The News About Association Health Plans
August 30, 2018
Is group medical insurance the same for small and large employers?Yes and no. Federal law imposes certain basic requirements on all group medical plans, regardless of the employer’s size. For instance, plans cannot exclude pre-existing conditions nor impose annual or lifetime dollar limits on basic benefits. If the plan is insured, it also is subject to the insurance laws of the state in which the policy is issued. Small group policies, which are sold to employers with up to 50 or 100 employees, depending on the state, are subject to additional requirements. These policies must cover 10 categories of essential health benefits (EHBs), including hospitalization, maternity care, mental health and substance abuse treatment, and prescription drugs. (Some states allow certain grandfathered or grandmothered policy exceptions.) For most small employers, their options for group medical insurance are limited to small group policies that comply with the full scope of ACA requirements. On the other hand, the policies are subject to guaranteed issue and adjusted community rating rules, so carriers cannot refuse to insure a small employer nor use any past claims experience in setting rates. Large group policies, which can only be sold to groups with at least 50 or 100 employees, depending on the state, are not required to cover all EHBs. Carriers have more flexibility in designing coverage options and developing premium rates in the large group market. This means larger employers have more options to choose from and may be able to purchase coverage at a lower cost than would apply to a small group policy. Note, however, that there is no guaranteed issue protection, so carriers can accept or reject each employer’s application or use the employer’s past claims experience in setting rates. Lastly, self-funded plans are subject to the ACA and other federal laws, but generally are exempt from state laws. They typically are not feasible for small employers, however, due to the financial risk of uninsured programs.
What is an Association Health Plan (AHP)?Group insurance covers the employees of an employer (or an employee organization such as a labor union). An AHP, as the name implies, covers the members of an association. Unrelated employers can obtain coverage for their employees through an AHP provided the employers form a bona fide association. Traditionally, this has meant that the employers had to have a “commonality of interest” and their primary interest had to be something other than an interest in providing benefits. For this reason, AHPs generally have been limited to associations formed by employers in the same trade, industry, or profession. The Final Rule makes AHPs available to a wider range of businesses by expanding the meaning of “commonality of interest.” Once the Final Rule takes effect, an association may be formed by employers that are:
- In the same trade, industry, or profession, regardless of location; or
- In the same principal place of business; i.e., in the same state or in the same multi-state metropolitan area.
When does the new Final Rule take effect?The Final Rule expanding the definition of an association for purposes of an AHP will take effect on staggered dates:
- For fully insured AHPs: September 1, 2018
- For self-funded AHPs in existence on or before June 19, 2018: January 1, 2019
- For self-funded AHPs created after June 19, 2018: April 1, 2019