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Achieving Universal Coverage



In the Wake of New Association Health Plan Standards, States Are Exercising Authority to Protect Consumers, Providers, and Markets

Employer of small business who may be part of association health plan

This summer, federal officials issued regulations designed to encourage the expansion of coverage options that are exempt from key provisions of the Affordable Care Act (ACA). One of those rules makes it easier to form association health plans (AHPs) and offer this less regulated coverage to small businesses and sole proprietors. Though a legal challenge to the new rule is ongoing, some types of AHPs were allowed to take advantage of the weaker standards beginning September 1, while all such entities will be able to do so by April 2019.

Regulating AHPs to Reduce the Risk of Fraud, Insolvency, and Market Segmentation

The new rule preserves an existing but narrow pathway that AHPs may use to form and bypass certain ACA protections, while opening a second, easier-to-follow path to the same outcome (the “new pathway”).1 This new policy lowers federal standards for the formation and regulation of AHPs, while reaffirming that states have “broad authority” over these plans.

So far, nearly half of states have acted in response to the new federal standards, and more are likely to follow. Our review of 14 of these states suggests regulation of AHPs formed under the new federal framework will vary significantly across the country (see table).2 A state’s approach is likely to be informed by the condition of its individual and small-group markets and laws that predate the ACA, many of which arose out of scandals associated with AHP fraud and insolvency. All of the states we studied are allowing AHPs to form under the new pathway. While some have required only that these plans satisfy the federal minimum standards, most are putting in place additional requirements, generally applicable to both in-state and national AHPs, designed to protect consumers, providers, and health insurance markets.

Preventing Fraud and Insolvencies

Most study states are requiring compliance with at least some additional standards designed to reduce the risk of coverage scams and ensure that AHPs have the financial resources to pay claims. For example, six states consider self-funded AHPs to be engaged in the business of insurance and require that they satisfy the same licensure standards as commercial insurers. (Other states obligate AHPs to meet separate, AHP-specific standards, including solvency requirements, though these are typically less rigorous than the rules applicable to commercial insurers.)

Maintaining a Level Playing Field

One important effect of the new rule is that it’s easier for associations to sell “large group coverage” to individuals and small employers — entities that aren’t large groups. This means an AHP that wants to market to certain individuals and small employers can do so while remaining outside the individual and small-group risk pools. As a result, the AHP can avoid many of the ACA consumer protections that otherwise apply to coverage purchased by individuals and small businesses, such as coverage of essential health benefits. These regulatory advantages allow AHPs to undercut the price of “regular” individual and small-group coverage and create a risk that healthier self-employed individuals and small employers will leave the ACA-compliant individual and small-group markets, raising premiums for those who remain.

To address this danger, roughly one-third of states in the study group are applying rules that maintain a level regulatory playing field for association and nonassociation coverage. These states are continuing a policy of “looking through” the association, to regulate the coverage based on the size of the underlying entity that actually receives it. For example, in Pennsylvania, coverage sold through an association to a self-employed individual or small business doesn’t qualify as large-group coverage: those health plans are part of the individual (in the case of the self-employed person) or small-group (in the case of the small business) markets and are subject to the same ACA standards as any other individual or small-group policy.

Looking Forward

Although the new rule lowers federal standards for AHPs, states are expected to regulate these arrangements to meet state needs and serve on the frontlines to combat AHP fraud and insolvency. Some states are embracing the new federal approach, while others are acting to limit the growth of AHPs. As we have noted previously, 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.


1 Our analysis is limited to state rules governing “new pathway” AHPs, but AHPs may continue to form under the previously existing federal framework. If the more rigorous standards of these old rules are met, an AHP may be permitted to discriminate on the basis of health status when setting premiums, depending on state regulation.

2 During the period April 1, 2018, through November 15, 2018, nearly half of states have enacted legislation, issued a regulation, or released subregulatory guidance addressing association health plan flexibility under the new pathway. Our analysis focuses on a subset consisting of 14 states: Alabama, California, Connecticut, Illinois, Indiana, Iowa, Kansas, Louisiana, Maryland, Michigan, New York, Pennsylvania, Vermont, and Washington. We chose these states because they are diverse geographically and politically, and because they have had diverse insurer participation levels and experiences in their individual and small-group markets.

Publication Details



Kevin Lucia et al., "In the Wake of New Association Health Plan Standards, States Are Exercising Authority to Protect Consumers, Providers, and Markets," To the Point (blog), Commonwealth Fund, Nov. 27, 2018.