Association Health Plan Rule Would Make It Easier to Sell Junk Insurance
Today, the Trump administration released a final policy that will increase the sale of junk insurance in the form of “Association Health Plans,” or “AHPs.” This new and very dangerous step in the administration’s ongoing campaign to sabotage the Affordable Care Act (ACA) could greatly reduce people’s access to essential health care, especially for those with preexisting conditions and older adults.
Junk plans can flourish under proposed rule
The administration’s final regulation that governs Association Health Plans (AHPs) (see actual rule here) lets insurance companies sell junk plans to millions of Americans currently receiving comprehensive insurance in individual and small-group markets. The rule lets AHPs sell coverage that is exempt from many of the ACA’s most important consumer protections. For example:
- AHPs are not required to cover the 10 essential health benefits that are now guaranteed for anyone obtaining insurance in the individual or small-group markets. These services include hospital care, prescription drugs, maternity care, and treatment of mental health and substance use disorders.
- In the individual and small-group markets, the ACA strictly limits premium variation based on age and geography and forbids variation based on gender. AHPs, on the other hand, can change premiums by any desired amount, based on any factor that is not explicitly defined in terms of health conditions or health status. AHPs can thus boost premiums without limit for older adults, residents of rural areas, women of childbearing age, and anyone else based on seemingly neutral characteristics that the insurance industry knows are associated with higher health care costs.
- An AHP does not share risk with any other health plan. If an AHP’s enrollees are unusually healthy, that AHP’s premiums are low. By contrast, the ACA carefully structures individual and small-group markets so premiums reflect the average risk level of the entire market, rather than the cost of enrollees in a particular plan. This ACA feature prevents insurers from siphoning off the healthiest people into low-cost products that raise premiums for everyone else.
With surgical precision, the proposed rule repeals the most important current limitations on AHP sales:
- Under federal law, AHPs are supposed to be business associations offering insurance plans to their business members. The administration’s final rule lets AHPs sell coverage to very small businesses and, even more extreme, anyone without an offer of employer-sponsored insurance (ESI). If someone says that they are not offered ESI and they have any ownership interest in a trade or business that pays them at least the cost of the AHP health insurance policy, the rule classifies them as a “sole proprietor” who can buy AHP coverage.
- Currently, when small businesses buy plans through an association like the chamber of commerce, those plans still must include the protections that apply to other small groups. This would all change under the final rule. An AHP could be offered by a supposed “association” that has the provision of health insurance as its primary purpose. That “association’s” membership could be united by nothing more than location in a common geographic area or work in the same trade or industry. While an AHP cannot explicitly exclude people or companies based on health status, health costs, or health conditions, an AHP might avoid high-cost members by shunning particular geographic areas or businesses that tend to have with high average health care expenses. Because of their exemption from ACA safeguards, AHPs could choose benefit designs and pursue marketing strategies that have the effect of deterring enrollment by high-cost consumers. For example, an AHP that excludes maternity care and prescription drugs that treat HIV-AIDS will attract few women who expect to become pregnant and few AIDS patients.
Proposed rule harms people with preexisting conditions the most
Under the rule, both the individual and small-group markets would quickly split in two. AHPs could offer cheap, junk coverage that attracts young and healthy individuals as well as small companies with young and healthy workers; and the remaining individual and small-group markets would offer plans with guaranteed benefits and key consumer safeguards, which would increasingly serve older, sicker people for higher and higher premiums.
People in both market segments would suffer. Those enrolling in junk plans would find that, when they need health care, their supposed insurance fails to provide the comprehensive coverage they need. Medical bankruptcies, down substantially since the ACA’s 2010 enactment, and refusals to pay claims for necessary health care could become more common.
And people with preexisting conditions or other known health problems would quickly find themselves priced out of the remaining market for comprehensive coverage, unless those people benefit from federal premium tax credits (PTCs). As young and healthy people leave current markets for AHPs, premiums would spike for comprehensive plans, causing even more young and healthy people to leave, followed by further premium increases, until only the people with the greatest health care costs and people with PTCs remain interested in retaining comprehensive coverage. In much of the country, people with current or past health problems and other people who need comprehensive benefits would find such coverage flatly unavailable or completely unaffordable, as was frequently the cases before the ACA.
This serious new blow to individual-market stability comes both from the AHP rule and other pending federal and state proposals to authorize the sale of relatively unregulated insurance products to compete with plans that remain subject to ACA protections. One such proposal would greatly expand the sale of short-term, limited-duration insurance plans, granting insurance companies even greater license to operate without basic consumer protections.
These concerns are far more than theoretical. In the past, AHPs and similar arrangements have created serious problems in the individual and small-group markets. The AHP rule candidly acknowledged these problems, but then offered supposed guardrails that are far too flimsy to offer families reliable protection.
The nonpartisan American Academy of Actuaries, partnering with faculty from Georgetown University, projected that between 3 and 10 percent of consumers currently in the individual market would drop that coverage and shift to AHPs, under the proposed rule. Since those consumers would be healthier than the average market participating, average claims in the individual market—hence premiums—would rise between 1.4 percent and 4 percent. It seems unlikely that anything in the final rule makes those projections inapplicable.
State regulation: current capacity, future uncertainty
Currently, states have the authority to regulate AHPs. An important priority for state advocates and policymakers will be using that authority to ensure that AHPs meet all requirements of the state’s individual or small-group market, depending on whether AHPs are sold to so-called “sole proprietors,” or to small employers.
However, the Department of Labor can restrict state authority when it comes to AHPs that operate as self-insured large groups. If it chooses, DOL can forbid states from regulating anything about such AHPs other than matters involving solvency, such as by imposing minimum reserve requirements to assure that AHP can pay covered claims. DOL has never used that authority, but both the proposed and final rule make clear that the administration is considering its use. In the final rule, DOL stated that it did not view this regulatory vehicle as the context for deciding whether and, if so, how to use its authority to curtail state oversight of AHPs.
The destructive and ideological nature of the Association Health Plan rule is not an accident. It is part of a broader Trump administration campaign to roll back the Affordable Care Act, whether by authorizing the sale of insurance that ignores ACA consumer protections, supporting and then signing legislation that ended federal enforcement of the ACA’s individual mandate, encouraging Medicaid waivers that dramatically reduce the number of low-income adults benefiting from ACA coverage expansion, or urging federal courts to end ACA safeguards that protect consumers with preexisting conditions. The American people rose up and stopped the Congressional assault on American health during 2017, but that attack continues unabated, outside the headlines, under the authority of the executive branch.