Last week, the Department of Labor released its final rule regulating association health plans (AHPs). The rule is part of the Trump Administration’s multi-pronged strategy to revise regulations governing AHPs, short-term insurance, and health reimbursement arrangements (HRAs) to promote health care competition and choice.
The rule is expected to reshape state insurance markets and impact enrollment in health insurance marketplaces. Below, the National Academy for State Health Policy (NASHP) highlights significant issues and options for state policymakers as they consider their response to the new rule. NASHP will continue to monitor states’ responses to the AHP rule. A more detailed summary of the rule is available in the journal Health Affairs.
The rule eases requirements on associations that can lead to an increase in AHP enrollment and a disruption in state insurance markets.
The primary goal of the AHP rule is to increase access to AHPs. The rule increases flexibility over what constitutes an association, which allows for more associations to form. The burgeoning associations can then offer AHPs to their members. The rule:
- Allows associations to form for the primarily purpose of offering health insurance, which was previously prohibited;
- Revises the “commonality of interest standard” so that associations can be composed of members who are in the same trade, industry, line of business, or who have a principal place of business within the same state or metropolitan area; and
- Allows “working owners” — self-employed individuals or individuals who have ownership rights in a trade or business that earn income and work at least 80 hours a month — to participate in a group AHP. These sole proprietors previously purchased health insurance in the individual market, a market regulated by states.
In most cases, AHPs are exempt from many of the regulatory requirements imposed on other health plans. While regulation of AHPs varies from state to state, AHPs that qualify for large-group status are exempt from meeting many minimum federal requirements, including the requirement that plans cover all 10 essential health benefits (e.g., hospitalization, maternity care, mental health and substance use services, and prescription drugs). These AHPs would also be exempt from adhering to non-discrimination protections, such as some community rating restrictions that require individuals to pay the same premium rate for insurance regardless of factors such as age, gender, or geographic location.
|Non-discrimination protections for health status
To partially address concerns about related to discriminating based on health status, the rule prohibits associations from conditioning membership in that association based on any health factor. It also prohibits AHPs from adjusting eligibility, enrollment, benefits, or premiums for an individual based on a health factor.
The rule does allow an AHP to vary benefits, premiums, etc. between groups of individuals in the AHP. AHPs have broad discretion in defining these groups; for example, groups may be created based on geographic regions, professional categories (e.g., job types), or hourly status (e,g., part-time and full-time workers). An AHP is prohibited from making group distinctions based on a health factor, although the loose definitions used to define groups opens the AHP to de facto discrimination based on health status, even if that is not the stated intent of the grouping structure.
The rule allows that AHPs may continue to exist under the definitions and regulations in place prior to the effective date of this rule, meaning that any new or existing AHPs that meet prior AHP standards do not have to adopt new non-discrimination protections.
Because AHPs do not have to meet these requirements, they are able to offer cheaper products with skimpier coverage to consumers — products that may be especially attractive to younger and healthier individuals. Because AHPs can be sold across state lines, they can locate their headquarters in (and therefore leverage) states with less restrictive insurance rules and/or form in ways that “cherry pick” healthy populations from across states. (This practice may proliferate due to the rule’s allowance that associations can form based on common metro-areas, even when they cross state boundaries.) These features, collectively, are expected to siphon healthy consumers out of state markets. While estimates indicate that some of these individuals who purchase AHPs will have been uninsured, the majority will be drawn out of states’ individual and small group insurance markets, causing market segmentation and disruption, in turn leading to cost increases and instability. This rule makes it possible, for the first time, for self-employed individuals to leave the individual market and buy an AHP.
Lax rules diminish consumer protections and weaken long-term market stability.
The AHP changes do not consider long-term impacts on market risk, which requires a balance of consumers to ensure that premiums stay as low as possible over the lifetime of a population. These changes also add fragility to states’ individual markets, which have already been weakened by Congressional elimination of the individual mandate penalty.
Beyond the issues raised by market segmentation, experts have also raised concerns that lack of minimum benefit standards will leave consumers vulnerable to high out-of-pockets costs. Moreover, lax-rating rules promote discriminatory pricing practices based on factors such as age, gender, or other population characteristics. The rule does include a new provision designed to protect against discrimination based on health status (see Box), however these protections are loosely defined and are not extended to all AHPs. Without sufficient oversight, experts predict it could be easy for some associations to bypass these protections.
The new rule affirms a state’s role in regulating AHPs and conducting AHP oversight.
State authority to regulate AHPs is limited and varies depending on whether the AHP meets “large-group status” and whether the association is fully- or self- insured. (For example, whether the association contracts with an insurer to provide insurance policies to its members, or whether the association develops and offers its own policy direct to members). AHP regulation largely falls under the Employee Retirement Income Security Act (ERISA). The law defines specific ways that states can regulate multiple employer welfare arrangements (MEWAs) — benefit arrangements provided to multiple employers (including the self-employed) in an association — which includes AHPs. States have authority to regulate self-insured MEWAs, as long as state laws are “not inconsistent” with ERISA. States can regulate fully-insured MEWAs on issues related to financial accountability, state licensure, registration, certification, auditing, and maintenance of specific contribution and reserve standards. States also have the authority to regulate the insurers that sell policies to associations and the policies themselves.
