The Payers’ Playbook

Association Health Plans Offer Lower Premiums, But at What Cost?

Seeking reduced costs, small businesses and sole proprietors will find AHPs tempting. The premiums are lower, but you get what you pay for, critics say.

Joseph Burns
Contributing Editor

Advertisements for association health plans just about write themselves: “Attention small business owners: Do you want 30% off your health insurance premiums, broader networks, and lower deductibles?”

Premiums for plans sold under the new AHP rules the Trump administration issued last year could be 30% lower than plans that are fully regulated under ACA small-group coverage rules, according to estimates the Congressional Budget Office and the Joint Committee on Taxation issued in a report in January.

Lower premiums are possible for two reasons. First, AHPs are not required to cover all of the essential health benefits that ACA-compliant plans do. Second, AHPs can base premiums on their expected or actual spending for health care rather than setting premiums at the community rate as is required under the ACA. The lack of community rating is expected to be the main reason AHP premiums will be cheaper, according to the CBO–JCT report.

In addition to lower premiums, AHPs have another big advantage: They are likely to offer broader networks of providers and lower deductibles than what small groups and individuals find in other nongroup and small-group offerings, the report added.

AHP offered by farmers’ co-op

But, as always and everywhere, there is no free lunch. There are drawbacks to the AHPs for small businesses and maybe especially for their employees and for sole proprietors who can now enroll in AHPs under rules the federal Department of Labor issued in June 2018. Those rules expanded access to what the DOL called “affordable health coverage options” through AHPs.

The drawbacks include the possibility that AHPs will cover far fewer services. An AHP could, for example, choose not to cover benefits such as maternity care or mental health benefits, leaving employees exposed to those costs and, effectively, reducing access to care. (On the other hand, they could voluntarily cover such benefits, as most large self-insured employers do now.) Also, some AHPs could charge different employers different premiums based on the age and gender of their employees, the employer’s industry, and location, notes Chris Condeluci, a lawyer who represents the AHP that Land O’Lakes, a member-owned cooperative in Arden Hills, Minn., formed this year for its member farmers in Minnesota and Nebraska. While some businesses may find that AHP coverage costs as much—or more—than plans in the ACA’s small-group market, Condeluci says the AHP premiums for the Land O’Lakes plans were lower than the cost of plans offered in those states’ individual markets. In Minnesota, Land O’Lakes’ AHP premiums were 10% to 15% cheaper, he says, and in Nebraska, between 20% and 25% cheaper.

Pamela Grove

A larger risk pool is a goal of AHPs, says Pamela Grove of Land O’Lakes cooperative. The “more people we get into this plan across the country the better it will be.”

In November, Land O’Lakes said it was the first organization to sponsor a self-insured multistate group health plan under the Trump administration’s new AHP rules. At the end of February, the co-op had enrolled about 2,000 Minnesota and Nebraska farmers.

Pamela Grove, the co-op’s senior director of benefits, says Land O’Lakes expects to expand into other states. The co-op offers its farmers eight different AHP plan designs that cover ACA essential health benefits, and the “more people we get into this plan across the country the better it will be,” she says.

Last year, Land O’Lakes tested the idea of pooling individual farmers under a Minnesota-specific statute that allowed AHPs. In this pilot program, Land O’Lakes provided coverage to 12 of its cooperatives and dairy farmers in Minnesota and found costs were lower by about 15% because, among other reasons, self-insured plans don’t need to pay premium taxes or other costs that fully insured plans need to pay, Condeluci says.

Based on the success of the Minnesota plan, the agricultural co-op is offering its self-insured AHP to 15,000 eligible farmers in Minnesota and 28,000 in Nebraska. Most of the eligible farmers are members of the company’s cooperatives. Recognizing the risks inherent in AHPs, Grove developed Land O’Lakes AHP to be compliant with the rules of the ACA. While the Land O’Lakes AHP is not required to cover the essential health benefits that ACA plans must cover, the AHP does so voluntarily.

Bad for the ACA market

The fact that AHPs are not subject to certain ACA requirements such as the essential health benefits is among the reasons 11 states filed a lawsuit against the federal Department of Labor’s rules in July. In addition, AHPs in the past have been rife with scams, as the American Medical Association argued in an amicus brief filed in support of the lawsuit brought by the states. A federal report in 2004 showed that between 2000 and 2002, fraudulent AHPs left more than 200,000 policyholders with over $252 million in unpaid medical bills, the AMA said.

In addition to sabotaging federal protections for patients, AMA President Barbara L. McAneny, MD, said, AHPs would destabilize the individual health insurance markets because AHPs themselves create a second tier of coverage. That second tier would attract those who are younger and healthier, driving up premiums for those who are older and sicker and for small companies that have workers with chronic conditions and therefore are more likely to use the health care system. Those individuals and small companies would need to remain in the traditional small-group market where they would get more comprehensive coverage.

A ruling is expected in this case in the coming weeks, says Condeluci, who adds that despite critics’ claims, the CBO–JCT report found that AHPs will not “spur a noticeable decline in insurance coverage.” In fact, the CBO–JCT report estimated that some 400,000 people will gain coverage because they work for small employers who will decide to offer health insurance for the first time. Also, the report estimated that only about 200,000 individuals would exit the individual market for an AHP.

But the CBO–JCT report also supported some of the arguments of those wary of AHPs. For example, AHP coverage could have the effect of driving up premiums for coverage in the ACA’s small-group and individual markets by about 3% because those who remain in the fully regulated markets will have higher average health care costs than those who buy AHPs. “By 2028, for example, such an increase would raise average annual premiums by roughly $350 to $400 for single coverage and by $900 to $950 for family coverage,” the report said. Yet CBO and JCT also projected that lower AHP premiums will have the effect of tugging prices downward for the entire small group market, notes Condeluci.

Land O’Lakes was running one of about 28 AHPs operating in 13 states at the end of January, according to an analysis of news reports that Kev Coleman did for the website AssociationHealthPlans.com. A health researcher, Coleman founded the site to provide information about AHPs to consumers and businesses.

Chambers of commerce formed most of these new AHPs, he reports, and 80% were what Coleman calls “fully insured,” which he described as meaning the AHPs had a third-party health insurer assume the financial risk of delivering care, rather than having the AHP pay for all claims through self insuring. About half of new AHPs were for companies with two to 50 workers, and 43% were available to sole proprietors and the self-employed, he reported.

John Arensmeyer

AHPs will mean cheaper coverage, but John Arensmeyer of the Small Business Majority wonders how that will affect the rest of the market.

To succeed, AHPs will need the big numbers that Land O’Lakes is going for because a large risk pool is an important ingredient for any successful health insurance venture. What’s unknown is whether some of the smaller groups that Coleman cited can survive if they experience one or more catastrophic event.

“There’s no question that some groups of people will get cheaper coverage, but what does that do to the rest of the market?” asks John Arensmeyer, founder and CEO of Small Business Majority, which represents 58,000 small businesses across the country.

Condeluci says AHPs aren’t going to affect the health care coverage of the vast majority of Americans, but they may be a way to extend affordable coverage to hundreds of thousands of Americans for the first time.

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