On June 19, 2018, the Trump administration released a final regulation that will increase the sale of junk insurance in the form of Association Health Plans (AHPs). This new and dangerous step in the administration’s ongoing campaign to sabotage the Affordable Care Act (ACA) will reduce people’s access to essential health care, especially for those with preexisting conditions and older adults.
Junk plans can flourish under new association health plan rule
The administration’s policy lets insurance companies sell substandard plans to millions of Americans currently receiving comprehensive insurance in individual and small-group markets. The rule exempts these plans 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, a move that raises premiums for everyone else and that will now be allowed for AHPs.
With surgical precision, the association health plan rule repeals the most important current limitations on AHP sales:
- Under federal law, AHPs are supposed to be insurance plans offered to member companies by business associations, like chambers of commerce, that have as their primary goal business functions entirely unrelated to health coverage. The administration’s final rule ends those limitations. The rule lets AHPs sell coverage to anyone who claims to be a “sole proprietor” because they are not offered employer- sponsored insurance and they have an ownership interest in a trade or business that pays them at least the cost of the AHP health insurance policy. Further, an AHP can now be offered by a supposed “association” that has the provision of health insurance as its primary purpose. The membership of such an “association” can be united by nothing more than location in a common geographic area or work in the same trade or industry.
- In the past, association health plans sold to small firms were required to include the protections that applied to other small groups. This changes under the final rule. While an AHP cannot explicitly exclude people or companies based on health status, health costs, or health conditions, an AHP can now avoid high-cost members by shunning particular geographic areas or businesses that tend to have adults with high average health care expenses. Because of their exemption from ACA safeguards, AHPs can 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 all prescription drugs for HIV/AIDS will attract few women who think they may become pregnant, and very few AIDS patients.
Association health plan rule harms people with preexisting conditions the most
Under the rule, both the individual and small group markets could split in two. AHPs are now allowed to offer cheap, junk coverage that attracts young and healthy individuals as well as small companies with young and healthy workers; only the remaining individual and small-group markets must offer plans with guaranteed benefits and key consumer safeguards. Over time, the latter market will increasingly serve older, sicker people—and therefore be forced to charge higher and higher premiums.
People in both market segments will suffer. Those enrolling in substandard AHPs will often 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 will eventually 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 will rise for comprehensive plans, causing even more young and healthy people to leave, followed by further premium increases. Ultimately, comprehensive plans will be affordable mainly by people with PTCs, while only those with enormous health care costs will be desperate enough to buy comprehensive plans without financial assistance. In much of the country, people with current or past health problems and other people who need comprehensive benefits will find such coverage flatly unavailable or completely unaffordable, as was frequently the case 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. This change would grant insurance companies even greater license than is available to AHPs 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, projects 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 participant in today’s individual market, the AHP rule alone is expected to cause average claims in the latter market to rise between 1.4 and 4 percent—and a corresponding rise in premiums as well. Further increases would result from related measures, such as proposals to ramp up the sale of short-term plans that are exempt from ACA safeguards.
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. DOL has never used that authority, but both the proposed and final AHP 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 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.