New rules that began going into effect last month allow sole proprietors and other business owners without employees to form what are known as association health plans, or AHPs. But while the Trump administration has touted the rules as a breakthrough, many owners will be disappointed to learn their states' insurance laws will limit their ability to join the plans.
The rules issued by the Labor Department allow sole proprietors and partners to buy coverage that wasn't available to them under the Affordable Care Act. The rules also permit the plans to offer insurance that doesn't meet the health law's requirements for basic coverage.
The catch for many businesses is the rules, unlike many other federal laws and regulations, don't supersede state requirements for health insurance, and states that heavily regulate insurance are expected to make it harder, if not impossible, for association health plans to be formed.
Moreover, there are concerns that new association health plans could revive a problem from the past -- plans that become insolvent or are scams.
As owners research their options for 2019 health insurance, here's what they should know about AHPs:
Why They're Appealing
Association health plans have been around for decades; they've been legal if their members were in the same industry or profession, or in the same state. But under the Affordable Care Act, owners without employees had to buy individual coverage from a major carrier or from state exchanges.
The Nebraska Farm Bureau announced its AHP soon after the new rules began taking effect. The bureau had been working on a plan for farmers, ranchers and agribusiness owners, but "the rules made it easier for sole proprietors to be involved," says Rob Robertson, the bureau's chief administrator.
The Society of Collision Repair Specialists, which represents over 6,000 vehicle repair shops across the country, is developing an association health plan and hopes to be able to offer coverage during the first quarter of 2019, executive director Aaron Schulenburg says. Nearly three-quarters of the group's members have said they're interested, Schulenburg says.
The organization is using a benefits consultant to find the best carrier for its plan, Schulenberg says.
"We found examples of average savings in some of the already established networks reaching close to 20 percent," he says.
Still, many owners know little about the plans. A survey of 1,000 owners by Bank of America found that 30 percent aren't familiar with them. The survey, taken between late August and early October, also found 35 percent were interested in offering coverage through an association health plan, and 35 percent weren't.
Concerns and Obstacles
While many states have welcomed the new rules, 11 others and Washington, D.C., are suing the Trump administration, charging the rules allow insurance to be sold that offers less coverage and consumer protections than are required by law. Under the rules, association health plans are considered to be large group employers, and the Affordable Care Act doesn't require large groups to provide minimum essential, or basic, coverage. Among the benefits the ACA requires: prescription, pregnancy and wellness coverage.
That may not worry some owners. Melissa Perlman hasn't been able to afford insurance for her staffers since starting her public relations company, BlueIvy Communications, in 2011. She's interested in the potential association health plan being considered by the Greater Delray Beach Chamber of Commerce. Perlman is aware coverage might not be as comprehensive as on the open market. But, she says, "whatever is offered would be an improvement from offering nothing."
But the Labor Department rules have also raised concerns that some new association health plans might not be financially sound; if they became insolvent, as some mismanaged plans did in the past, policyholders could be stuck with medical bills.
There are also fears that some new plans could be scams, repeating some unpleasant history. In 2004, the U.S. Government Accountability Office reported that there were 144 plans that weren't authorized to sell health insurance between 2000 and 2002; these scams covered 15,000 employers and more than 200,000 policyholders and left over $250 million in unpaid medical claims.
Those scams are a key reason why Congress gave states broad powers to regulate association health plans, says Kevin Lucia, a professor at Georgetown University's Health Policy Institute. He noted that some states require association health plans to be in existence for two years before they can sell insurance, and some AHPs are required to be licensed as insurers. California recently enacted a law that prohibits sole proprietors and partners from participating in the plans.
Advice and Caveats
Owners interested in association health plans should do plenty of research, starting with the laws of their states.
"It could be a nonstarter depending on what state you're in," says James Schutzer, a vice president at insurance broker JDM Benefits in White Plains, New York. Like other brokers, Schutzer received a reminder in July from the state Department of Financial Services that New York law "strictly limits the associations or groups of employers that may sponsor a health insurance plan."
Even states that don't currently have laws restricting association health plans could enact them, says Karen Pollitz, a senior fellow at the Kaiser Family Foundation.
"They could pass rules saying you can't form an AHP just for the purpose of selling insurance," something that the rules permit, Pollitz says.
The pending lawsuit is a red flag to employment attorney Lorie Maring, who notes that a successful challenge to the rules could put new association health plans in jeopardy.
"I wouldn't recommend that anyone do anything until we have a better idea of where the litigation is headed," says Maring, who practices with Fisher Phillips in Atlanta.
Conversations with reputable and knowledgeable professionals are a good start when doing research. For example, consult a human resources or benefits provider or a health insurance broker who can discuss the pros and cons of all the insurance options. A well-known trade or business group is also likely to have done due diligence before offering a plan.
But if an owner hears someone touting a plan that's ready to provide low-cost insurance right now, and the plan sponsors aren't well-known, caution may be in order.
"These are not quick-fix, short turnaround deals. They won't be ready until mid-2019 or even Jan. 1, 2020 when you're doing it right," says Michael Haffey, co-owner of Next Gen Ben, a benefit consultancy based in Indianapolis.
--The Associated Press.