By Mark Tosczak
Earlier this month, the Trump administration proposed new rules that could make it easier for businesses to band together to provide health insurance to their employees.
These “association health plans” could provide some North Carolina small businesses a more affordable choice for group health insurance, employee benefits consultants say — a prospect that has business organizations taking a hard look at the plans.
“We’re interested in anything that businesses of all sizes can do to get some predictability” in health costs, said Gary Salamido, vice president of government affairs at the N.C. Chamber of Commerce. Health care costs are usually the No. 1 or No. 2 issue the chamber hears about from members, Salamido said. (The other is workforce skills availability.)
As the Trump administration takes comments on a proposed revision to federal rules governing such plans, questions remain about the exact meaning of parts of the proposed rule and how states might be able to regulate these new plans, which would rollback certain Affordable Care Act regulations.
Strength in numbers
On Jan. 5, the Trump administration proposed the draft regulations to change federal government Employee Retirement Income Security Act (ERISA) rules, which govern employer health plans. The draft regulations follow an executive order President Trump issued in October directing the government to look at ways to expand association health plans.
The idea behind association health plans is straightforward: Allow small businesses to band together through an association to buy health insurance. By creating a larger group, the argument goes, those companies and their workers could bargain for a better deal.
Also, by structuring themselves like a large group employer, these plans would be exempt from ACA requirements that require small company health plans to use “community rating” when determining premiums.
Those two changes could, at least in theory, help cut health costs that many small companies face.
“Any time there’s more options out there, then that is a good thing,” says Jay Lowe, a consultant at Durham-based employee benefits firm Hill, Chesson & Woody. “Over the last three or four or five years our options have been dwindling … This creates another avenue for employers to provide coverage for their teams.”
Obama-era regulations required that small group health insurance plans be priced based on the characteristics of the general population in the area — known as “community rating.” That meant if a small business had relatively healthy employees, its insurance costs would still reflect the health of the overall community and therefore could be more expensive.
In theory, small companies with sicker employers should have seen more competitive rates, but that’s been little solace for businesses with healthier workers saddled with higher costs.
“The older, sicker folks are driving the costs up more than that younger, healthier population can subsidize them,” Lowe said. “We’ve seen rates go up 30, 40, 50 percent.”
The new regulations proposed by Trump would redefine who’s an “employer” under ERISA, the 1974 federal law that governs employer health plans and other benefits programs. Under the change, an association whose members included many small businesses would be considered that employer.
The proposals also add geography to the factors that can be considered when deciding if an association’s members have a common professional interest. That could allow organizations, such as chambers of commerce, which have members from many different industries, to bring together members from across a state or even a metro area that crosses state lines into a single plan.
Previously, associations offering health plans to their members also had to have been in existence for at least five years and show they had a purpose other than offering health benefits. The new rules would allow associations formed solely to provide health benefits.
Finally, the regulation would make self-employed people eligible to buy into these association plans, so long as they work enough hours each week. Those changes could bring many more business associations to the table.
“We’re going to look at it, but we’re going to look at it cautiously,” Salamido said.
The N.C. Chamber’s caution — and much of the criticism about association health plans — is based in part on widespread problems with them.
Association health plans aren’t new. They’ve been around for decades, and North Carolina has a handful. The N.C. Medical Society, for example, offers one to its members and their employees.
While some have been successful, others have had problems maintaining financial solvency, leaving employers and patients with unpaid medical bills. That happened in the early 1990s when about 5,000 of North Carolinians were left with unpaid claims under similar types of plans.[sponsor]
So how comfortable an association — and its members — may be with one of these plans is likely to depend in part on how active states can be, and will be, in regulating them.
A statement from the state Department of Insurance (Note: the Department of Insurance is a sponsor of NC Health News) said the agency is working with the National Association of Insurance Commissioners to review and provide feedback on the regulations.
NAIC, which represents state insurance regulators in Washington, is concerned about how much authority states would have to regulate association health plans formed under the new regulations, which could be defined as large group plans in the proposed regulation.
That raises questions about how much regulatory authority a state might have over these association health plans. For example, could a state define the minimum benefits a health plan must provide to members?
Many small group health insurance plans that don’t meet ACA requirements have been grandfathered in for the last few years, but that ends this year.
So small businesses are looking for alternatives ahead of steep premium increases for 2019.
“Their rates are going to go up 50 to 80 percent in one year,” said William Salmon, senior vice president, employee benefits, at Marsh & McLennan Agency, Mid-Atlantic.
Salmon said his company is talking to associations that are potentially interested in setting up health plans, if the federal regulations change to clear the way.
If enough small businesses eventually joined association health plans, that could also affect the health of other insurance markets, such as the market for individual health plans, usually purchased through an ACA Exchange. But if so, that’s likely to be some time off.
Salmon and other observers expect it will be months before federal regulations are ironed out. Then associations would have to decide to create a plan, allocate money and hire someone to oversee it and contract with an insurance company.