Associations May See Opportunity in New Health Rules

The U.S. Department of Labor released its proposed rules for association health plans in January. The rules could reshape how we think about association-based health insurance and open the door to association-based coverage that crosses trade or industry lines. 

If finalized, they won’t be a panacea for all associations or industries. But associations for some professions, particularly those boasting better-than-average risk profiles or located in low-cost areas in a state, stand to gain. This is particularly true for their members that currently are left to scrounge for health insurance in the individual or small-group health insurance markets, if the members offer coverage at all. 

The newly proposed rules are intended to encourage groups of employers—particularly smaller employers—to band together for purposes of buying health insurance for their employees, taking advantage of economies of scale and the ability to avoid certain costly mandates to obtain more affordable coverage. Significantly, the rules would allow groups of employers to form associations to provide health insurance. Associations could even encompass employers in different trades and industries, subject only to certain geographical limits. 

The rules should be finalized later this year, perhaps as early as this summer. Final rules will likely be effective for 2019 and beyond. 

Under current federal and state rules, it’s difficult for an association to offer its members what’s considered a single, large-group health plan for insurance purposes. Thus, they are unable to ignore some cost-driving mandates that apply to the individual and small-group markets. The new rules would soften existing restrictions considerably. For example:

  • An association health plan would be considered a single, large group for insurance-rating purposes, as long as its members are in the same trade, industry, line of business or profession, OR—and the “or” here is key—members are in the same state (or in the same metro area even if not the same state, as in the Kansas City area). 
  • The association can exist solely for the purpose of providing health insurance. In fact, it can be newly formed just for that purpose. 

The association must have a formal organizational structure, bylaws and similar indications of formality. Also, the association plan can only offer coverage to employees (and dependents) and former employees (and dependents) of the employer members. 

Thus, a working owner—such as a proprietor or partner—of a business, whether or not incorporated, qualifies as an “employee” for this purpose as long as the owner is earning wages from the business for services supplied to the business (the owner must work in the business at least 30 hours a week or 120 hours a month), is not eligible to participate in subsidized employer-provided health coverage elsewhere (like through a spouse’s employer), and the owner’s earned income from the business is at least as large as the premium he or she pays for the association health plan coverage. 

Importantly, the association isn’t required to verify the owner meets these criteria. It can accept the owner’s attestation that the criteria are met. 

There are restrictions on how the association plan can operate, which are designed to prevent the association health plan from cherry-picking its risks. 

While the association can parse eligible employers along trade, geographic and other similar lines, and impose different waiting periods for different classes of employees (such as salaried vs. hourly, full-time vs. part-time, bargaining unit and non-bargaining unit, etc.), it can’t do so based on the health risk posed by employees of an otherwise eligible employer. Nor could the association plan charge a higher premium to the employer or its employees, simply based on the employees’ health status. However, age rating of participants in the association health plan might be permissible, within limits. 

Some associations might benefit substantially from the new rules. This is particularly true if their employer-members’ risk profile in the aggregate is more favorable than the profile of the community risk pool in which they are currently lumped. Certain professions (or even unrelated groups of professions in the same state or metro area) that boast better-than-average health risk profiles, for example, might see significant reductions in insurance costs by purchasing coverage through an association. 

That benefit could grow as a result of the recent federal tax reform law’s elimination of the ACA’s individual-mandate penalties, beginning in 2019. The absence of penalties will likely coax many young, healthy individuals from the community-risk pools in which they’re currently insured. That exodus would drive a deterioration of the pools’ risk profiles and raise the cost of coverage for people remaining in the individual and small group markets. Higher costs in those markets could make coverage through certain association health plans more attractive. 

Other associations’ members, however, might reflect risk profiles that are worse than the community-rated risk pools in which they might now be buying or shopping for coverage. Pulling those members into their own risk pool would make little sense in that case.

Also, association health plans are not for the faint of heart. They require administrative, marketing, governance and other platforms and processes, and an insurer ready, willing and able to adequately gauge and underwrite the risk, and to provide adequate provider networks and other accoutrements of contemporary health insurance. 

Still, the specter of forming new associations, even across industry lines, solely to provide health insurance, is provocative and exciting, and creates plenty of opportunities for consideration and innovation.