Association insurance pushes on despite court ruling

Reviewed by James Ives, M.Psych. (Editor)Apr 25 2019

When the Trump administration in June issued rules making it easier for small employers to band together to buy health insurance, "we started looking immediately," recalled Scott Lyon, a top executive at the Small Business Association of Michigan.

Although he offered traditional small-group health insurance to his association's employees and members, Lyon liked adding a new option for both: potentially less expensive coverage through an association health plan, which doesn't have to meet all the rules of the Affordable Care Act.

Now, a few months in, "we've got 400 companies and a couple of thousand workers signed up," said Lyon last week.

Nationally, an estimated 30,000 people are in such association health plans, a type of health insurance seeing a nascent resurgence following an initial drop-off after the ACA took effect in 2014.

Most of the new enrollees joined through groups like Lyon's or local chambers of commerce, farm bureaus or agriculture-based cooperatives. Such groups see the plans not only as a way to offer insurance, but also as an enticement to boost membership.

In the first legal test, however, U.S. District Judge John Bates at the end of March sided with 11 states and the District of Columbia challenging the law. He invalidated a large chunk of those June rules, saying the administration issued them as an "end-run around the Affordable Care Act."

So what now?

Unless the government seeks — which it has yet to do — and is granted a stay of the judge's order, "plans formed under the vacated sections of the rule are illegal," said Timothy Jost, an emeritus health law professor from Washington and Lee University.

Still, that won't mean anything for existing plans if the states or federal regulators choose not to enforce the ruling, Jost said.

And that could cause more confusion in the marketplace.

While the states that brought the challenge are expected to enforce the ruling, some other states support broader access to association health plans, said Christopher Condeluci, an attorney who represents several such plans, including the one formed by Lyon's group.

"These plans are not an end run around the ACA," said Condeluci.

Association health plans already established under the administration's rules cover "virtually" all the federal law's essential health benefits, he said, with the exception of dental and vision care for children.

Local chamber of commerce plans are mainly continuing business as usual while watching to see if the government will appeal, said Katie Mahoney, vice president of health policy at the U.S. Chamber of Commerce.

A few, including a plan offered through the Las Vegas chamber, may limit new enrollment for sole proprietors, she said, as the judge sharply questioned whether they qualified as "employers" under federal laws.

Sole proprietors are generally individuals who own and operate their own businesses without any employees.

Bates wrote that, in the regulation, the Department of Labor "stretches the definition of employer" beyond what federal law allows. The rule was designed to increase access to plans that "avoid the most stringent requirements" of the ACA.

The opinion by Bates, who was appointed by President George W. Bush, is widely expected to be appealed, although the government has not yet done so.

The decision affects one pillar of a broader effort by the Trump administration to expand access to less expensive health insurance. Association plans have long been a favorite of Republicans, existing before the ACA. Supporters say they are one way to pool groups of businesses together to get better premium rates.

Still, some plans faced problems in the past, including bankruptcy or complaints that they misled consumers by not fully informing them about what is covered.

After the ACA took effect, enrollment fell, partly because many small businesses were buying new ACA plans and many existing association plans had to comply with ACA rules for small-group coverage anyway. People who ran their own businesses and had no employees qualified only for coverage through the ACA's individual market.

But the Trump administration in June broadened the definition of those eligible to buy insurance through employer-based associations to include sole proprietors and also made it easier to form associations to offer coverage.

In addition, the changes allowed more association plans to be classified as large-employer coverage, which exempts them from some of the ACA's requirements. For example, association plans don't have to include all 10 of the ACA's "essential" health benefits, such as mental health care and prescription drug coverage.

Also, unlike ACA plans, association insurers can set premium rates based on an employer's industry, as well as taking into account the age range and gender makeup of their workforce.

In other words, association plans can charge less for companies with workforces that are generally younger and male in occupations that involve mainly desk work than for firms with mostly older workers or companies doing riskier work, such as cutting down trees or roofing.

Still, such plans must abide by other ACA provisions, including accepting people with preexisting medical conditions.

Critics, including the states that sued, say the new rules and other administration-backed changes will weaken the market for ACA plans by drawing out younger and healthier people. The states also argued that the new rules would be costly for them to administer, alleging they would have to devote more resources to preventing consumer fraud.

In Michigan, Lyon said the association his group formed, called Transcend, offers coverage to small employers and sole proprietors that is just as generous as large-group plans. It is a fully insured plan through the state's Blue Cross Blue Shield carrier that covers a broad array of benefits, except children's dental and vision.

"One thing we don't want to do is sell a bag of air to our members," said Lyon.

While some new members have reported large savings by enrolling, Lyon said association plans are not necessarily less expensive than small-group coverage. It all depends on the demographic and occupational makeup of the small business, he said.

"Our best estimate was association health plans would be the right solution for 30 to 35% of the small-group world," said Lyon. "It all has to come together. Age matters. Gender matters. It's so specific to each company."