Legislature makes another attempt at creating association health plans

By Rose Hoban

Lobbyist Andy Ellen, who represents more than 25,000 store owners who are part of the North Carolina Retail Merchants Association at the state legislature, says the greatest number of calls his organization receives is from small business owners looking for help getting health insurance for themselves and their workers.

“We have some very small independent businesses, you know, that pay $25,000 plus in coverage for them and their families,” Ellen said. “They end up in the individual market because they don’t qualify to get into the larger group market.”

So, Ellen was pleased last week when Republican members of the state Senate introduced a bill to allow association health plans, or AHPs, in North Carolina. The bill would bring the state in line with federal rules finalized last fall that allow businesses to band together to purchase insurance as part of one big pool.

When President Donald Trump signed an executive order paving the way for businesses to create AHPs, the Merchants Association’s “phones started ringing off the hook,” Ellen said. “Our members have been clambering for this.”

Another bite at the apple

The new federal regulations allow businesses that are similar or located in the same geographic location, to band together to offer health insurance.

Following the Trump administration’s announcement, North Carolina lawmakers proposed a measure that would allow for such plans in the state, but that bill was drafted narrowly to essentially allow one organization in the state, the Farm Bureau, to sponsor a health insurance plan for almost anyone who wanted to buy in. The catch? The Farm Bureau’s plan would allow for the type of underwriting that used to be commonplace before passage of the Affordable Care Act in 2010.

That bill eventually failed.

Later in the year, the state’s restaurant and lodging association attempted to create its own AHP, but it ran into a brick wall because state law did not yet conform with the new federal rules, which were finalized in late August, after the legislature had adjourned for the year.

The bill filed last week would allow businesses to join together to purchase plans, so long as there’s a sponsoring organization to manage it. That puts North Carolina law in line with the federal rules.

“What they’re proposing to do is expand the definition of an employer for this purpose,” explained Sam Krause, a California attorney who specializes in federal insurance law. In AHPs of the past, “the association had to do something other than provide insurance to its members, it had to have some other type of significant robust type of activity. For example, think of an AARP, where it provides all these benefits and services to its members but they also have a plan that you can get into.”

“That would be amazing,” said Aaron Nelson, head of the Chapel Hill/ Carrboro Chamber of Commerce, which has about a thousand small business members with a total of about 80,000 employees. “Our chamber and chambers across the state should be very interested in this. We would love to find a way to help small businesses find access to high quality, lower cost health insurance.”

He starting riffing on how his organization could offer an AHP and perhaps join with other local chambers to build an even bigger risk pool.

But he had one question: Would his chamber find an insurer to issue such a plan?

What is underwriting?

Health insurance underwriting used to be common practice, one that made it harder for people with pre-existing conditions, or who had greater risks for disease, to get insurance.

Before the Affordable Care Act, health insurers would adjust premiums based on many risk factors: gender, occupation, age, prior health status and so forth, resulting in higher premiums for people who were older or who had a pre-existing condition that required more care.

The ACA did away with that, imposing a “community rating” that made it cheaper for people with pre-existing conditions to buy plans. Under the community rating rules, the cost of insurance is calculated based on everybody buying an ACA plan; pre-existing conditions and other factors that drive up insurance costs are spread across everyone in that plan.

“The people who would be worse off are those who need community-rated guaranteed insurance,” said health economist Dave Anderson from Duke University’s Margolis Center for Health Policy. “The AHP won’t be adequate for their needs.”

Difficult market

Currently, people who own small businesses, either sole proprietors or those who run businesses with fewer than 51 employees, are not required to provide health insurance to employees. Many businesses want to provide that perk, but find it too expensive.

According to the Kaiser Family Foundation, only 21 percent of North Carolina firms with fewer than 50 employees offer health insurance, compared to 94 percent of businesses with 50 employees or more. Larger businesses can self-insure, essentially become an insurance company themselves and be exempted from most ACA rules, or they can use their size to negotiate a better deal from a big insurance company than small businesses usually can.

