President Trump rescues small businesses from the “Obamacare Nightmare” – Or does he?

Regardless of how you feel about President Trump or how you align yourself politically, this week the Department of Labor (DOL), led by Secretary Alex Acosta, announced the expansion of Association Health Plans (AHPs).

So, what does that mean?  The answer is more complicated than the question, as it often is.

AHPs are not a new thing, they’ve been around for decades and there are in-force AHPs today.  With the passage of the Employee Retirement Income Security Act (ERISA) in 1974, Congress set forth rules to define the conduct of Multiple Employer Welfare Arrangements (MEWAs) under which AHPs fell.

Early AHPs were often undercapitalized, riddled with fraud and many filed for bankruptcy.  In 1982 Congress amended ERISA giving states some ability to regulate MEWAs and amended it again in 1996 giving the Department of Labor oversight authority for all MEWAs.

On Tuesday, June 19th, prior to the President’s announcement, I participated in a pre-release call with the administration’s advisory team, the Department of Labor and others during which time they outlined the new Rule and its benefits.

Under the new rule, AHPs have new options.  The Final Rule provides for:

  • A new pathway
    • Previously, AHPs could be formed along industry lines. In addition to industry AHPs, an AHP can now also form based on a geographic test such as a common state, city, county, or a metropolitan area across state lines.
  • Micro-businesses can now participate
    • Working owners without employees, including sole proprietors, can join AHPs. Today, associations like Farm Bureaus and Growers Associations consist of large commercial farms but a majority are often family farms made up of a husband and wife team which previously did not qualify as an employer.

The Rule by the numbers:

According to the administration and the Congressional Budget Office:

  • Fifteen million Americans who work for a small business or operate a sole proprietorship, and their families, lack health coverage
  • Four million Americans, including 400,000 who otherwise would lack insurance, will join an AHP by 2023

Important dates for AHP expansion under the Final Rule:

  • All associations (new or existing) may establish a fully-insured AHP on September 1, 2018
  • Existing associations that sponsored an AHP on or before the date the Final Rule was published may establish a self-funded AHP on January 1, 2019
  • All other associations (new or existing) may establish a self-funded AHP on April 1, 2019

Since the announcement, 198 pages of detail have been released and brokers, carriers, and other industry experts have had a chance to contemplate what it all means.  Here’s my take on the new rule:

  1. It is a much-needed solution for the smallest of small businesses in the U.S.
    • According to U.S. Census data from 2015, there are ~3.6mm firms who employ 1-4 employees totaling ~5.9mm individuals.
  2. During the call and in the subsequent filings and commentary, it was made clear that the individual state’s Department of Insurance will retain oversight.
    • This creates the possibility and, in my opinion, the likelihood of partisan state-based rulings and litigation that will make the creation of a nationally available AHP for large associations difficult.
  3. Having the rule is one thing, having a product to support the rule is another thing.
    • After speaking with several insurers, the response is mixed.
      • Even within a single insurer, I received wildly different responses ranging from, “It’s too risky, we’re not going to engage just yet” to, “We are willing to expand the products we already have in place for existing AHPs in states where they operate.”
  4. Of the brokers I’ve surveyed, they were all very interested in exploring the possibility of a new solution.
  5. Lastly, and most importantly, of the associations I surveyed, they were, not surprisingly, all anxious to get started.

The demand is certainly there, and the rule is now in place but from my perspective, this is only the first in a long list of things that have to be in place for the promise of AHPs delivering lower healthcare options for the members to be realized.  What’s next you ask?

First, because AHPs that aren’t already operating a self-funded plan have to use fully-insured products, insurers will need to produce one or more offerings that are compatible with the new rules.

Next, associations will need to drive their members into these new products.  Underwriters of stop-loss policies for self-funded plans need experience data to assess risk and without a consolidated set of data, that is a hard thing to accomplish.  What does that mean?  What it means is that for the next one to three years, associations will likely need to pay equivalent premiums but do so as a group, so they can develop the necessary data to then negotiate for lower cost options.

Within those two steps are a number of other smaller things that need to be in place as well but for the sake of space and readability, I am trying to be as brief as possible.  From my perspective, this is a good thing.  It will take time to fully develop but the much-needed step of making it regulatorily possible for AHPs to form more easily is now in place.

As always, if you have any thoughts or comments or contradictions, please let me know!