In June, the U.S. Department of Labor issued a final regulation that implements President Trump’s executive order encouraging the expansion of association health plans (AHPs) for small businesses and self-employed individuals. Under these rules, professional or trade associations will be permitted to sell health plans that are exempt from many Affordable Care Act (ACA) protections as early as September 1, 2018. However, 12 attorneys general have now sued to enjoin the rule, noting that AHPs have a long history of fraud and insolvency, and in some places have undermined states’ individual and small-group markets. While this litigation works its way through the federal courts, state insurance departments can’t ignore the daunting and complex task of determining how they will regulate these entities in a way that is best for small employers, the self-employed, and health insurance markets.
Federal Government Affirms States’ Broad Authority to Regulate
Under the new Trump administration framework, an association that meets certain federal standards may offer a health plan that is exempt from key ACA individual and small-group market consumer protections. These plans may, for example, exclude essential health benefits or charge a higher premium based on a person’s gender or occupation. Once established, associations may market coverage locally or nationally, provided they are made up of members of a shared industry or profession.
Key Elements of Final AHP Regulation
Under the U.S. Department of Labor’s final regulation on AHPs, associations (such as professional and trade organizations) would be allowed to:
- Form an association for the sole purpose of offering health insurance, although it must have at least one substantial business purpose unrelated to providing benefits;
- Form an association without a common interest other than a shared industry (i.e., a national association of carpenters) or a shared location (i.e., a multiemployer local chamber of commerce);
- Offer health insurance that qualifies as “large-group” coverage to all of its employer members regardless of their size and including self-employed and sole proprietors (referred to as “working owners”);
- Offer health insurance that does not have to comply with many of the Affordable Care Act’s consumer protections (such as essential health benefits and rating protections); and
- Charge higher rates based on factors such as age and gender so long as the association does not use the health status of member groups to determine eligibility, premiums, or benefits.
Although the new rule loosens federal minimum standards for AHPs, the final rule confirms that states “retain broad authority” over these plans, regardless of whether they are marketed by an in-state or out-of-state association. This includes the ability to regulate financial solvency and set marketing and insurance standards, including rating rules and mandates to cover benefits.
State Approaches to Regulation Vary
State insurance regulators are still assessing the final rule, reviewing their own laws related to AHPs, and determining their regulatory approach. Our interviews with staff from six state departments of insurance suggest that their regulation of AHPs will vary because of differences in existing laws, oversight practices, political will, and administrative capacity to conduct oversight activities.1 For example, state legal approaches diverge widely depending on whether an AHP is fully insured or self-funded and whether the arrangement is located within the state (in-state AHP) or in another state (national AHP).
Key Terms Related to AHP Regulation
Association Health Plan (AHP): Health insurance plan sponsored by an employer-based association, such as a professional or trade group. New federal rules allow AHPs, a type of Multiple Employer Welfare Arrangement (MEWA), to be sold to employers of all sizes, including sole proprietors and the self-employed. The rule generally treats the AHP as a large-group plan for the purpose of federal law, rendering it exempt from ACA consumer protections that otherwise apply to individual and small-employer health insurance.
Fully Insured AHP: The association purchases an insurance policy from an insurance company.
Self-Insured AHP: The association establishes its own insurance policy and bears the risk of paying the medical claims of the people it covers.
In-State AHP: Coverage sold through an association located in the same state as the employer or individual purchaser.
National AHP: Coverage sold through an association established outside the residency state of the small employer or individual purchaser (also called a multistate or national association, or out-of-state trust).
Many state AHP laws predate the ACA and arose out of scandals associated with AHP fraud and insolvency. Some such laws will inherently limit the expansion of the Department of Labor–approved AHPs. For example, Pennsylvania and Utah laws prohibit self-funded AHPs; both states further require the sponsoring association to exist for a number of years (two in Pennsylvania; five in Utah), be formed for purposes other than selling health insurance, and purchase insurance from an insurer licensed in the state. Recently Pennsylvania regulators reiterated that policies offered to sole proprietors or small employers through an AHP will have to meet the ACA’s critical consumer protections that otherwise apply to the individual and small-group markets, such as coverage of essential health benefits. Officials in Massachusetts do not expect many AHPs to form in that state because of a law requiring them to comply with the rules governing insurance sold to individuals and small employers. However, the complaint filed by the 12 attorneys general, including the Massachusetts attorney general, notes that even states with protective insurance laws will “be required to undertake additional burdens” to prevent fraudulent or noncompliant AHPs from placing consumers, or their markets, at risk.
Other states, such as North Dakota and Nebraska, appear likely to see the formation of more AHPs that are exempt from certain ACA rules. For example, officials in North Dakota suggested that state law would continue to permit in-state and national AHPs to offer plans that are exempt from some of their standards for coverage in the individual and small-group markets. Officials in Nebraska, which currently requires self-funded AHPs to meet certain state requirements, welcomed the possibility of an expansion of AHPs under the final regulation, noting that many self-employed residents are eager for plans with lower premiums.
All states must determine how to ensure they are aware of AHPs operating in their jurisdiction and whether these arrangements meet federal and state standards. Even those states that require out-of-state AHPs to register or to file plan contracts with the insurance department note that they may not be told when an AHP is marketing to their residents. “We don’t know what we don’t know,” said one regulator.
Looking Forward
If the courts allow the administration’s new AHP policy to stand, its impact will vary, largely depending on each state’s existing law and overall stance regarding the benefits and risks of these arrangements. In some cases, the state’s ability to regulate these arrangements will require legislative action. Past expansions of AHPs have resulted in spikes in scams and insolvencies, as well as higher premiums and fewer plan choices in the individual and small-group markets. States that choose not to proactively regulate AHPs could find that history repeating itself.