“The theory behind the AHP is that you allow people who would otherwise not be able to afford to provide insurance to employees to do so at a better rate because you’re using a larger pool,” said Krause, the lawyer.

There are lots of questions about AHPs, in large part because in the past they’ve had problems with solvency and because they don’t have as many consumer protections. Groups that have members with pre-existing conditions would have higher premiums than those workplaces with younger and healthier members.

Advocates claim AHPs will help create bigger risk pools to help smooth out premiums across more people.

Initially, when Trump proposed creating the AHPs, advocates worried that the new federal rules would allow for so-called “skinny” plans that covered catastrophic coverage and little else. The rules released by the U.S. Department of Labor last fall called for plans that were a little more robust and also tightened rules to avoid solvency problems of AHPs of the past.

For example, the new North Carolina bill calls for AHPs to keep some of the protections of the Affordable Care Act, such as requiring coverage for people with pre-existing conditions and allowing parents to keep their children on their plans up to age 26.

Krause made the point that if a chamber of commerce was going to sell plans, they have an incentive to sell the best plans they can get, “it has to be a plan that’s attractive for some reason.”

He did say that transparency around what the plans cover, what prices they pay to providers and the network of doctors and hospitals that accept the insurance would be important factors. The General Assembly bill allows for AHPs ranging from cheaper “skinny” plans to more robust — and more expensive — offerings.

Running with scissors

Krause’s colleague David McFarlane said AHPs could work for some people, but they are also risky. Many states, he said, might rush into allowing these without enough guardrails in place and without creating rules to guarantee transparency for people who buy the plans.

He likened it to “running with scissors.”

And health economists have doubts, too. Anderson, the Duke economist, said the plans will likely have a limited effect on North Carolina’s individual market, a sector of the health insurance market where costs are among the highest.

Anderson pointed out that many lower-income workers are already doing well in the exchanges created by the ACA, thanks to generous federal tax subsidies for families earning less than 250 percent of the federal poverty level ($62,750 for a family of four).

Those subsidies disappear for AHPs.

“An association health plan might be more attractive to folks who are earning between 300-400 percent of the federal poverty level ($75,300- $100,400) because they don’t get much subsidy on the ACA’s exchanges,” he said.

An AHP’s benefit would only really help people who are relatively healthy, Anderson argued, as, over time, plans would likely get more expensive for older workers who are more likely to have chronic health conditions. As plans get more expensive, he said, younger, healthier workers would go looking for cheaper options and leave behind their unhealthier colleagues who’d have little choice but to pay more.

“Where it could hurt is for individuals who make more than 400 percent of federal poverty ($103,000 for a family of four) who have chronic conditions who have to get insurance, and the AHP is designed to be non-supportive of their medical needs,” Anderson said. “The easiest way to do that is not covering the major… hospitals.”

He said protections for people with pre-existing conditions written into the law could also be weakened by plans that make chronic care patients jump through more hoops to get services or by charging high annual deductibles.

Undermining the ACA?

Anderson said he wasn’t too worried about AHPs undermining North Carolina’s robust participation in the subsidized marketplace created by the Affordable Care Act.

About half a million North Carolinians bought individual insurance plans during last fall’s ACA signup period, with most of them qualifying for a subsidy to offset premium costs.

Wake Forest University health policy professor Mark Hall said the effect of AHPs on the ACA exchanges is potentially limited.

He said that for small groups this would provide a way for companies to choose between buying coverage that’s “fully regulated and only partially regulated coverage.”

Hall noted that premiums on the exchanges have been “fairly stable.”

Both Hall and Anderson said having AHPs available would inevitably mean healthier workers leaving the Affordable Care Act exchanges to jump into an AHP. But they agreed it was hard to predict how large that effect would be.

“It would be a shame to implement a measure that creates problems for a market segment that currently appears to be doing okay, relatively speaking,” Hall wrote in an email to NC Health News.