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Association Health Plans

Association Health Plans

Association Health Plans, Repeal / Replace / Repair, Ken Ruotolo, Chief Operating Officer

During the week of June 18th, the Department of Labor (DOL) issued a final rule related to Association Health Plans (AHPs). This follows and was prompted by President Trump’s October 2017 executive order directing his departments to look at ways of expanding the usability of AHPs by allowing more employers to form AHPs. In crafting the final rule, the DOL significantly relaxed the criteria that determine when employers may join together in an association to become a sponsor of a group health plan.

In a variety of ways, recent regulations made the establishment and maintenance of AHPs challenging and therefore AHPs were not widely adopted. The new rule relaxes what is referred to as the “commonality of interest” test for determining which employers can be considered bona fide members of an association. Specifically, the new rule expands the guidelines that determine the commonality of interest to include:

  • Employers in the same trade, industry, line of business or profession, regardless of where they are located.
  • Employers located in the same metropolitan area even if that area crosses state lines.

In addition, the new rule permits working owners or self-employed individuals who don’t have a non-owner employee, to participate in an AHP, provided they meet the above requirements. These changes are expected to significantly reduce the roadblocks to establishing AHPs.

Why would your clients be interested in an AHP? Under AHPs, a group of small employers associate and are treated as a large group for purposes of establishing a health plan. Large group rules apply and the plans would not be subject to the ACAs modified community rating (think age-rating rather than tiered-rating) nor would they be required to offer the ACAs ten categories of essential health benefits. Rules barring discrimination based on health factors remain, so employees could not be turned away or charged more based on health factors or health history. The intention is for AHPs to enjoy the same benefits as a large employer; more flexibility to design benefits, more choice and bargaining power and therefore lower cost.

The timing for implementation is aggressive. New AHPs are permitted to start forming under the new rules and existing AHPs are permitted to adopt the new rules as follows:

  • New or existing fully-insured plans: September 1, 2018.
  • Existing self-funded plans: January 1, 2019.
  • New self-funded plans: April 1, 2019.

Some AHPs in the past have offered bare-bones coverage, leaving members with far less coverage than they thought, others have been poorly-funded and have become insolvent. Though there are good quality, well-funded AHPs, there have been enough bad experiences with AHPs, that states take a keen interest in regulating them. The new rule does not interfere with a state’s right to regulate AHPs sold within its boundaries. This should help lower the chances of repeating negative experiences, however, one side-effect could be that regulations governing AHPs may vary significantly from state to state.

Longer term, some in the industry and government are concerned about the potential for AHPs to destabilize the existing small group pool. If AHPs offer more basic plans at lower-costs, groups with healthier populations will gravitate towards those plans leaving less-healthy groups in the existing pool. This could start a downward cycle in that pool where higher premiums lead to more healthier groups leaving leading to higher premiums and so on. No doubt this possibility is already on the radar screens of regulators in California.


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