Think You Know about Association Health Plans? Here Are Five Facts You May Not Know

Due to changes made through recent federal rules issued by the Trump administration, small businesses and self-employed business owners can buy health plans through associations that are exempt from many state and federal regulations. These new rules leave consumers without important protections. For example, Association Health Plans (AHPs) don’t have to cover all of the benefits that other plans sold to individual and small businesses must cover. In many states, AHPs are not subject to the same licensure and oversight requirements, which leaves consumers at risk if an AHP is badly managed:  states might not guarantee consumers that their claims will be paid if the AHP runs into financial problems. Moreover, companies that sell AHPs may try to avoid selling to businesses or populations prone to high medical expenses, focusing instead on particular businesses and geographic areas that tend to have healthy workers.

Two other features of the Trump administration’s AHP rules deserve special note. AHPs are supposed to be “associations” of businesses. However, the administration has now defined “association” to encompass individuals, not just groups. Under the new rule “working owners” of a business and their dependents can join AHPs, and self-employed people can qualify as “working owners” if they engage in a trade or business for as little as 80 hours a month, or if they earn just enough from the business to pay AHP premiums. This means that people with little financial or insurance experience might be trying to judge whether an AHP is actually legitimate and will provide sound coverage.  Second, the U.S. Department of Labor (DOL) has the authority to declare large, self-insured AHPs exempt from most state regulation, even in states that try to enact strong consumer protections. DOL has not yet used this authority, but the threat remains that large AHPs could be exempted even in states that attempt to protect consumers.

These plans may look like a good deal at first, but they can pose serious problems both for people buying them and for other small businesses and individuals that buy more comprehensive insurance. Some states are now taking action to increase regulation and oversight of these plans. Consumers should be aware of potential shortfalls in Association Health Plans’ coverage, and should be on the lookout for fraudulent plans and for inexperienced plan operators who may endanger their coverage.

Fact #1:

Association Health Plans (AHPs) will not stay cheaper than comprehensive individual or small group plans.

An AHP that looks cheap the first year may not remain so. If people within the association are sick and use a lot of medical services, premiums will increase the following year. The “claims experience” of the group buying insurance is taken into account in setting an Association Health Plan’s premiums.

If people buy individual insurance through the marketplace (healthcare.gov or their state’s marketplace) or if they buy small group coverage instead of AHPs, premiums are based on the experience of the entire community and so the illnesses of one person have a much smaller effect.

Additionally, low prices in an AHP might indicate that it omits important benefits. Further, AHPs’ main cost-savings advantage likely result from their ability to cherry-pick members, advertising and selling to businesses that tend to have healthier workers. AHPs do not have to participate in the same “risk-pools” as other insurers that serve small businesses and individuals that evenly spread the costs of insuring sicker people. In truth, AHP’s cost savings actually shifts costs to the more comprehensive plans that remain behind in the ACA-protected small-group and individual markets. Those plans will charge more because AHPs have taken good risks out of the pool that includes everyone else.

Fact #2:

Associations Health Plans are NOT always safe to join.

Association Health Plans have a troubled history of outright fraud as well as mismanagement in which operators (or fiduciaries) did not keep enough money in reserve to pay claims. In several large cases, Associations have gone state to state selling fraudulent health insurance that defrauded consumers of millions of dollars of insurance premiums and did not pay their claims when they were sick.  In some other cases, inexperienced operators with good intentions nonetheless did not save enough money to pay claims. When AHPs operate across state lines, it can be very difficult for state insurance departments to quickly catch and stop fraudulent operators. State Attorneys General in 16 states, concerned about the increased likelihood of fraud under new AHP rules, are suing to stop the new rules and the resulting spread of AHPs.

AHPs are required to file an “M-1” form with the U.S. Department of Labor regarding their finances. Consumers looking at an AHP should check to see if an AHP has done so as one indication of an Association’s legitimacy, but this is not enough of a safeguard. Consumers can also check with their state insurance department to learn whether the state provides additional oversight.

Fact #3:

Association Health Plans DO NOT always provide comprehensive coverage.

Association Health Plans do not have to cover the ten essential health benefits that are covered by individual and small group health insurance. Therefore, an AHP might not provide coverage for one or more of the following important services: preventive care, outpatient care, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder treatment, prescription drugs, rehabilitation and habilitative services, lab services, and pediatric care. Plans sold on the individual and small group market must cover these ten benefits, but AHPs are not required to do so. Consumers should carefully compare their coverage options.

Fact #4:

AHPs WILL have a negative impact on the individual or small group market in a state.

The non-partisan Congressional Budget Office (CBO) estimates that over time, more people will join AHPs and short term plans that cover few benefits. As a result, CBO projects that premiums for comprehensive individual insurance will rise 2 to 3 percent. Some analysts project that the effect will be even worse and will raise the price of comprehensive insurance by 10 percent.

Fact #5:

New federal rules include only weak protections for people with preexisting conditions.

Although new rules do say that AHPs cannot discriminate based on health status, it will take many watchful eyes to enforce this. AHPs are not supposed to “redline” by setting boundaries on who can join based on where healthier people live, nor are they supposed to exclude a group or individual based on health status. But they are allowed and likely to sell to types of industries where workers tend to be healthy, leaving people in higher-risk jobs to pay higher prices. And some AHPs that are sold to small and large businesses are exempt from these nondiscrimination rules.