The rule repeatedly affirms that it “does not modify or otherwise limit existing state authority” to regulate AHPs. The rule also claims that it “broaden[s] the flexibility of states to tailor their laws and regulations to their local market conditions and preferences,” suggesting that states can use their regulatory authority to “optimize” the role of AHPs in their markets. The rule underscores:
- States’ abilities to regulate self-insured MEWAs;
- States’ capacities to enact policies to prevent risk segmentation; and
- States’ abilities to mandate benefits and rating rules for policies procured by fully-insured AHPs and self-insured MEWAs, including requirements “similar to those applicable to the small group and individual” markets.
Contrary to these assertions, the rule notes an ERISA provision that allows the federal government to preempt state laws over fully-insured AHPs that “go too far… in ways that interfere with the important policy goals advanced by this final rule.” This gives the federal government wide latitude to intervene if a state tries to implement policies restricting fully-insured AHPs from operating in their markets.
In addition to emphasizing the role of states in regulating AHPs, the rule also stresses the role states will play in oversight and enforcement efforts to protect consumers against fraud, abuse, and mismanagement of AHPs. The rule offers vague language describing actions the federal government may perform to oversee AHPs, stating that the Department of Labor “anticipates close cooperation” with state regulators in areas of oversight. The rule also expresses intent by the Department of Labor to review AHP reporting requirements and to consider developing AHP audit requirements “if necessary.” Without additional specifics about the federal role, questions arise about what role states should play in oversight and how states can best target their limited resources to avoid duplicating possible federal action.
Staggered effective dates and next steps for states.
The rule sets staggered implementation dates for the rule, depending on the type of AHP that adopts the new standards. Any association may establish a fully-insured AHP as soon as Sept. 1, 2018. Associations in existence at the time of the release of this rule may establish a self-funded AHP on Jan. 1, 2019, and new associations may establish a self-funded AHP on April 1, 2019. These dates give little time for states to act before new AHPs enter their markets. The timing is also noteworthy as the rule was released in the middle of states’ 2019 rate-filing deadlines. Officials expect that negotiations will factor in the assumption that AHPs will enter states’ markets in 2019, leading to additional rate increases before premiums are finalized in September, 2018.
The ultimate effect of the AHP rule will vary based on each state’s insurance markets and regulatory capacity. As states analyze the rule and its projected impact, future actions and considerations for policymakers and regulators include:
Review and development of state-level mandates. As noted earlier, states vary in how state-level mandates for insurance are applied to AHPs, or insurers that sell policies to associations. In order to promote fair market competition and guarantee that consumers are guaranteed similar protections across their markets, states may seek to revise or strengthen their regulation of AHPs. Moreover, rising health care costs, including prescription drugs, expose consumers to added financial risk, especially if drug coverage and other services are not covered by an insurance plan. States may look to develop solutions (such as benefit mandates or development of high-risk pools) that will help shield consumers who become underinsured by purchasing an AHP. During a recent NASHP webinar, experts discussed other state options to limit AHPs, including prohibiting new MEWAs and actions to assert jurisdiction over plans sold in their markets, even when the plans are based in another state.
Boosting state capacity for AHP oversight. While federal rules indicate that the Department of Labor and states have joint-responsibility over AHP oversight, historically, oversight of AHPs has been lax, allowing for fraud, abuse, and insolvency. To effectively protect consumers, states may need to bolster their insurance regulators’ capacity to review and audit AHPs. States may also consider increasing the ability of their state agencies to collect and respond to consumer complaints about unregulated or fraudulent products entering their markets. However, without additional funding, states may have limited capacity to devote the resources necessary to conduct robust oversight. Consumer education will also be critical to make sure consumers are aware that if they buy AHPs that do not provide full coverage of essential benefits that they cannot purchase an Affordable Care Act-compliant plan with full coverage until the annual open enrollment period.
While most state legislative sessions have ended for 2018, states may direct their agencies to implement regulatory changes that could be used to protect consumers and strengthen their markets. In the months ahead, NASHP will continue to track state actions to address the AHP rule, especially as legislators prepare for 2019 sessions following the November 2018 election.
Experts and state officials share what impact this rule will have on their insurance markets and what actions they are taking to protect consumers during two sessions at NASHP’s annual conference. Register today!
Making Waves in the Individual Market: How Did We Get Here?
The individual insurance market is experiencing seismic shifts due to the effective repeal of the individual insurance mandate and new federal policies that promote association health plans and short-term insurance policies. Kevin Lucia of the Georgetown University Center on Health Insurance Reforms reviews some of the major changes affecting insurance markets, including trends in rate filings and enrollment estimates. State officials reflect on what the changes have meant for their insurance markets, and what they expect to see during the 2019 open enrollment season.
Sailing the Seas: State Efforts to Stabilize the Individual Market
In the face of rising health insurance costs and unstable markets, states are exploring a wide assortment of strategies to stabilize markets, reduce costs, and improve coverage choices for consumers. Building on the earlier Making Waves in the Individual Market session, state panelists take a deep dive into the strategies they are advancing to bolster their markets, including passage of state-based individual mandates, reinsurance programs, and regulation of insurance products sold within or outside of the Affordable Care Act insurance marketplaces.