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Short Analysis
January 2018

Association Health Plan Rule Would Make It Easier to Sell Junk Insurance

On January 4, 2018, the Trump administration released a proposed rule that would substantially increase the number of Americans who could be sold 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.

Update March 8, 2018: Families USA submitted comments to HHS outlining our concerns with this draft rule. View comments.

Junk plans can flourish under proposed rule

The administration’s proposal (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 proposed rule lets AHPs sell coverage that is exempt from most state oversight and 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 helps keep premiums more reasonable for everyone.

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 proposed the 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 be sold 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, and the plans are subject to state and federal oversight. This would all change under the proposed rule. An AHP could be offered by a supposed “association” that does nothing but provide health insurance. That “association’s” membership could be united by just residence 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 can use “redlining” to avoid high-cost members, excluding particular geographic areas or lines of work that tend to be associated with high health care expenses.

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 and denials of payment for care, down substantially since the ACA’s 2010 enactment, would become more common.

And people with preexisting conditions or other known health problems would quickly find themselves priced out of the market. A classic death spiral would result as young and healthy people leave current markets for comprehensive coverage. As they depart 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 needs remain in comprehensive coverage. In much of the country, people with health problems or people who most need comprehensive benefits would find such coverage flatly unavailable, as was frequently the cases before the ACA, as insurance companies find that offering comprehensive coverage is no longer a sustainable business model and withdraw entirely from the ACA marketplaces.

This isn’t a theoretical concern. In the past, AHPs and similar arrangements have created serious problems in the individual and small-group markets, especially when they were sold to individuals and small employers with little bargaining or oversight power. The Trump Administration’s proposed rule even acknowledged these past problems, but then offered supposed guardrails that are far too flimsy to offer families meaningful protection.

Association Health Plans are exempt from state insurance oversight

States would be largely powerless to protect their residents from these new junk plans. Formally, these Association Health Plans would be classified as self-insured group coverage, exempt from state insurance oversight and safeguards. The only role for states would be to require AHPs to maintain specified levels of financial reserves, increasing the odds that insurers actually pay for coverage as promised in their policies – and states will need to beef up their laws and oversight in order to do that.

The destructive and ideological nature of the proposed Association Health Plan rule is not an accident.  It is part of a broader Trump Administration campaign to weaken the coverage gains of the Affordable Care Act, together with removing the individual mandate, Medicaid waivers that will dramatically reduce adult coverage, and another imminent regulatory proposal to greatly increase junk insurance sold as “short-term/limited duration plans.” These are all part of an effort to achieve a different kind of ACA repeal, in pieces, using the authority of the executive branch.

See Families USA's statement on the rule.