Inside the New Proposed Federal Rules for Association Health Plans
The Department of Labor on Thursday released proposed new rules that proponents say will make it easier for businesses to band together in “associations” to buy health insurance.
These rules, supporters say, will lead to more affordable choices for some small businesses and sole proprietors, likely starting in 2019.
Association coverage “should be cheaper and arguably just as comprehensive” as what many employers can now buy, said Christopher Condeluci, a Washington, D.C., attorney who specializes in employee benefits and has served as the tax and benefits counsel to the U.S. Senate Finance Committee.
Critics, though, are wary about whether the plans will provide consumers adequate protection.
“This approach allows associations to offer coverage that doesn’t have to come into compliance with all the critical consumer protections that would otherwise apply to small employers and individuals. It might not be as comprehensive,” said Kevin Lucia, project director at Georgetown University’s Health Policy Institute.
The proposal — which now faces a 60-day comment period — broadens the definition of those eligible to join or form such groups and rolls back some restrictions on association health plans set by the Obama administration.
Specifically, the rule would allow associations to be created for the sole purpose of offering insurance to members. In some cases, such associations could have members nationwide, making the insurance available across state lines.
For the first time, the rules would allow sole proprietors with no employees to join such group coverage.
Critics fear the rules could expose consumers to coverage gaps or higher out-of-pocket costs because these plans would be classified as “large-group plans,” so they would not have to meet some ACA rules.
For example, associations would not have to include benefits across 10 broad “essential” categories of care, including hospitalization, prescription drugs and emergency care. Under the ACA, large employers were exempt from these requirements because most already met them.
They would also be exempt from an ACA rule requiring insurers to spend at least 80 percent of premium revenue on medical care.
Georgetown’s Lucia and other policy experts warned that if plan eligibility is broadened and the plans are granted exemptions from some of the ACA’s coverage rules, they might siphon off the healthiest consumers. The result could drive up costs for small employers or individuals who buy insurance through the ACA market.
The National Association of Insurance Commissioners, for example, has previously warned that such plans “threaten the stability of the small group market” and “provide inadequate benefits and insufficient protection to consumers.”
Actuaries have made similar arguments.
Still, many ACA rules would apply to association plans, noted Condeluci. For example, plans could not reject employers based on the health status of their workers. And individual employees in a workplace could not be charged different amounts based on their health.
State authority over such plans would vary depending on whether the plans were self-insured, which exempts them from some state coverage and benefit rules, or fully insured, which means they must meet state mandates.
No matter how plans are funded, states would retain oversight of their solvency, said Condeluci.
But the proposal asks for additional comments on state regulatory authority.
States have historically had this oversight responsibility and maintained that they are best attuned to problems, concerns and consumer needs within their borders.
Whether the rule recognizes the importance of this role is a “big concern,” said Lucia. “The extent of state authority over these arrangements appears to be an evolving question for the Department of Labor.”
A GOP Go-To Health Policy
Republicans have long favored association health plans, seeing them as a way for small groups to get more clout with insurers.
One big proponent is Sen. Rand Paul (R-Ky.), who in October hinted that the Trump administration would soon move to expand access to such plans.
These plans have been around for decades, although enrollment has been more limited since the ACA’s passage. While some have worked well for their members, others have a checkered history.
A number have had solvency problems that left consumers on the hook for unpaid medical bills, while others have been fined for misleading advertising or failing to pay benefits.
Just this April, for example, Massachusetts regulators settled with Kansas-based Unified Life Insurance Company, which agreed to pay $2.9 million to resolve allegations that it engaged in deceptive practices, such as claiming it covered services that it did not.
The coverage “was sold across state lines and was issued through a third-party association,” according to a release from the Massachusetts attorney general’s office.
Other Key Elements
The proposed rule from the Trump administration would expand the definition of who can form and join an association.
It would allow associations to form for the sole purpose of offering insurance and enroll members from the same industry or region. “A plan could serve employers in a state, city, county, or a multi-state metro area, or it could serve all the businesses in a particular industry nationwide,” said the Department of Labor’s press release on the proposed rule.
Many such trade organizations pushed for looser rules.
“The National Restaurant Association applauds the administration for supporting healthcare options for small businesses to allow them to pool their resources to provide healthcare for their employees,” wrote Clinton Wolf, senior vice president for health insurance at the National Restaurant Association, in an emailed statement.
In allowing sole proprietors to enroll in association health plans, the proposal notes it would require such enrollees to actually be involved in an ongoing business, not merely offer a “single on-demand ride for a fee, or knitting a single scarf to be offered for sale on the Internet.”
“The rule is intended to cover genuine employment-based relationships, not to provide cover for the marketing of individual insurance masquerading as employment-based coverage,” the proposed rule says.