Association Health Plans Would Be Another Hit to Struggling Insurers

A proposed rule allowing more AHPs could further strain the market for health insurers still participating in the exchanges. The regional plans could siphon off the healthier patients.

The Labor Department's proposal to increase consumer access to association health plans could further undermine the already crumbling health insurance marketplace under the Affordable Care Act.

Consumers may be drawn to lower premiums in AHPs even if they actually aren't getting much for their money, leaving only the sickest and costliest people to be insured on the ACA exchanges, says Gerald F. Kominski, PhD, a professor of health policy and management and director of the University of California, Los Angeles Center for Health Policy Research in the Fielding School of Public Health.

"This will have a big potential impact and it's a negative impact. Insurers participating in the marketplace are not going to be happy about this," Kominski says. "This undermines the marketplace because in this association health plan marketplace you don't have to comply with all the ACA regulations, specifically, the essential health benefits."

Related: Labor Department Wants to Expand Association Health Plans

If the proposal is adopted, self-employed people and small businesses will be able to form groups across state lines and qualify for group health plans.

Up to 11 million employees of small businesses and sole proprietors who lack employer-sponsored insurance could find coverage under this proposed change to the Employee Retirement Income Security Act (ERISA), the Labor Department says.

What the rule would allow

The two primary changes in the rule would allow AHPs to be offered to membership without regard to state lines, and also allow self-employed individuals to take part in a large-group plan. 

Kominski says the AHPs would exacerbate the existing problem of consumers and policymakers focusing almost exclusively on premiums rather than balancing them against what is offered in the policy.

With AHPs not required to provide the same coverage as ACA plans, they are free to reduce premiums to whatever gets people to sign up, he says. They will reduce benefits accordingly, but people do not focus on that aspect until it is too late, he says.

"They're allowed to go back to the pre-ACA market in which they ask how you want to pay for the policy, and they'll give you a plan for that price. It may not cover much, but it will appeal to those who don't expect to need a lot of healthcare services in the coming year," Kominski says. "That will siphon off those individuals into association health plans and leave people with greater health risks and preexisting conditions in the exchange."

Opposition to AHPs

That adverse selection is a key reason insurers oppose the proposed change. Insurance trade group America's Health Insurance Plans released a statement saying it was "concerned that the changes proposed would lead to higher prices and weaker consumer protections in the small group and individual markets, where nearly 40 million Americans get their coverage."

The proposed rule is an intentional effort to destabilize the health insurance market, Kominski says.

"It is apparent that this is the [Trump] administration's strategy, and Congress is willing to go along with it," he says. "Congress isn't even needed to go along with it, because this is being done through the administrative law process rather than creating new legislation."

Newly formed AHPs could bring in enough new people that insurers will have to scramble to make sure they have enough network coverage, says Bruce Carver, associate vice president of payer services at MedeAnalytics, which provides data analytics to the industry.

"As member coverage crosses state lines, regional health plans will need to consider if they have appropriate network coverage to meet access requirements. This may also increase competition in some markets that have few options," Carver says. "This may also have the potential to drive down costs."

Carver also questions how much the cherry-picking of healthier individuals will affect the market.  Any merging of individuals into a larger group for insurance coverage should serve the purpose of spreading risk, he says.

"Any time you increase the number of people covered in a plan, you have the capability to diversify risk. The concept of pooling members in a region for covered benefits that improve by putting small groups together into a single larger group is not new," he says. "Some states allow for this type of pooling under group rating programs for disability and workers' compensation benefits."

He agrees, however, that allowing the plans to not cover essential benefits could be a setback to efforts at improving transparency and consumerism, Carvery says.

"This may cause a lot of confusion with members when they are treated by providers and any limitations in coverage will need to be clearly communicated between members and providers, in an already confusing market," Carver says. "Members will need to consider if the plan benefits them based upon preexisting conditions."

Families USA, a consumer healthcare advocacy group, goes so far as to say that the rule change would make it easier for insurers to sell "junk insurance." Senior Fellow Stan Dorn says in a recent blog post that the change "lets insurance companies sell junk plans to millions of Americans currently receiving comprehensive insurance in individual and small-group markets. The proposed rule lets AHPs sell coverage that is exempt from most state oversight and many of the ACA's most important consumer protections."

Dorn points out that the premiums for an AHP will be determined by the health of only a relatively small number of people.

"If an AHP's enrollees are unusually healthy, that AHP's premiums are low," he writes. "By contrast, the ACA carefully structures individual and small-group markets so premiums reflect the average risk level of the entire market, rather than the cost of enrollees in a particular plan. This helps keep premiums more reasonable for everyone."

The move was endorsed by the American Trucking Associations (ATA), a 50-state federation of associations representing the trucking industry. The group called the proposed rule change "a step in the right direction for improving access to affordable, quality healthcare." The trucking industry is primarily comprised of small-businesses, the ATA notes, with more than 90% of registered motor carriers operating fewer than six trucks. That means it is uniquely positioned to benefit from the establishment of AHP, the group says.