On June 21, 2018, the U.S. Department of Labor (DOL) expanded access to affordable health coverage options for America's small businesses employees and self-employed people by changing the regulations governing Association Health Plans (AHPs). The DOL final rule was developed as a result of President Trump's October 12, 2017 Executive Order "Promoting Healthcare Choice and Competition Across the United States," which directed the Secretary of the DOL to consider issuing regulations, or revising guidance, that would expand access to more affordable health coverage by permitting more employers to form AHPs.
The AHP final rule (83 FR 28912, June 21, 2018) has generated considerable controversy over whether the rule would expand desirable health care coverage to small businesses and their employees, or actually put comprehensive and affordable health care coverage for this sector at risk (see AHP final rule does not require EHBs or ‘minimum value’ coverage, June 19, 2018).
This Strategic Perspective, after providing some background on AHPs, will discuss whether these new AHPs will provide more choice, access, and coverage, and whether they will achieve the DOL’s goal to "promote broader availability of group health coverage for these small business owners and self-employed people, and help alleviate their problems of limited or non-existent affordable healthcare options."
What Are AHPs and How Do They Work?
AHPs are group health plans that employer groups and associations offer to provide health coverage for employees. Historically, AHPs have allowed small businesses and self-employed individuals who employ others to join together to obtain healthcare coverage as if they were a single large employer.
By banding together, AHPs create larger risk pools and greater economies of scale, which give them more negotiating power with providers. This increased negotiating power commonly results in coverage that is less expensive and better tailored to the needs of their employees. Under the DOL’s pre-rule guidance, the AHP in most cases was treated as a mechanism by which each individual employer obtained benefits and administrative services for its own separate plan. To the extent that these separate employers are small employers, their insurance is subject to regulation as a small group market under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) (ACA §1201, 42 U.S.C. §§300gg – 300gg-6).
Benefits of the New AHP Rules
The DOL’s Frequently Asked Questions explain the benefits of the new AHP rules. Employer groups will be allowed to form AHPs based on common geography or industry. Also, the new rules allow sole proprietors without other employees to join AHPs to obtain coverage for them and their families.
Consumers are more protected under the new AHP plans. Consumer and anti-discrimination protections afforded to large businesses (defined as 50 or more employees under the ACA) now apply to these plans and AHPs cannot "cherry pick" participants or exclude them based on health status or prior conditions. AHPs cannot charge higher premiums or exclude participants due to pre-existing conditions or cancel coverage for those that become ill. Employers, in turn, cannot be charged different rates by the AHP based on employees’ health status.
States retain regulatory oversight of AHPs, and enforcement authority is shared with the federal government.
In an interview with Wolters Kluwer, attorney Kirsten Stewart, a member of Sherman & Howard in Denver, Colorado, detailed additional benefits. She mentioned that existing AHPs will be allowed to continue or evolve, stating "AHPs that have been formed under prior guidance have not changed (and do not have to change). The final regulation actually expands the definition and will allow more business groups and associations to offer AHPs. The new AHPs (or AHPs that want to expand further) will need to meet certain requirements, but they also will not have to meet the ACA requirements for small group plans."
Lawsuit by States Challenge the AHP Rule
A major challenge to the AHP final rule is a July 26, 2018 lawsuit, filed by a coalition of 12 Attorneys General in the U.S. District Court for the District of Columbia, asking that it be vacated. The lawsuit claims that the rule expands the criteria for forming AHPs simply to evade consumer protections and sabotage the ACA. The complaint also points out that AHPs have a long history of fraud, mismanagement, and abuse, with millions in unpaid claims for policyholders and providers, often leading to consumer bankruptcies.
The complaint alleges that the rule is unlawful because it: (1) conflicts with the protections the ACA provides to individual and small group markets; (2) competes with the ACA, the Employee Retirement Income Security Act (ERISA), and case law by allowing a self-employed person to be considered both an employer and employee under ERISA and to thereby establish a group health plan; and (3) extends ERISA to permit employers in an area to join together in a "profit-making commercial insurance enterprise". The attorneys general also argue that the rule is arbitrary and capricious because the DOL did not justify why it departed from "nearly 40 years of settled law" or account for the years of fraud and abuse perpetrated by AHPs.
According to Virginia Attorney General Mark Herring: "The [AHP] Rule is just another way the Trump administration is working to undermine the [ACA]. This AHP Rule would destabilize insurance markets and make consumers more vulnerable to fraud and abuse."
Potential Drawbacks to the New AHPs
An issue brief from the American Academy of Actuaries also described potential drawbacks to AHPs. These drawbacks include adverse selection concerns, the likelihood that AHPs will be unable to obtain lower provider payment rates than larger insurance companies, and insolvency risks. These drawbacks can be explained as follows:
- Adverse selection concerns. An AHP may use the requirements of the state in which it establishes itself as the requirements for all states in which it operates. If the state in which the AHP was established has fewer coverage requirements that the state of issue, non-AHP plans in the state of issue would have to abide by the more stringent requirements.
- Likely inability to obtain lower payment rates. Because AHPs don’t have the size and network advantages of large health maintenance organizations (HMOs), it is more likely that they will have to pay access fees and become part of these larger provider networks in order to obtain lower payment rates for their enrollees.
- Insolvency risk. Without one government authority having the sole responsibility for regulating AHPs, they could have the same problems as multiple employer welfare arrangements (MEWAs), which had no clear regulatory authority, suffered many bankruptcies, and left enrollees without health care coverage.
Stewart is also concerned with the continued risk of insolvency by AHPs. She states:
The new AHPs are still considered MEWAs which have been a focus of concern for the DOL and state insurance commissioners for decades. Self-insured AHPs (especially those that cross state lines) will need to be carefully drafted to address specific mandates in each state in which they operate. In the past, there have been many stories of fraudulent or just poorly managed self-funded MEWAs that, while able to pay benefits in some cases for a short period of time, have shut down with no funds to pay benefits, leaving individuals with no coverage to pay medical bills. At the end of the day, it may be impossible to set up a self-insured AHP that meets mandates in multiple states at the same time.
The DOL expects that due to the rule changes a substantial number of uninsured people will enroll in AHPs because the coverage will be more affordable than what would otherwise be available to them, and other people who currently have coverage will replace it with AHP coverage because the AHP coverage will be more affordable or better meet their needs. The DOL also notes the U.S. Congressional Budget Office (CBO) predictionthat 400,000 people who would have been uninsured will enroll in AHPs and 3.6 million people will enroll in AHPs who would have had other coverage, resulting in 4 million additional people enrolling in AHPs.
If ACA plans offered on the exchanges had been less costly, had greater participation rates, and had attracted younger, healthier enrollees, the expansion and loosening of the restrictions on AHPs might not have been a consideration. Stewart concludes that "anything that will encourage and enable employers to offer quality health coverage for employees is a good thing. If structured correctly, these plans should provide small employers with more opportunities to offer benefits."
Attorneys: Kristen Stewart (Sherman & Howard).
Companies: American Academy of Actuaries
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