rules create a new, though heavily regulated, health benefit option.
Very small employers that could not self-fund on their own are the most likely to take advantage of these new Association Health Plans. By banding together with other very small employers, they may now be able to achieve the critical mass needed to self-fund. This is a positive since it opens up a new option not otherwise available to these employers. For reasons outlined below, it is unlikely this will create any better options for employers that are at a size where they can handle self-funding on their own.
The proposed rules have two primary components. First, an association of employers (i) in a similar business or trade, or (ii) within the same geographic area, can establish an employee health plan under ERISA. This includes associations established for the sole purpose of offering a health plan. The health plan is treated as a single health plan, even though there are multiple employers participating. The second component is the adoption of nondiscrimination rules. This means that employers entering the Association Health Plan cannot be medically underwritten. Rates need to be uniform with a few narrow exceptions like differences in geographic areas.
The first component should be a concern for any bona fide association. While an existing association can add an Association Health Plan, others can pop up to compete with it for participants. This includes more narrowly tailored ones that could have an underwriting advantage over a broad trade association. Association based insurance products typically require a bona fide association, but the proposed rules appear to depart from this historical rule.
The second component should be a concern for anyone promoting an Association Health Plan. It essentially establishes community rating for Association Health Plans. Community rating has been one of the most significant challenges for the small group fully insured market under the Affordable Care Act. Healthy groups migrate to self funding, leaving a less healthy pool to be community rated. The same thing will likely happen with community rated Association Health Plans because the plans will not offer value to the healthy groups. Commentary to the proposed rules declares that this will be heavily regulated. Any healthy group that can self fund on its own will be better off doing so without the community rating and additional regulation of these Association Health Plans.
The effect of the proposed rules will be to allow small employers to be regulated as a large employer plan. This is significant because large employer plans do not have the same coverage requirements as small employer fully insured plans under the Affordable Care Act. The Association Health Plan could allow small employers to get around many of the Affordable Care Act requirements and provide their employees far less fully insured coverage than a small group fully insured plan.
So Association Health Plans do not look like they are going to be the free-for-all that some people hoped for (and others feared). That said, it does provide an opportunity for established associations to create a valuable benefit for their constituents. With members of varying sizes, a one-size-fits-all approach won’t work. But an association can create a program with different funding strategies that still offers economies of scale.
Here is one structure for a worthwhile Association Health Benefit Program:
(1) Establish three different funding structures based on employer size. Large employers (for example over 800 employees) could self-fund on their own. Small and mid-size employers (for example 25-800 employees) could self-fund in a captive stop loss program where they share risk together. And very small employers (less than 25 employees) could self-fund in an Association Health Plan. This matches employers with the right funding structure for their size, which will create a stable program.
(2) Choose one third-party administer to administer all three funding structures. By choosing a preferred TPA, the Association ensures great service and rates for all.
(3) Identify preferred cost containment vendors. Providing an easy-to-implement set of options that have been vetted as best in class is a great way to help employers maximize their self-funding experience.
This program design provides value to all size groups, while delivering services and costs they could not achieve on their own. But it also allows for flexibility and control. Finally, it allows the program to be transparent because it is being sponsored by a trusted association looking to add value, as opposed to a promoter creating an association for no reason other than their own profit.
Cost savings, control and transparency are the hallmarks of a successful health benefit program. Association Health Plans are not a panacea, but they can be a compliment to other tools already available. If you are interested in learning more about Roundstone and our approach to associations sponsored programs, please contact a Roundstone Regional Practice Leader.
