United States: Association Health Plans: Benefit Of The Future Or Blast From The Past?

As "gig" employment becomes more prevalent, many organizations are seeking to differentiate themselves from other similar companies by offering their contract workers benefits.  Unfortunately, federal guidelines make it challenging to offer health benefits to independent contractors or non-employees.  That's why many organizations, trade associations and small employers became interested when the Trump administration suggested it would rewrite rules relating to so-called "association health plans," hoping it would open the door for them to offer health coverage to a pool of unrelated employers (or independent contractors).  However, it appears the regulations came up short of accomplishing this goal.

History of Association Health Plans

An integral feature of a sustainable health plan is a large risk pool, which increases the likelihood the plan will contain a balance of healthy people paying premiums to offset sick people incurring claims.  Large employers have a natural advantage in that they need to look no further than their employee (and dependent) population.  Smaller employers (and independent contractors/freelance employees) have historically had a more difficult time finding affordable health insurance coverage. 

Several decades ago, small employers or independent contractors were increasingly seeking to expand their risk pool by banding together with other small employers, typically unrelated but often in similar industries.  Unfortunately, these types of plans far too often became insolvent due to adverse claims experience, financial mismanagement, or in some cases, fraud or embezzlement by the plan administrator. 

To counter this result, the U.S. Department of Labor issued stringent guidelines regulating these so-called "multiple employer welfare arrangements," or "MEWAs."  Most notably, these Department of Labor guidelines permitted states to regulate MEWAs (where self-funded health plans are typically exempt from state regulations).  Many states moved quickly to either regulate MEWAs as insurance carriers or, in many instances, to ban them entirely.  Because each state has the independent authority to regulate MEWA to the extent they deem appropriate, many characterize these MEWA rules as 'prohibiting the sale of insurance across state lines', when in reality it really just made it practically challenging to comply with the myriad state regulations. 

In the wake of Congress's final, unsuccessful attempt to repeal the Affordable Care Act in late 2017, the Trump administration began exploring ways to mitigate the rising cost of health insurance in the individual and small group insurance market, much of which was viewed as being driven by new insurance mandates under the ACA (even though those rules were designed to stabilize those historically shaky markets).  In an October 2017 memorandum, the Trump administration directed the Department of Labor to revisit MEWA guidelines with the intent of permitting formation of association health plans, with the hope of offering small employers the opportunity to avoid the regulatory restrictions that do not exist in the large group market. 

Obstacles Remain

As noted in our Client Alert from January of this year, the proposed regulations (and ultimately the final regulations) did extend some relief to small employers.  Specifically, the regulations would permit certain qualifying unrelated employers with a commonality of interest to form a single health plan.  Under those rules, small employers could potentially avoid the small group market reforms (notably, (1) the community ratings requirement that can serve to increase the cost of coverage for otherwise healthy groups, and (2) the essential health benefits mandate, which prohibits insurers from offering skimpy health coverage).

Even so, and despite many comments urging the Department of Labor to take further actions, the final regulations contain two provisions with the potential to significantly limit the usefulness of association health plans: 

  1. Nondiscrimination Standards.  The final regulations would generally prohibit an association health plan from charging higher rates to certain groups based on their risk profile.  Even though an association health plan may be able to control costs by avoiding some state insurance mandates, if they cannot assess premiums based on groups' risk experience, these plans could face solvency issues similar to those experienced by MEWAs of the past. 
     
  2. No MEWA Exemption.  The DOL considered, but decided against exempting association health plans from state insurance regulations.  In fact, the DOL expressly notes that they expect that most association health plans will be MEWAs, and as a result, will be subject to state regulations.  This means, among other things:

a) States could prohibit association health plans entirely (or prohibit them from forming on a self-insured basis);

b) States could impose complicated regulatory requirements on association health plans, making it difficult to maintain such a plan across multiple different states; or

c) States could re-impose essential health benefit mandates and community ratings requirements on association health plans (thereby taking away the primary benefit of the new rules). 

The Department of Labor did acknowledge the request for an exemption from MEWA regulations, opening the door to potential future action.  But for the time being, it appears that association health plans may be more geographically limited, gravitating toward states offering a more friendly regulatory environment to these types of plans. 

Future Action Possible?

Given the proximity to midterm elections, it appears unlikely that either the administration or Congress will take further action to address the limitations of the final regulations at this point.  Even so, many insurance experts are predicting that premiums will spike in the upcoming Marketplace enrollment cycle, which could lead to more calls for a political fix.  We expect that in the interim, there will be a divergence at the state level between states that openly accept association health plans and those that attempt to push more small businesses and individuals into the already-existing state Marketplace. 

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.

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