A court on Thursday slapped down a Trump administration health insurance provision that would have allowed small businesses greater ease to band together and purchase health insurance through associations.

It might also sound like a slap across the face of all the small businesses that were supposed to benefit. However, the touted payoffs probably weren't anywhere near as large as advertised and the biggest potential one was already in hand.

The legal wrangle

The administration's move in theory was a way to appeal to business owners, who--as all of us who fall under the label know--end up paying through the nose for health insurance. The idea, on its face, was to let small business owners band together under associations so they could more easily buy insurance together and, hopefully, save money. According to the administration's 2019 economic report, the combination of these plans as well as "short-term, limited-duration health plans" was supposed to create $249 billion in "value" over the next ten years, whatever that is supposed to mean.

But much of the money was going to be saved by avoiding requirements of the Affordable Care Act, otherwise known as Obamacare. In fact, the move was another attempt to undermine the ACA, as the judge said directly, and also did "violence" to the Employee Retirement Income Security Act of 1974, which is what made possible employer-sponsored healthcare insurance.

Realities of coverage

Few in business that I know like the way health insurance works. But to go for cheap plans that undercut coverage by getting out from under requirements can kill your business faster than anything. You save money on the front side--until something goes wrong. And then you find limited coverage and high deductibles that can leave you racing to bring in cash to cover an emergency.

Maybe you're in good health and will never have an accident or unexpected illness, keeping more money in your pocket. It could also be true that someone will give you the winning numbers for a major lottery, removing your need to worry about covering costs for the rest of your life. That's not smart business planning or risk management. Unless you've modeled the possibility of something going wrong, all the accumulated costs that would happen if you didn't have adequate insurance, and the percentage that it could happen, you're just crossing your fingers and hoping.

Separately, let's talk about association health plans. I used to belong to one. The savings were...moderate. Companies weren't really pulled together as one entity. The insurance was aggravating, causing me to fight for coverage, even on such things as getting a normal office visit paid for because the insurer repeated kept losing an update of my family's primary physician, even after multiple attempts. (It finally worked.)

Then there's the fake enticement that I found in such plans. You think, "I'm getting insurance through a bigger organization and so should have better rates." But that requires having the insurance company treat everyone as part of a single pool, although, instead of 10 businesses with 8 employees each, there was one with 80.

Going for single bigger pools, assuming a normal distribution of health across the participants, can lower your rates. But that advantage was already available through the ACA, which requires that insurers use single pools when setting prices. If people in better health aren't required to buy insurance, as with the end of the individual mandate, then the costs are distributed across the smaller group of less healthy people, who end up paying more.

To put it differently, you and I already had the potential biggest advantage of association insurance: a larger risk pool. The additional savings would probably be cutting back on the value you could get from insurance. Not necessarily a smart trade-off in my experience.

Published on: Mar 29, 2019
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