United States: The Department Of Labor's Proposed Association Health Plan Regulation: Who Wins, Who Loses?

Last Updated: January 23 2018
Article by Alden J. Bianchi

In last week's post we explained the changes made by a newly proposed Department of Labor regulation, the purpose of which is make it easier for small employers to band together to form "association health plans" ("AHPs"). In that post, we promised to examine the impact of the proposed regulation on the small group and individual health insurance markets, which we will do in this post.

The Department's Purpose and Rationale for the Proposal

The Department of Labor's proposed AHP regulation was issued in response to an Executive Order issued by the Trump administration in the fall of last year. The changes that the Department proposed will, if adopted as a final rule, up-end decades of Department of Labor advisory opinions, case law, and state regulatory precedent that all seek to constrain the extent to which small employers can combine for the purposes of purchasing health care. In so doing, current law generally defers to, or at least aligns with the wishes of, state insurance regulators and the National Association of Insurance Commissioners (NAIC). These regulators and the NAIC, as well as other similarly situated groups, generally view AHPs with suspicion. (The principle objections to the expanded availability of AHPs are set out in a February 2017 issue brief published by the American Academy of Actuaries (AAA) and an undated paper issued by the NAIC.)

In contrast, the Department of Labor believes that current rules governing AHPs limit choice and effectively force carriers to raise premiums for healthier small groups and individuals. In turn, these groups and individuals are likely to seek more affordable coverage elsewhere if available, or drop insurance altogether if it is not. Rather than constrain AHPs, the proposed regulations seek to broaden the conditions under which associations can sponsor AHPs, thereby increasing the number of small businesses potentially eligible to participate in AHPs.

Handicapping the Objections to AHPs

We summarize the principal objections to AHPs as follows:

  • Fraudulent MEWAs

As the preamble to the proposed regulation frankly acknowledges, "some MEWAs have historically been unable to pay claims due to fraud, insufficient funding, or inadequate reserves." This might be something of an understatement. A more damming picture emerges from an issue brief from The Commonwealth Fund entitled, MEWAs: The Threat of Plan Insolvency and Other Challenges, by Mila Kofman, Eliza Bangit, and Kevin Lucia. According to the paper:

"MEWAs, however, have a long history marred by financial instability and even fraud. Due to licensing requirements that are often less stringent than those imposed on traditional insurers, they are at far greater risk of becoming insolvent when claims suddenly or unexpectedly exceed their ability to pay them. As thousands of Americans have found out, insolvency means that medical bills go unpaid, spelling financial ruin for many who are stuck with huge expenses. Meanwhile, doctors and hospitals are forced to contend with ways to finance uncompensated care; some pass these costs along to insured patients in the form of higher fees, which in turn can drive up already high insurance premiums."

While certainly worrisome, the proposed regulation applies only to fully-insured AHPs, which are already subject to state laws governing solvency. In contrast, it is self-funded MEWAs that are more prone to fraud. This was particularly true in the early days of ERISA—i.e., before the enactment of a 1983 amendment clarifying the ability of states to regulate MEWAs. The preamble to the proposed regulation claims that "ERISA section 514(b)(6) gives the Department and State insurance regulators joint authority over MEWAs (including AHPs described in this proposed rule), to ensure appropriate consumer protections for employers and employees relying on an AHP for healthcare coverage." (Footnotes omitted). This is a broad claim, and one that will not be taken at face value by the rule's opponents. What the proposal acknowledges, however, is that the Department would need to commit additional resources to combat AHP mismanagement and abuse if the proposal is adopted as a final rule.

  • Impact on the risk pool

The impact of the proposal on state risk pools goes to the heart of the debate over AHPs. The ACA and state small group rules tightly regulate how individual and small group issuers pool risk, e.g., by limiting the degree to which premiums can be adjusted based on age. Recognizing that these rules affect market stability, the ACA requires mandatory transfers of ''risk adjustment payments'' from carriers that have taken on more risk to those that have taken on less. AHPs would not be subject to risk adjustment payments, but instead would be subject to nondiscrimination rules that bar all group health plans from conditioning eligibility, benefits, or premiums on health status. The Department believes that "these [nondiscrimination] rules should help AHPs to assemble large, stable risk pools, while at the same time limiting the risk that AHPs might tend to enroll healthier small businesses and thereby adversely affect individual and small group markets." It is also possible that AHPs will be more likely to form in industries with younger, healthier employees, as employers and their employees will gain access to more affordable coverage than is available in the individual and small group markets. While the nondiscrimination rules are laudable, they operate within, and not across, AHPs.

  • Sale of insurance "across state lines"

If, as the proposal envisions, an AHP is established in a state with fewer coverage requirements and less restrictive issue and rating rules relative to other states, the AHP would be allowed to use that state's requirements in all states, even those with greater regulatory requirements. In contrast, non-AHP insurance plans would continue to be subject to each state's requirements. The result is a fragmentation of the small group market in which higher-cost individuals and small groups would find it more difficult to obtain coverage. Despite the proposed regulation's non-discrimination rules, it seems that concerns over AHPs operating across state lines remain valid.

  • Lack of robust coverage

Because they would not be subject to individual and small group market rules—which limit the policies that issuers can offer to small businesses and include a requirement to offer all 10 categories of essential health benefits—AHPs have the flexibility to offer less comprehensive coverage. AHPs could therefore offer less comprehensive and more affordable coverage, which the Department touts as an advantage of AHPs. But less comprehensive benefits could attract healthier individuals, leaving less healthy individuals in the individual and small group markets and thus driving up the premiums. The Department is of the view that this "risk may be small, however, relative to the benefits realized by small businesses and their employees that gain access to more affordable insurance that more closely matches their preferences." The Department goes on the make the following claim:

"In addition, to the extent that AHPs deliver administrative savings or market power they may offer less expensive but equally comprehensive benefit options as compared to plans available in the individual or small group markets. This feature of AHPs would appeal to their less healthy members, prompting less healthy individuals to leave the individual and small group markets and potentially balancing out any exodus of healthy individuals from these markets."

But less expensive and less robust coverage would be attractive to less healthy individuals only if it covers the conditions that make them less healthy. To take an extreme case, coverage under an MEC (or "preventive-services-only plan") that costs $45 per month would be of little use to a cancer patient.

  • The application of administrative savings

The Department assumes that widespread access to, and adoption of, AHPs by small employers will result in a net savings of administrative expenses, which may well be true. These is no guarantee, however, that these savings will be passed along to members. The savings may instead be applied to the costs of forming and operating the AHP and/or recruiting and enrolling association members. While conceding this possibility, the Department claims—correctly, as best we can tell—that AHPs sponsored by pre-existing associations that exist for reasons other than offering health insurance might have more potential to deliver administrative savings than those set up to offer health insurance.

What's next?

The debate over AHPs deals with health policy at its highest levels. Each of the above-elaborated concerns make certain assumptions about the role of the individual and small group health insurance markets and their place in the balkanized U.S. health care financing system. The Department's critique of the small group and individual markets may well be accurate, but no one anticipates that AHPs will take up the entire small group or individual markets. Some groups and individuals will be left behind. This may be fine, if the policy makers find some other way to take up the slack.

The current small group or individual markets have evolved to fill a need. They strike a balance that the newly proposed AHP regulations disrupt, perhaps significantly. This is not a small proposal. We expect a contentious comment process as stakeholders and policy makers alike press their views of the proper role of AHPs in the financing of health care.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Alden J. Bianchi
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions