Association health plans will cause higher premiums in the individual and small-group markets and boost the number of uninsured Americans, according to a new report Avalere prepared for America’s Health Insurance Plans.
Individuals and small businesses leaving those markets for AHPs will cause adverse selection, which will increase rates and could cause payers to leave those markets.
If the Department of Labor’s proposed regulation remains intact, Avalere estimates that between 2.4 million and 4.3 million people will enroll in AHPs by 2022. That includes between 700,000 and 1.2 million people from the individual market and between 1.7 million and 3.2 million from the small-group market.
The DOL plan, which echoes President Donald Trump’s executive order and a larger strategy to weaken the ACA, would expand eligibility and could make AHPs exempt from certain Affordable Care Act regulations.
AHPs will not be required to provide the 10 essential health benefits required under the ACA nor will it have to abide by community rating requirements.
The proposed rule would also allow small companies within a geographic area, even across state lines, to band together to form an AHP. Plus, an AHP would not be restricted to a “common interest,” such as operating in the same industry. Removing these restrictions would allow more opportunities for AHPs, but would also not offer the same protections enjoyed in other commercial plans.
The business community praised the AHP proposal. The National Retail Federation called it a “commonsense reform.”
“Main Street retailers need more affordable health care options and a level playing field with larger companies that are better positioned to negotiate for lower insurance costs,” NRF Senior Vice President for Government Relations David French said.
But the insurance industry, which sponsored the report, has warned of the danger of the plans skimming off healthy patients.
"We are concerned that this could create or expand alternative, parallel markets for health coverage, which would lead to higher premiums for consumers, particularly those with pre-existing conditions,” AHIP said in a statement in December.
AHPs typically involve small businesses that form an association to cover their employees. Once a popular option that covered millions of people and small businesses, AHPs only covered 6% of employers with fewer than 250 employees in 2017, according to the Kaiser Family Foundation.
The downfall of AHPs happened with the ACA. The ACA included regulations that required AHPs be treated the same as individual and small-group market plans. This meant that AHPs had to cover people with pre-existing conditions. Also, states couldn't exempt AHPs from rules and standards affecting other commercial payers.
Though the Trump administration predicts that AHPs will offer affordable health insurance, Avalere said people leaving the individual market, including the ACA exchanges, and the small-group market will create unstable markets. That instability will cause payers in those two markets to raise premiums, according to Avalere.
The report predicted individual rates would increase by between 2.7% and 4% and small group by between 0.1% and 1.9%. The rate increases are connected to healthier enrollees leaving those plans for AHPs. By 2022, Avalere said 130,000 to 140,000 more people will become uninsured because of the premium increases in the individual market.
On the surface, it’s better news for people who join an AHP. Avalere said annual premiums in the new AHPs will be:
- Between $1,900 and $4,100 lower than the annual premiums in the small-group market.
- Between $8,700 and $10,800 lower than annual premiums in the individual market by 2022.
However, Avalere said the lower premiums will come with less-generous benefits and higher out-of-pocket costs than the individual and small-group markets.
“The AHP proposed rule continues a trend under the current administration toward increased regulatory flexibility. While this flexibility may lead to lower premiums for some (particularly younger, healthier individuals and small groups), it is likely to further adverse selection out of the individual and small-group markets that could lead to increased premiums in those markets and create additional market instability,” Avalere said.
Avalere isn’t the first group to warn about AHPs. Last year, the American Academy of Actuaries said AHPs could “fragment the market” when lower-cost groups and individuals go to AHPs and leave higher-cost people in traditional plans. Also, researchers from Georgetown University’s Center on Health Insurance Reforms warned that expanding AHPs could result in lost patient protections.