Since the Affordable Care Act went into effect, employers in the small group health insurance market (generally, employers with 50 employees or less) have faced rising costs and limited coverage options. This is because, under the ACA, the small group and individual markets require plans to include essential health benefits and community rating.
One strategy utilized by employers to get around the ACA’s small group market rules is to band together in an employer group or association in order to collectively be treated as one employer sponsor of a health plan — known as association health plans. Doing so gives them a higher employee count, and therefore access to large group market health plan options with less regulatory restrictions. However, qualifying as an association that can form an AHP is difficult under current law.
But a proposed regulation from the Department of Labor issued Jan. 4 makes it easier for small employers to join AHPs.
Here are some questions and answers for employers about what the proposal means, how it works and how it will affect businesses.
How does the proposed rule work? How will it change things?
This proposed regulation, consistent with the directions of the executive order, would make several technical changes to ERISA designed to allow more businesses and individuals to join associations, and as a result, free themselves from the burdensome requirements of the ACA’s small group and individual market rules.
Association membership would not be limited in the way that it currently is under ERISA. Under current law, most AHPs are not considered to be single ERISA-covered health and welfare plans. This means that when it comes to determining if they are subject to the small or large group market rules, the association is typically disregarded, and each employer within an association is typically considered on their own to make this determination. Under this proposed rule, it will be easier for an association to be considered a single ERISA-covered health and welfare plan.
The proposed rule would allow businesses in the same industry, but in different states, or in the same state, but different industries, to band together to form associations. In some cases, the associations could have members nationwide.
All of these proposed changes would help to make health insurance coverage more readily available across state lines. And without having to comply with the ACA’s EHB or community rating rules, these new associations could offer more “bare-bones” benefit plans than what individual employers used to offer. This may come as a surprise for some of the workers in these new associations.
The proposed rule would also change ERISA to allow sole proprietors or other working owners of trades or businesses with no employees to join AHPs if they work at least 30 hours a week, 120 hours a month or work enough to at least earn enough money to equal the cost of coverage in the AHP. This would allow individuals like Uber drivers for, example, to band together to buy coverage as a large group instead of having to purchase coverage through the ACA’s exchanges.
This change could mean that younger, healthier people working in the gig economy will leave their state’s exchange to join associations and leave an older and sicker pool of people in the exchanges, which could drive up premiums for exchange plans.
How will these changes affect employers?
This proposed rule essentially creates new loopholes to current laws under ERISA and the ACA that have raised costs for employers in the small group and individual market. By changing these rules, and allowing for more employers to have large group health plans, these employers should see lower costs, assuming that they want to deal with the administrative burdens that come with forming or joining an association. Even with the new, easier rules, many employers may still decide that they don’t want to deal with the “everyday” hassles of joining an association.
It’s also important to understand that the proposed rule is not law yet, and it could change before it’s finalized. The new rules are currently subject to a 60-day comment period.
In addition, this change does not preempt state regulation, which means that individual states could still take steps to try to make it more difficult for associations to form within their boundaries in order to reduce any adverse impact on their exchanges and health insurance markets.
What should employers do next?
Employers and sole proprietors in the small group and individual market that have been burdened by higher costs as a result of the ACA should review these new rules and discuss with their trusted advisers how they may be able to use them to their advantage.