New rules released in June by the U.S. Department of Labor (DOL) could result in a significant shift in how some individuals and small businesses buy health insurance. That’s because the DOL has loosened the definition of “employer” under the Employee Retirement Security Act (ERISA) of 1974; going forward, individuals and small businesses can band together to form an association and purchase health insurance as one larger group.
Previously, as “employer” was defined, legitimate associations could qualify to offer health insurance and other benefits to members, so long as they passed a “commonality of interest” test. Now, if members share a trade, industry, line of business, profession, or maintain their principal places of business in a shared geographic region, they may qualify to offer group health insurance to their members.
Some industry analysts expect self-employed individuals and groups with fewer than 50 or 100 employees could move away from buying health insurance through the federal and state exchanges, opting instead for what are expected to be less-expensive association health plans (AHPs). Indeed, consulting firm Avalere Health projects as many as 4.3 million people could exit the individual and small group marketplace over the next five years.
Critics note that the savings in premium may not be enough to offset the reduced coverage under association plans. Coverage compliant with the Affordable Care Act (ACA) had to include Essential Health Benefits across 10 health care service categories. These included ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services (including behavior health treatment); prescription drugs; rehabilitate and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including dental and vision care. However, AHPs are expected to have reduced benefits – and, perhaps, no benefits for prescription drugs, rehab services, and maternity (for groups with 14 or fewer employees).
The ACA introduced some very popular health care protections – like covering pre-existing conditions, offering preventive care without a cost to the patient, and allowing parents to maintain coverage for their dependent children through age 26. It is not yet known what approach associations will take in developing new association plans. Or what premiums to expect with new AHP plans. The DOL rules allow AHPs to base rates on gender, age, and location.
In spite of new federal rules, there are also other things to consider, because future AHPs could be affected by state legislation. California has existing rules on multiple employer welfare arrangements (MEWAs), which includes AHPs. Additional new rules could be adopted by California and Nevada (in the 2019 legislative year). Since the two states operate their own pubic health insurance exchanges, regulators and legislators could be concerned how new AHPs could funnel younger, healthier people and groups away from the Covered California and Nevada Health Link marketplaces.
New self-funded MEWAs are prohibited under current California law. (Read the current law, Code 742.20-742.43, here.) Fully insured AHPs are subject to state-mandated benefit laws. Before a group health policy can be issued to a California association, certain criteria must be met.
Right now, it’s unknown whether to expect a lot of new AHPs in the state in the next year. Federal guidelines permit associations to form new self-funded AHPs beginning in April 2019. Current associations that want to put together a fully insured plan can do so as soon as this fall.
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Related: CA Association Health Plans: California and Federal Rules