Almost immediately after the final rule changing the definition of “employer” under the Employee Retirement Income Security Act (ERISA) was adopted, allowing for the formation of Association Health Plans (AHPs), two states (NY & MA) filed litigation to enjoin or halt implementation of the final rule. Both contend the new rule is inconsistent with the applicable statutory basis. Prior to its adoption, 15 states (plus NY & MA) submitted a letter opposing elements of the proposed rule. As of the publishing of this blog, twelve state Attorney Generals have joined civil action D.D.C. No 18-1747 in an attempt to prevent the final (ERISA) rule from being implemented. This includes the Commonwealth of Pennsylvania.
No matter the outcome of the lawsuit, the fact is that many state insurance regulators are likely taking actions to limit the scope of AHPs in the same ways they have historically regulated or prohibited MEWAs. For example, on August 2nd the PA Insurance Commissioner, Jessica Altman, sent a letter to the Secretary(s) of Health and Human Services and the DOL outlining how PA, in the absence of a federal court injunction will enforce AHP provisions. In short, she declares that PA AHPs will be: In “active” existence for at least two years (prior to offering insurance); fully insured by PA licensed carriers; formed as a MEWA holding a PA certificate of authority; subject to PA rating standards, exam provisions and enforcement; provide rates based on group size (individual, 2-50 community rates or over 50) and finally cannot be formed in “other” jurisdictions (i.e. states). This all but negates any advantages of groups under 50 employees and individuals.
It is also important to note that the change to ERISA was not done through what Washington calls “normal order.” This change is NOT contained in a bill passed by congress and signed by the President. It is not enshrined in U.S. law. It is an executive order that by its very nature can be undone at any time, by this administration or subsequent ones. ACA is U.S. law. All reporting and compliance requirements continue to be in effect. Associations and their members will have to comply with applicable mandates, taxes, tests and notices. Much of this will fall on the AHP to determine, communicate and document their and member responsibilities. Therefore, any association who forms an AHP should take a pause and consider what is the right structure, what safeguards need to be built in, who is responsible for what is clearly defined in its bylaws, and that those responsibilities are documented between the parties. Additionally, an association may consider purchasing addition E&O insurance to cover the board members.
In addition to the litigation, Association Health Plans have a long history in the medical insurance market. They carry inherent underwriting risk by their very design and nature. Underwriters at their core like large, healthy and stable populations or “risk pools.” Their job is to predict financial risk. Associations historically have been difficult to price and keep those prices stable over a long period of time. There are variables that do not exist in the commercial health insurance market. Association plans tend to be attractive to small groups, however, once a group gets large enough that their “purchasing power” grows with insurance carriers they often leave the association. With loss of, especially larger groups, the association premiums go up because it has become more financially risky. As premiums rise then more groups leave, and soon the concept of “adverse selection” moves to the forefront. This is simply that “good risk” groups leave and “high risk” groups stay causing subsequent rises in premiums, and in the long term you can be left with a pool of just “high risk” groups. Premiums skyrocket and the association is doomed. Add to that the additional cost and/or fees that an AHP may (or may not) charge their members plans for things like plan administration, membership, compliance etc.
Initial pricing of AHPs is not predictable. Small groups who leave their individual state’s community rated plans are in a risk pool already, one that is larger than subsequent AHP risk pools they will enter. Small risk pools typically see higher premiums. Since AHPs are not subject to the essential health benefits provisions of ACA and will have some flexibility in plan designs, those structures could be altered to reduce or at least offset the higher potential premiums because of smaller risk pools. Again, however, beware that these offsets could mean reduced benefits.
We will have to all wait, watch and see where this all shakes out.