TBD: AHPs and the ACA

January 15, 2018

TBD: AHPs and the ACA

Association Health Plans (AHPs) pre-date the Affordable Care Act (ACA) and while they have a limited California presence, their potential for expansion jumpstarted on January 4th.  The Department of Labor released proposed rules that may lead to the growth of AHP’s, probably beginning in 2019. These proposed rules are open for comment until March 6th and may change.  Since this has potential to influence the current small group and individual health insurance markets, it’s worthwhile to have context for the rules and understand their key components.

In California, the main examples of AHPs are Multiple Employer Welfare Arrangements (MEWAs).  Our current limited number of MEWAs have functioned over the years.  However, some AHPs have a “checkered history,” according to a January 4th Kaiser Health News article by Julie Appleby. “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.”

Hence, when evaluating these opportunities, brokers and employers have a lot of due diligence ahead of them.  Within the proposed rules, the association plans will form in two types:

  1. By industry, with up to a nationwide scope, either an existing association or one newly formed to host a health plan, or;

  2. By geographical region, which under some circumstances could be multi-state as well.

What gives these plans potential for savings also gives them potential for hardship. Depending on their type of funding (self-funded or fully insured) and depending on their geographical scope (up to nationwide), there may be flexibility on where the plan is based geographically. This influences the nature of the oversight and in some cases, benefit mandates.  For instance, since California’s Departments of Insurance and Managed Care are rigorous in their scrutiny of insurance carriers and plans, and our legislature is enthusiastic about mandated benefits, an association might choose a different, more lenient state to domicile their plan.  This may save money, yet it may also increase potential for a risky future.

The proposed rules give plans more flexibility in a menu of benefits, freeing them from coverage of all ten ACA “essential benefits.” These include but are not limited to pharmacy, hospitalization, emergency services, and maternity.  Not covering brand name drugs, for instance, would certainly save premium dollars, but may be less than ideal for someone who needs them.  That dynamic gets to the crux of some of the early controversy.  Assuming groups have favored the limited benefits for premium savings, they are considering themselves (sole proprietors potentially eligible) or their employees to be healthy enough not to mind the limitations.  These healthy business owners and groups, probably younger than older in demographics, exiting the small group and individual markets in their states could make rates rise for those who depend on the markets.

We look to the positive. From the Society for Human Resource Management (SHRM) article by Stephen Miller,

“the proposed regulation seeks ‘to liberalize the rules to build large insurance pools of small employers,’ said Perry Braun, executive director at Benefits Advisors Network (BAN), a Cleveland-based consortium of health and welfare benefit brokers. ‘Spreading the risk across large numbers of participants in an insurance pool is thought to bring insurance premium stability.’”

Morris & Garritano is a BAN partner, and we will be collaborating with very cautious optimism on these emerging opportunities for our clients.