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Small employers might have an easier time offering health insurance to their workers after the White House told the Labor Department to take a fresh look at past guidance on association health plans.
President Donald J. Trump’s Oct. 12 executive order directs the DOL to issue regulations or revise guidance to let more employers join such plans. AHPs provide health coverage, usually within an industry, to businesses sharing “a common interest.” The EO directs the DOL to consider expanding the conditions that satisfy the “commonality‑of-interest” requirement. Members of association health plans are currently subject to more stringent small group market requirements, including providing essential health benefits.
The DOL could reverse years of guidance that require a commonality of interest in order to be part of an association health plan. An unintended consequence of this change, some say, is that it could damage the small group market by allowing association plans to cherry-pick healthy patients. The insurers sponsoring the association health plans could do that by attracting employers with younger, healthier workers with lower premiums, critics say. That would leave employers with older, less healthy populations to face higher premiums on a small-group market filled with older, sicker individuals, as well as women of child-bearing age. Ultimately, insurers may leave the small group market if they decide it’s not worth their while to cover these populations.
It’s not clear what changes the DOL will make, but there’s a concern that expanding association health plans too much could be problematic. “You may end up further splitting the health insurance market so that you have healthier people in these other plans and the sicker people end up on the individual market,” Carolyn E. Smith, counsel with Alston & Bird in Washington, told Bloomberg Law. Smith’s practice focuses on regulatory and compliance issues related to health care.
The DOL wants to be ahead of the curve and is already working on guidance in response to the order, Katy Spangler, senior vice president for health policy at the American Benefits Council, told Bloomberg Law. Attorney Rachel Leiser Levy, former associate benefits tax counsel in the Treasury Department’s Office of Tax Policy and now a principal at Groom Law Group, also told Bloomberg Law that the DOL has guidance in the works, but she said the agency has been “closed lipped on the substance.”
Bloomberg Law reached out to the DOL to see if it’s already preparing guidance in response to the order. The department didn’t immediately respond.
The president’s executive order says the DOL should modify rules for determining when an association is considered an “employer” for group health plan purposes. Expanding the definition would allow more association health plans to be treated as a single plan so they could take advantage of the less onerous rules governing large group health plans, Smith said.
If association plans end up being subject to the same rules as large plans, the plans’ insurers could use medical underwriting--a process that insurance companies use to determine whether to offer someone coverage and at what price.
This could lead the insurance company sponsoring the association health plan to offer health coverage to employers with younger, healthier populations at a lower rate, Sabrina Corlette, a research professor at the Center on Health Insurance Reforms at Georgetown University’s Health Policy Institute, told Bloomberg Law. Meanwhile employers with older, sicker people, and women of child-bearing age would face higher premiums, she said.
As a result, employers with younger, healthier populations would gravitate toward the association health plans, while the other employers would be left on the small-group market and face higher premiums because the risk pool would be filled with higher-risk individuals, Corlette said.
The executive order also asks the DOL to revisit advisory opinions that require employers wanting to join together to have a link or commonality of interest.
In the past, the DOL has stood firm in its interpretation that groups of employers must have a common bond or nexus to qualify as a single entity for purposes of multiple employer plans and multiple employer welfare arrangements. Relaxing that requirement would give more employers the opportunity to participate in what would essentially be a large group health plan and getting the benefits that come with that.
Trump is asking the DOL to “overturn two or three decades of guidance limiting the reach of association health plans,” Alden J. Bianchi, a member at Mintz, Levin, Cohn, Ferris, Glovsky & Popeo PC in Boston, told Bloomberg Law. “He’s asking for a very heavy lift,” said Bianchi, who is the practice group leader of his firm’s Employee Benefits & Executive Compensation Practice.
Because of the long history of guidance, there’s a question about whether new guidance could withstand court scrutiny, Mila Kofman, executive director of the DC Health Benefit Exchange Authority, told Bloomberg Law.
Another big question is whether the DOL will allow individuals to participate in association health plans. Currently, a self-employed person without employees isn’t an employer. The DOL could change the definition of an employer under the Employee Retirement Income Security Act to include self-employed people. If it goes that route, the agency may be on “very shaky legal ground,” Corlette said.
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