association health plan
Employee Benefits

Clowns, Accountants, and Sandwich Artists

Ed Oleksiak
Ed Oleksiak
Sr. Vice President, Employee Benefits

What do all of these jobs have in common? Nothing, and that’s the takeaway from the proposed rules on Association Health Plans (AHPs) the Department of Labor issued last week. Businesses (including sole proprietors) operating in a common geography would be able to form an AHP, which would allow them to pool their health risk. The rules also allow businesses sharing a common trade to form an AHP, even if they aren’t geographically near each other – accountants across America would be able to pool their health risk.

Basically, the new rules take the existing association plans rules and expand them making it easier to form AHPs. Here are a few takeaways:

  • They dropped the requirement the association had to previously exist for another purpose, and the AHP doesn’t need to have another purpose other than offering health coverage.
  • Once membership rules are established (geography or common trade/business), no group satisfying the criteria can be kept out.
  • The AHP must also not discriminate, which means rates cannot be determined based on the health of an individual.
  • Rates can vary by age and/or geography.
  • The AHP can be either fully insured or self-insured.
  • The AHP must be governed by a formal structure and run by the participating employers.
  • Individual employers are not subject to individual/small group Essential Health Benefit rules, underwriting age bands, or the Medical Loss Ratio restrictions.

While the rules as proposed would make it easier to form an AHP, there’s no guarantee costs within an AHP will be lower. In the proposed regulations, they even indicate they’re not sure how much costs will improve.

While more restrictive, the ability to form an AHP existed before the proposed rules were released last week. The number of successful AHP is very limited. Taking individual and small groups with poor health and pooling them into a single AHP simply results in a bigger pool of poor health risk. The thinking is that by pooling small employers together they can achieve lower administrative costs and lower claim costs that large employers (those over 100 lives) enjoy today. The fact is, generally speaking, the cost of healthcare services is the same for all group sizes. Large employers generally subsidize the cost to join their plan resulting in more healthy individuals joining their plans. Therefore, the cost per individual seems lower but only due to the fact it’s spread across a population of healthy and unhealthy individuals. Unfortunately, due to the cost of healthcare, healthy individuals simply go without insurance…resulting in high-cost premiums in the individual and small group markets to cover the less healthy population which participates.

Clowns, accountants, and sandwich artists ­– beware. Without true reform that addresses the cost of healthcare in our country, we’re just continuing the game of whack a mole.

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