Meaningful Health Care Reform Without Congressional Action - Association Health Plans

Jan 10, 2018

Congress has been unable to pass meaningful health care reform in the current legislative session. Recently, the Labor Department in the Trump Administration unilaterally expanded the use of association health plans (AHP). (here)  More small business employers and individuals can now access health insurance is the same way large employers and their employees do.

For years, employers have joined together to provide employee benefits. The reason is that multiple employers can form one large group and thereby receive cheaper costs for employee health benefits with less administrative overhead. (here)

Some of the initial AHPs were undercapitalized and were forced to close. This left employees without benefits. Because of fraud and abuse, Congress amended ERISA in 1982 and gave states some ability to regulate AHPs. ERISA was again amended in 1996 and gave the Department of Labor oversight authority of essentially all AHPs.

The Washington state legislature legalized AHPs in 1995. Although AHPs have been very popular in Washington state and have provided reasonably-priced health insurance to hundreds of thousands of people, the current state Insurance Commissioner has never been a fan. Commissioner Kreidler believes AHPs “cherry pick” only healthy people and exclude sicker individuals. In 2007, he imposed stricter rating requirements which eliminated health underwriting for AHPs. In effect, Commissioner Kreidler’s regulatory action repealed the state’s 1995 AHP law, since the regulation made the majority of such plans unavailable in the state. Employers using AHP plans sued that same year and the court ruled in favor of allowing AHPs to continue.

A few years later, the federal ACA imposed a new rating requirement called “community rating” for all health insurance plans sold in the United States. Except in very specific cases, this requirement means insurance companies cannot price insurance policies based on true risk, by charging more for sick individuals than for healthy people and they cannot account for higher health cost based on age by charging a significant difference for older people.

Republicans in Congress proposed an amendment to the ACA to make it clear that existing AHP plans in the states were allowed under federal law. However, the amendment was defeated in the Democratically-controlled House of Representatives and was not included in the final bill.

Commissioner Kreidler, using the community rating requirement in the ACA, renewed his effort to restrict or eliminate AHPs in Washington state. There were over 60 AHPs serving 500,000 members in our state when the ACA passed in 2010. The Commissioner has established a two part test. First, he says associations must have been formed for purposes other than buying health insurance and second, he says associations must abide by the community rating in the federal ACA.

In defense against the new regulations, multiple AHP plans filed lawsuits against the Insurance Commissioner. The basis of these lawsuits was that the ACA does not supersede the 1974 federal ERISA law which outlines rating methodology. In 2015, the Court agreed and ruled in favor of the plans. For the second time, Commissioner Kreidler’s efforts to restrict or end AHPs in Washington state had failed.

Association health plans offer a real solution for small business owners who want to provide employee health benefits without the massive regulatory burden associated with Obamacare. AHPs are based on voluntary associations, and they have a track record of offering quality health insurance at a reasonable price.

If structured properly, the AHP market can be competitive and can allow small employers and individuals access to the same health insurance price and benefit advantages that large employers enjoy. The key is the voluntary choices made by small employers and their employees in seeking affordable health coverage. The recent administrative expansion of AHPs will give people more health insurance choices at a lower cost.