Association Health Plans (AHPs) are a type of health insurance plan provided to a group of small businesses — typically those with fewer than 50 employees — whose members share a common interest or economic purpose.
How do Association Health Plans work?
AHPs allow small businesses to band together and negotiate for insurance plans as a large business would. In the insurance world, there are two kinds of group (i.e., employer) insurance: small and large. Each state has its own definition for “small” and “large,” however, the difference between small group and large group insurance is important because the prices and regulations you must follow depends on your group.
Businesses in small group coverage all pay the same rate for the same plan. Large group coverage, on the other hand, allows you to negotiate the rates. Because AHPs qualify as “large group,” this means small businesses might be able to acquire cheaper plans and pass those savings along to their employees.
I’m confused. How about an example?
Sure thing. Say all the hipster coffee shops (HCS) wanted to get together to create an AHP. This HCS AHP would then qualify as a “large group” and negotiate on behalf of the eleventy million shops and their employees. The sheer number of members would give the HCS AHP a lot of bargaining power when dealing with insurance companies.
This large group qualification also allows Association Health Plans to offer “skinny plans” which are not otherwise available to small group employers. Skinny plans do not have to include coverage of essential health benefits (EHBs) like maternity coverage, prescriptions, and preventive care, making them cheaper for insurance companies to offer. Access to these inexpensive plans, combined with the ability to negotiate rates with insurers, can make AHPs attractive.
Oh, okay. Then why don’t all small businesses create AHPs?
Under the Affordable Care Act (ACA, aka Obamacare), Association Health Plans were treated as small businesses, meaning they fell into the “small group” bucket and had to comply with certain rules.
But in June 2018, the Trump Administration’s Department of Labor (DOL) released a new rule governing AHPs that could expand their use. The Congressional Budget Office (CBO) estimates that under this new rule, 400,000 previously uninsured people will be on AHPs by 2023, and another 3.6 million would switch to AHPs from either a small-group (i.e., employer) or individual plan.
Under this new rule, AHPs can avoid specific ACA mandates, including the requirement that insurance plans offered by small businesses cover these ten essential health benefits:
- Outpatient services
- Emergency services
- Hospitalization (e.g., surgery or overnight stays)
- Pregnancy, maternity, and newborn care (both before and after birth)
- Mental health and substance abuse services
- Prescription drugs
- Rehabilitative and habilitative services and devices
- Laboratory services
- Preventive care
- Pediatric care
Small businesses, especially those with fewer than 50 employees, can be extremely price-sensitive to health insurance costs. Proponents of allowing more access to AHPs argue that they give small businesses more insurance plan choices at lower prices. Critics, however, point out that those plans are cheaper because they include fewer benefits.
It’s important to note that some states plan to sue the Trump Administration, claiming that the DOL exceeded its rule-making authority. It remains to be seen which parts of the new rule will stand up under legal scrutiny.
What kind of insurance plans can AHPs provide?
Critics of Association Health Plans call it “junk insurance” given its reduced consumer protections and benefits, while supporters of AHPs claim that the freedom from ACA rules allows their participants more flexibility and the ability to choose plans that better suit their specific needs. For example, an AHP could offer an insurance plan that has a high deductible and doesn’t provide coverage for maternity care, prescription drugs, or mental health care. A bare-bones plan like this may attract younger, healthier people who don’t need or want to spend a lot on health insurance.
However, AHPs are subject to many of the protections provided by the ACA. For example, plans cannot
- charge participants and beneficiaries higher premiums because they have a pre-existing health condition;
- deny coverage of an otherwise covered but pre-existing health condition;
- place a ban on annual or lifetime dollar limits on EHB that the plan does cover.
In short, AHPs can offer all kinds of insurance plans, from the comprehensive to the bare-bones. Organizations often find them attractive, however, because AHPs are allowed to offer cheaper plans that have less comprehensive coverage.
Also of note, the new rule will allow one-person owner/business operators without employees to join an AHP and obtain coverage for themselves and their dependents.
How do I join an AHP?
In order to join an AHP, your organization must share a “commonality of interest” with its members. Historically, this has meant that you are in the same trade, industry, line of business, or profession. Under the new rule, an AHP could also be created based on businesses in the same region, like a state, county, or metro area.
For example, an AHP must be a “bona fide group or association of employers.” Under the rule, its primary purpose can be to provide health insurance to its members. However, it must have at least one expressed business purpose unrelated to providing healthcare coverage. While the rule didn’t explicitly define “business purpose,” examples cited include:
- To set business standards or practices;
- To offer classes on business issues of interest to its members; OR
- To engage in public relations activities such as advertising, education, and publishing on business issues of interest to association members.
An AHP must be controlled by its members, though those members do not have to run the day-to-day operations of it and can instead elect directors, trustees, and such to do so. One important exception to note is that an AHP cannot be owned or controlled by an insurance issuer or a subsidiary or affiliate of one.
When will this new rule take effect?
An AHP can offer fully-insured health plans purchased through a broker or self-fund and operate their own health plans. AHPs with fully-insured health plans can start offering them under the new rule starting September 1, 2018. Existing self-funded AHPs can begin operating under the new rule on January 1, 2019, and new self-funded AHPs can start on April 1, 2019.