Pros, Cons of Small Employers Joining Association Health Plans

August 18, 2021 - Association health plans have been presented as an option for small employers that struggle to afford health insurance. But are association health plans the right solution for these entities?

The question tends to arouse much debate in the health insurance industry and the policymaking sphere.

Association health plans form when employers band together to create a group health plan. Eligible employers include small businesses and self-employed individuals.

It requires approximately 51 to 100 employees for a stakeholder to join the large group health insurance marketplace, though this benchmark varies based on state regulations. With the right number of stakeholders, an association health plan can participate in the large group health insurance marketplace even though each individual stakeholder may cover a small number of lives.

Association health plans are subject to the rules that govern plans on the large group health insurance market.

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Examples of association health plans include the Iowa Farmer Bureau and National Marine Manufacturers Association’s NAM Health Care plan.

In 2017, the Trump administration made changes to the way in which association health plans functioned in the marketplace, broadening the definition of an association health plan. A judge struck down parts of this rule in 2019.

The Biden administration now has to determine its approach to association health plans. Some healthcare industry experts have urged the administration to reverse the association health plan rule and place restrictions on association health plans.

For now, however, association health plans remain an option for small employers. When an employer is deciding whether or not to join an association health plan, the decision involves weighing opportunities and challenges at both the company-level and the industry-level.

Pros of association health plans for small businesses

Small employers gravitate toward association health plans for a couple of reasons. Most prominently, association health plans attract employers who want to reduce healthcare spending.

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The US Chamber of Commerce, which has regularly advocated for association health plans, posted data on the savings that several association health plans achieved between 2018 and 2020. The data indicated that association health plans in multiple states have produced savings.

For example, the Henderson Chamber of Commerce has an association health plan called the Clark County Health Plan Association which is available in Southern Nevada. The US Chamber of Commerce reported that this association health plan saved members 30 percent on their premiums. Also, the health plan did not increase its rates until the second half of 2020.

Members of the San Antonio Chamber of Commerce’s association health plan enjoyed 21 percent savings on their premiums. In Vermont, some small employers saved $4,000 on annual premium expenses and others saw lower deductibles.

Another reason why small employers might join an association health plan is to have the increased leverage of a large group health plan.

The Las Vegas Metro Chamber reported to the US Chamber of Commerce that it was able to negotiate for a two-year rate-lock and create a more stable rate environment for members and employees.

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Under the Trump administration's final rule, association health plans also expanded health plan coverage choices that were available to consumers and employers, the US Chamber of Commerce and the Society for Human Resource Management (SHRM) argued in a joint amicus brief.

“Like single large group plans, AHPs operating under the Final Rule should be able to amass large shares in local health care markets and exercise greater bargaining power with local health care providers to achieve economies of scale in purchasing higher quality, more affordable health coverage options,” the amicus brief argued.

Employers who might otherwise be unable to provide health insurance may find association health plans to be an affordable option. The Wisconsin Manufacturers & Commerce reported that it was able to offer a broader variety of benefit designs and coverage options to small employers between 2018 and 2020 due to its association health plans.

Laws bolstering association health plans could serve to improve small business competition, the amicus brief added. Increased negotiating power can lower costs for small employer members. Affordable healthcare benefits can attract higher-quality job applicants that might otherwise apply and secure a position at a larger company. 

Cons of association health plans for small businesses

However, association health plans are not always the ideal option for small businesses, particularly due to the fact that large group health plans do not have to comply with the Affordable Care Act in the same way that plans on the small group health insurance market or individual health insurance market must comply.

Small group health plans and individual health plans must comply with the Affordable Care Act’s stipulations regarding comprehensive coverage. Such plans have to cover the ten essential health benefits outlined in the Affordable Care Act.

Fully insured large group health plans—including association health plans—as well as self-insured health plans, do not have to abide by these requirements. They are not compelled to cover all of the essential health benefits. Although they are free from these stipulations, they are not allowed to place annual or lifetime dollar limits on essential health benefits.

The fact that association health plans do not have to abide by the Affordable Care Act’s regulations can mean that employees lack the same kind of comprehensive coverage that enrollees have in the small group health insurance market or individual health insurance market, the left-leaning think tank Center on Budget and Policy Priorities (CBPP) noted.

The lack of regulation also means that association health plans can establish their own standards for setting premiums. Whereas the Affordable Care Act bans assigning premiums based on job, age, and other non-health factors, association health plans can change the amount that an employee pays for their healthcare coverage due to these factors.

Some association health plans can also use pre-existing conditions and overall healthiness to determine premium rates, both of which are not permitted under the Affordable Care Act. And since association health plans do not have to participate in risk adjustment, they are incentivized to cover healthier individuals and reject sicker ones, opponents argue.

“AHPs can attract healthier consumers and leave behind sicker and costlier risk pools in the markets that would otherwise serve them. Thus, any savings that AHPs offer to healthier-than-average firms and workers likely come at the expense of higher costs for sicker-than-average firms and workers who remain in the ACA small-group and individual markets,” the CBPP researchers stated.

Association health plans are also commonly used for commercial fraud, CBPP added. Commercial fraud perpetrators might try to induce members to join an association in order to acquire group healthcare coverage, AARP alerted members in 2020.

As employers consider how to lower costs and offer the best set of healthcare coverage options to their employees, they will have a variety of benefits and challenges to examine when considering adoption association health plans.