In an effort to provide more options in the insurance marketplace, the Trump Administration is making it easier for small businesses to form association health plans. These plans allow multiple small employers to band together to provide health insurance for their employees. By purchasing or providing insurance through an association, small businesses can take advantage of the leverage and economies of scale usually reserved for larger groups.
Acting as a large group also allows small businesses to skirt some costly Affordable Care Act regulations. Some association health plans will be able to avoid the benefit mandates and rating restrictions that otherwise apply to companies with 50 or fewer employees. This will likely lead to more options for inexpensive plans that may not cover mental health care, emergency services, maternity and newborn care, or prescription drugs.
This possible influx of paired down plans has led some state officials and consumer interest groups to lobby against association health plans. Their argument is that adding cheap, skimpy plans will draw healthy people away from the Affordable Care Act marketplace, driving up prices for people who need comprehensive plans. President Trump has countered that the plans will make insurance affordable and attractive again for more than 400,000 Americans who are currently uninsured.
In the face of this debate, the U.S. Department of Labor moved forward with a new rule in June that makes it easier for groups to form association health plans. The new rule modifies the definition of "employer" under the Employee Retirement Income Security Act (ERISA) and allows more entities to sponsor group health coverage. Under the new rule, employers across the country can form an association health plan so long as they share a "commonality of interest." A group can show a commonality of interest on the basis of either geography or industry. The rule also allows sole proprietors to join a plan and receive coverage for themselves, their spouses, and their children.
This new rule is part of a broader movement by the Trump administration to file down the teeth of the Affordable Care Act and relinquish healthcare regulation to the states. After failing to repeal the Act in its entirety, Republicans at the federal level have been slowly chipping away at it and encouraging Republican states to do the same. Democratic-led states, on the other hand, are battling to maintain many of the Affordable Care Act's mandates. This has led to a new landscape with even wider state regulatory disparities than before 2010.
The U.S. Department of Labor has stated the new rule will not diminish state oversight, but states will still have to share enforcement authority with the federal government. The applicability of state laws on association health plans will depend on whether the plan is self-insured or fully insured, and on the laws of the particular state. This complex regulatory scheme could create a slow start for new plans, as some groups will likely take a wait-and-see approach for state responses.
One state, California, has already weighed in on the issue. California banned the formation of most association health plans in 1995. California lawmakers are now promising to double down on that decision and put in place measures that will make it harder for new plans to bypass state regulations. Other states, such as Minnesota and Washington, have signaled that they will implement consumer protection and financial stability standards. Some Republican-led states, including Iowa and New Mexico, have also signaled a reluctance to allow association health plans to operate unchecked.
Some of the concern surrounding association health plans stems from their beginnings in the 1970s, when scam artists took advantage of loopholes in the laws to defraud small businesses. This scandal led to multiple association health plan bankruptcies and millions of dollars in unpaid medical bills. The loopholes have since been closed, but many state leaders remember the debacle and worry that it will return again.
Employers interested in joining an association health plan will have to tread carefully. Federally, it is easier than ever to create a plan, but small businesses still have to navigate the murky waters of state regulations. Many small employers will likely take a wait-and-see approach. Others will jump in head-first looking to take advantage of cost saving opportunities. As these new plans emerge, so too will legal challenges from states and employers alike looking to test regulatory boundaries. If the employers implementing these new plans can successfully navigate these waters and come out on the other side, they will likely find reduced costs and more flexibility in their insurance options.
Ethan Moore is summer associate in the health law section of Waller. He is a rising third year law student at the University of Alabama with a focus on health law.
