New Rules: Trump's DOL Releases Rules on Association Health Plans
On June 19, 2018, the Department of Labor released their final rule on Association Health Plans (AHPs). This action is in response to an executive order that President Trump issued in October of 2017, which directed the Secretary of Labor to consider proposing regulations or revising guidance on AHPs. The rule is 198 pages. Today, we’d like to provide a high-level overview and begin to answer how this change may affect you.
- September 1, 2018: All associations (new or existing) may establish a fully-insured AHP
- January 1, 2019: Existing associations that sponsored an AHP on or before the date the final rule was published may establish a self-funded AHP
- April 1, 2019: All other associations (new or existing) may establish a self-funded AHP
WHAT DOES THIS MEAN FOR YOU?
While the first implementation date is September 1, we are relying on the states to provide regulations. The timeline for implementation will depend on how quickly the state of Texas can review the regulations and create the rule book so that professionals in the insurance industry can develop offerings that are compliant with the DOL’s final rule on AHPs.
At BFG, we are in negotiations with providers so that we are able to set up AHPs. In general, the caveat will be that these plans will need a large number of participants—several thousand—to spread the initial risk and be successful over the long term. Insurance carriers may also require underwriting and may include a provision designed to prevent groups from exiting when the first premium increase hits.
If we are your benefits broker, we will review all of your options, including involvement in an AHP, as part of your renewal.
And now, here is some background information on AHPs.
WHAT ARE AHPs?
AHPs are group health plans offered through associations or employer groups. By using an AHP, small employers could “band together to purchase health coverage,” thus creating a large group and potentially experiencing the associated benefits, such as less regulatory complexity, more flexibility in plan design, and reduced costs due to increased bargaining power. Under the new rule, small companies would not be subject to community rating under the ACA, which may also be beneficial.
HOW HAVE AHPs WORKED IN THE PAST?
AHPs are currently available and have their pros and cons. The concept is good: pool businesses together and spread the risk, gain more coverage options, and reduce the costs and administrative burden.
However, these plans are still subject to the same factors that affect health care in general, which are the same dynamics that have caused dramatic premium increases in the Affordable Care Act’s (ACA) insurance marketplace exchanges. Historically, after several years, as the AHP experiences more and more claims, rates begin to rise, and then the healthy groups decide to leave the AHP and get their own policy. The less healthy groups that remain in the AHP will see their premiums continue to increase.
Typically, these plans require a large population of several thousand participants to spread the initial risk. Usually, they also need a steady stream of new healthy participants in order to keep costs down and be successful over the long term.
WHAT DOES THE DOL's FINAL RULE CHANGE?
The DOL’s final rule calls for a change to the definition of “employer” in ERISA in order to allow more companies to qualify in the association plan. It also changes the definition of a “bona fide association” so it can exist for the purpose of offering insurance as long as it provides one other service to members. Finally, the rule would treat AHP coverage as a single group health plan that would not be subject to the ACA’s essential health benefits.
The rules related to existing AHPs are still the same; however, the DOL’s final rule provides some new options. One of the most discussed changes is that in addition to industry-based AHPs, an AHP can now form based on a geographic test, such as a common state, city, county, or metropolitan area that crosses state lines. Going forward, plans developed for a particular industry could be marketed nationwide.
WHO WILL BE AFFECTED?
The Congressional Budget Office estimates that 4 million Americans, including 400,000 who are uninsured, will join an AHP by 2023. Working owners and their employees and working owners without employees, including sole proprietors, will be able to join AHPs based on the new rule.
The DOL has also stated that the same consumer and anti-discrimination protections, such as protections for employees with pre-existing conditions, that apply to large groups will apply to AHPs.
WHY THE CONTROVERSY?
Critics of the DOL’s final rule on AHPs have argued this new policy will create “junk insurance” plans because they do not need to fulfill the ACA’s essential health benefits; however, AHP plans will be regulated by not only the federal government but also the states, which already have mandates that are very similar to the ACA essential health benefits with a few exceptions. In fact, the federal government referred to state-mandated benefits as the starting place when they initially developed the list of 10 essential health benefits. Some differences include the following:
- The ACA mandated a $0-copay for preventive care.Prior to the ACA, under the state mandates, preventive care was required to be covered but could be subject to the normal copay.At the time, some of the consumer-driven plans offered that $0-copay, but it was not mandated.Going forward, AHPs could opt to include a $0-copay for preventive care if they so choose.
- The ACA mandated that pediatric dental and vision care are covered, but on most plans, it is subject to the full medical plan deductible before anything is payable.As a result, this mandated benefit did not have a large impact on most covered insureds.
- The ACA mandated mental health and substance abuse services to be covered.Prior to the ACA, Texas also required mental health coverage, and consumers could purchase a rider for additional coverage for extra premium.
- In addition, maternity, mastectomy, reconstructive surgery following cancer, and many other major procedures are covered under all plans, not just the ACA plans.
Bottom line, in Texas, the only essential health benefit not already mandated is pediatric dental and vision as noted above.
Critics of the DOL’s final rule on AHPs also contend that this action will attract healthy people away from the ACA’s insurance marketplace exchanges, causing premiums to rise even more. Rising costs in the insurance marketplace exchanges can be said to affect all Americans because taxpayers subsidize the cost of insurance in the marketplace exchanges. As premiums increase, taxpayers are paying more for the same coverage.