Trump Administration Proposes Rule to Expand Association Health Plans

In a bid to expand access to affordable healthcare coverage, the Trump administration early Thursday rolled out proposed rules that would allow more small businesses and self-employed workers to band together to buy insurance.

The rule is part of the administration’s objective to encourage competition in the health insurance markets and lower the cost of coverage. But some experts say expanding access to these “association health plans,” which aren’t subject to many of the same regulations and consumer protections as other health plans sold under the Affordable Care Act, could weaken the individual health insurance market.

The proposed rule, which grew out of an executive order issued in October, would broaden the definition of an employer under the Employee Retirement Income Security Act of 1974, or ERISA, to allow more groups to form association health plans and bypass ACA rules. ERISA is the federal law that governs health benefits and retirement plans offered by large employers.

Doing so would “expand access to affordable health coverage, especially among small employers and self-employed individuals, by removing undue restrictions on the establishment and maintenance of association health plans under ERISA,” the rule reads.

Importantly, the rule would also prevent association health plans from restricting membership based on health status or charging higher premiums for sick people, which was one of critics’ largest concerns about expanding association health plans. Experts say that protection would help mitigate negative effects on the marketplace.

The non-discrimination protections included in the proposed rule “sort of solve one part of the problem,” said Matthew Fiedler, an economist at the Brookings Institution’s Center on Health Policy. But he and other experts are unconvinced that the provision would prevent association plans from cherry-picking healthy members.

“You can discriminate based on health status in a lot of indirect ways,” he said.

President Donald Trump in October issued an executive order directing the Labor Department to consider regulations that would expand association health plans, short-term insurance plans and the use of health reimbursement arrangements, in an effort to promote more affordable insurance options for consumers.

Association plans were widespread prior to the ACA. Many states exempted the plans from having to comply with some of the rules that applied to commercial insurers, such as underwriting restrictions and benefit mandates, according to a brief by the Robert Wood Johnson Foundation.

Current criteria make it difficult for an association health plan to be regarded as a large employer under ERISA. So, many existing association plans are subject to the rules and standards that govern the small group and individual insurance markets. Those standards include protections for people with pre-existing medical conditions, and the requirement that insurers cover 10 essential health benefits.

Members must be part of the same industry to form an association health plan under the current rules. The proposed rule would change that, allowing workers in unrelated professions to band together to obtain coverage through an association health plan so long as they are in the same geographic region, explained Chris Condeluci, a health policy consultant who was a Senate GOP staffer during passage of the ACA.

The proposed rule also would allow association health plans made up of a members of the same industry to offer coverage to workers all over the country. Under the proposed rule, a national trade association could offer coverage to members in Massachusetts as well as New York, for instance.

The proposed rule would also allow self-employed workers to join association health plans, which they previously couldn’t do. The changes remove the condition that groups that want to form an association health plan must have another purpose beyond just providing health coverage to members.

State insurance regulators and other stakeholders have worried that expanding association health plans would destabilize the small-group and individual health insurance markets by taking healthy people out of those markets and thus, worsening the risk pool and increasing premiums for consumers that remain. They also worried that the new association health plans would exclude certain health benefits, like prescription drug or mental health, from coverage, putting members at risk.

The Academy of American Actuaries in February warned that the plans “could result in unintended consequences such as market segmentation that could threaten non-AHP viability and make it more difficult for high-cost individuals and groups to obtain coverage.” The academy also pointed out that association plans have a history of going insolvent and leaving millions without insurance.

In the proposed rule, the federal government sought to mitigate some of those concerns by prohibiting association health plans from restricting membership or charging higher premiums based on a person’s health status or medical history.

But the association plans wouldn’t be subject to other ACA protections, such as the requirement that plans must cover essential health benefits. Association plans also wouldn’t be subject to the ACA rule that insurers cannot charge older members premiums of more than three times as much as younger members.

The changes could allow some association health plans to stop covering mental health care or other services. That’s one way of cherry-picking healthy members, since people with mental health issues generally have higher than average overall claims costs, Fiedler explained. 

Condeluci said that concerns about consumer protections in association health plans are overblown. An association health plan treated as a group health plan would still be barred from prohibiting people with pre-existing conditions and annual lifetime limits. The plans would still have to cover young adults up to age 26 on their parents’ plans and cover preventive services at no cost, he said.

Fully-insured association health plans would be subject to state benefit mandates, which Condeluci said are often as strict as the federal essential health benefits standard. Self-insured association health plans, while not subject to state mandate benefits, would still be governed by the employer mandate. The mandate requires employers to offer a “minimum value,” meaning it covers at least 60% of a member’s benefit costs. Moreover, association health plans would likely want to offer comprehensive coverage for competitive reasons, he said.

Condeluci acknowledged that the proliferation of association health plans could pull healthy people out of the individual and small group markets. On the flip side, however, he said older, sicker consumers who find more affordable coverage through an association health plan may choose to exit the individual market, leaving that market better off.

“In the end, maybe it’s a wash, he said. “Or at least the impact of the market segmentation is not as pronounced as critics are making it out to be.”

The industry is not waiting on the federal government to issue proposed rules on the expansion of short-term insurance plans. The loosening of rules around short-term plans, coupled with the expansion of association health plans, could exacerbate the destabilization of the individual insurance market, some experts said.

“To some extent, short-term plans will do everything the association health plans do and more,” Fiedler said, referring to their ability to promote cheaper, less comprehensive plans.

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