The Trump administration's Department of Labor offered a proposed rule on Thursday that will allow more small businesses and organizations — even sole proprietors — to band together to form association health plans (AHPs).
Echoing a call in an October executive order, the proposal would allow AHPs to sidestep Affordable Care Act (ACA) regulations, allowing them to offer insurance without the 10 essential health benefits required in the ACA. The plans could not explicitly discriminate based on health status, but analysts say this will not necessary deter adverse selection.
The proposed rule would also allow small companies within a geographic area, even across state lines, to band together to form an AHP. An AHP would not be restricted to a “common interest,” such as operating in the same industry.
Millions of individuals and small employers bought insurance through associations before the ACA, but the Kaiser Family Foundation said only 6% of employers with fewer than 250 employees offered health insurance through AHPs in 2017.
The reason that AHPs fell out of favor was due to the ACA instituting consumer protections on them, including requiring that the groups be treated the same as individual and small-group market plans. Those regulations included requiring that plans cover people with pre-existing conditions and states could no longer exempt AHPs from rules and standards affecting other commercial insurers.
Though a small percentage of employers provide insurance through an AHP now, the plans remain popular among conservatives, who see them as a way to provide more affordable health insurance options.
With Thursday’s proposed rule, the Trump administration would expand the definition of what’s considered an employer under the Employee Retirement Income Security Act of 1974 (ERISA). The proposed rule said the move would remove “undue restrictions on the establishment and maintenance of association health plans under ERISA.”
The business community praised the proposal. The National Retail Federation (NRF) 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,” said NRF Senior Vice President for Government Relations David French.
Though the Trump administration said expanding AHPs, as well as low-cost, bare-bones catastrophic health plans, will provide more affordable health insurance options, critics charge that AHPs have been prone to insolvencies and fraud and catastrophic health plans offer little protection.
They also say expanding AHPs and short-term catastrophic health plans could harm the individual exchange market since people may leave exchanges for cheaper alternatives, causing an imbalanced exchange market.
Earlier this year, the American Academy of Actuaries warned that AHPs could “fragment the market” when lower-cost groups and individuals create AHPs, leaving higher-cost groups and those remaining in traditional plans. That would cause higher premiums in non-AHPs, resulting in higher-cost patients and groups having trouble finding coverage.
Experts noted that the rule proposed Thursday would prohibit insurers from charging higher premiums to sicker patients.
"That's a big deal," Kaiser Family Foundation's senior vice president Larry Levitt tweeted, noting it would mitigate destabilization of the market.
Still, he added that even though the plans couldn't boldly discriminate, "I have no doubt they would find clever ways of cherry picking healthier people implicitly — e.g., based on what benefits they cover."
Researchers from Georgetown University’s Center on Health Insurance Reforms in December also warned that expanding AHPs could lead to patients losing protections and the overall market becoming unstable. That report offered ideas for how states can protect consumers and stabilize insurance markets. The report recommended states require insurance sold through AHPs to comply with key market standards and practices and require them to meet the same financial solvency standards as commercial insurers.