Thanks to a final rule issued in June, the Department of Labor believes an increasing number of small businesses will have access to association health plans (AHPs) starting this September. That access, the DOL contends, will allow these businesses and self-employed individuals to reduce administrative costs, avoid costly Affordable Care Act regulations on small-group employers, and enjoy access to insurance plan qualities previously enjoyed only by large groups.

The rule, which interprets a broader definition of the word “employer” under Section 3(5) of the Employee Retirement Income Security Act (ERISA), effectively defines trade associations and similar entities as prime vehicles through which AHPs can be formed. As a result, some associations are poised to deliver a valuable benefit to their small-business members.

Initially, the proposed rule allowed for AHPs to be established by organizations whose sole purpose was to offer health coverage—in other words, plans could be offered by newly formed organizations whose participating employers do not share a common interest or nexus. In the final rule, however, DOL requires AHP sponsors be “bona fide groups” with a “substantial business purpose unrelated to the provision of healthcare benefits.” This mirrors ASAE’s request in its comments to DOL on the proposed rule.

Several factors tilted the scales in favor of restricting AHPs to associations with a membership nexus: 

Trust. Mismanagement and fraud have abounded among multiple-employer welfare arrangements in the past, leading some states to heavily regulate insurance markets. Associations with developed legal and governance structures, whose mission and resources benefit their membership, were deemed to be more reliable potential AHP sponsors than associations whose sole purpose is to administer benefits.

Scale. The AHP value proposition is that it allows businesses to band together to create economies of scale and therefore reduce administrative costs. What better groups than regional or national associations with large, engaged, small-business membership rolls to market such plans?

Necessity. Small businesses and self-employed individuals are struggling to pay for health coverage, and annual small-group premiums are projected to be as much as $10,800 higher than those of AHPs by 2022.  As a result, the Congressional Budget Office estimates that 4 million individuals currently in the small or nongroup markets and those who are uninsured altogether will move to AHPs by the time the rule’s effects have fully taken hold in 2023. Given those statistics, AHPs clearly provide an opportunity for some associations to deliver a benefit to their members.

Limitations and Risks

While the DOL’s new rule reduced some of the barriers to creating AHPs, risks and roadblocks remain.

Legal challenges. Like so many issues in healthcare politics, AHPs have been controversial. Seventeen state attorneys general opposed the proposed rule, and two filed lawsuits after the final rule was issued.  Detractors are concerned that such plans would offer scaled-down benefits or that premiums for specific groups would increase. Additionally, a different administration could alter the rule based on its own interpretation of ERISA. 

Limitations. Despite calls for self-insured AHPs to be regulated by a single rule (either state or federal), they will continue to be regulated on a state-by-state basis, as the DOL did not believe the ERISA statute allowed the department to “supersede” or “opine on” such state regulation. As a result, AHPs will not deliver the self-insurance benefits available in traditional large-group plans.

Uncertainty. There is always the potential for adverse changes in the regulatory environment that would affect AHP offerings.

While these limitations and risks may be daunting to some associations, which may find AHPs not worth pursuing. Others will follow the lead of the National Restaurant Association and willingly expend “two years of effort” and “significant internal resources … working with outside experts and the insurance carrier” to implement such a plan for their members.

In the end, for many member-driven associations, the opportunity to offer small businesses more affordable coverage and, as a result, the ability to compete for talent on a level playing field will be too valuable to pass up.