Are Association Health Plans an Appealing Option for Small Businesses?

On June 21, the Employee Benefits Security Administration published the final regulation around Association Health Plans (AHPs) which allows small business and certain self-employed individuals to band together and expand their access to affordable health coverage for their employees. Earlier this year, when the U.S. Department of Labor initially announced their proposal to expand access to healthcare through small business health plans, they reported that up to 11 million Americans working for small businesses/sole proprietors and their families lack employer-sponsored insurance. These 11 million Americans could find coverage under this proposal whose employers struggle to offer insurance because it is currently too expensive and cumbersome. These employees – and their families – would have an additional alternative through Small Business Health Plans (Association Health Plans) to help close the uninsured gap without eliminating options available in the healthcare marketplace.

Relief from Rising Premium Costs

As premiums have continued to drastically increase over the years, this may come as a sigh of relief for small businesses. The National Restaurant Association, an organization who is meeting this regulation with open arms, reports that on average, a single employee premium in 2017 was $6,690 according to the Kaiser Family Foundation. That cost is up 133% since 2002, which is significantly higher than core inflation and wage increases. Due to these high costs, small businesses offering insurance dropped from 63% in 2006 to 56% in 2016. AHPs are expected to have access to more affordable plans in the wake of rising premiums, which should increase the number of employers who offer health insurance to their employees.

The regulation is expected to level out the playing field for small business by allowing their employees to have access to similar benefits coverage as large employers. By banding together, AHPs will have more leverage and negotiation power to obtain more favorable deals and therefore be able to offer more affordable insurance coverage options to their employees. Employers may also be able to reduce administrative costs through economies of scale, resulting in additional savings.

Fewer Restrictions in Certain Areas

The power of this regulation lies in the ability for employers to band together on the basis of industry or geography as long as they pass the “commonality of interest” test. An association can pass this test if the members are either:

  • In the same trade, industry or profession throughout the United States.
  • In the same principal place of business within the same state or a common metropolitan area, even if the metro area extends across state lines.

AHPs will also be allowed to bypass certain Affordable Care Act (ACA) provision. In their summary of this regulation, the law firm Kilpatrick Townsend reports: “This new rule will allow unrelated small employers and the self-employed to band together for the purpose of purchasing health coverage that is exempt from many of the requirements imposed by the Affordable Care Act (ACA) in the individual and small group market as well as from the ACA rules that apply through the employer mandate to large employer plans.”

Although less ACA restrictions are a win for small employers, Kim Buckey, Vice President of Client Services at DirectPath, an employee engagement and health care compliance firm, points out the other side of the coin regarding the quality of these health benefits plans that don’t have to abide by ACA standards. She states: “These plans may provide limited benefits—for example, not covering maternity care or mental health care. Depending on the employer, there might not be a lot of interest in coverage if the plan offered doesn’t meet the needs of their employees.” To support this claim, Bucky pointed out a study by staffing firm Randstad which found that 42 percent of employees are considering leaving their current jobs because their benefits packages are inadequate.

Although AHPs are being received with arms wide open on one side of the spectrum, the other side has met it with disdain. Attorneys general from 11 states and the District of Columbia, for example, are suing the Trump Administration over AHPs claiming they will dampen consumer protections enacted under the ACA, among other claims. For now, it is without a doubt that AHPs will face a bumpy start as they sift and maneuver through this newly enacted regulation.


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