Association Based Health Insurance – A Cure For Small Group?

Under the Affordable Care Act (ACA), employers that do not meet the 50 or more full-time or full-time equivalent employee threshold to be Applicable Large Employers (ALEs), are not required to offer health coverage. Nor do they face penalties. Not surprisingly, as a result, smaller businesses often do not offer coverage.

New regulations proposed by the U.S. Department of Labor (DOL) want to change that dynamic. And in a thriving economy, where unemployment means retention is key, health insurance is a key driver in employee acquisition and retention.

Up to 11 million Americans working for small businesses or who are sole proprietors and their families lack employer-sponsored insurance. The DOL hopes new rules on HOW healthcare plans are purchased will close the gap of uninsured Americans; without eliminating options available in the healthcare marketplace.

New Rules

The proposed regulations will allow small business health plans—known as Association Health Plans (AHP)—to expand under The Employee Retirement Income Security Act of 1974 (ERISA). This may allow the self-employed and other small businesses to band together to form their own associations for the purposes of providing healthcare coverage.

AHPs would be required to accept all applicants and could not deny individuals with pre-existing conditions or charge more for people who are sick. However, they could reduce prescription drug coverage and increase coverage in other categories to compensate for the reduction, the effect of which would be to increase costs for chronic care patients.

The employer members of these plans would need to be in the same trade, industry, line of business, profession, or to have their principal place of business in the same state, or, if in multiple states, in the same metropolitan area.

Under the current regulations, an AHP is considered a single plan only if the association has a purpose or function unrelated to offering healthcare benefits and the employer members have a common economic interest. So, few options exist and all have to comply with the ACA’s “essential benefit rules”.

The end result of these new rules, or so the thinking goes, is that this will make premiums more affordable. The trade-off is that these health insurance plans would be less extensive then what is usually required by health insurance plans offered by the current marketplace. Lots of review and legislation await the proposed offering of new association plans. However, they offer a glimmer of home to the problem of rising health insurance costs.