This article will focus primarily on the identification and understanding of the varying health risks and costs of association health plan (AHP) groups and how best to align premium to these relative costs. While pricing is not the only risk that can have an adverse impact on AHPs, managing it is a key pillar to the long-term sustainability of these plans.
The DOL rule on AHPs
The final rule on association health plans was approved and implemented on June 19, 2018, by executive order, and communicated via the U.S. Department of Labor (DOL). The main purpose of these plans is to provide a platform where similar employers, including single-life owner-employees, could pool their healthcare costs and risks to provide health benefits to themselves and their dependents. The main objectives would be to find more affordable health insurance coverage for small employers, without some of the benefits mandated by the Patient Protection and Affordable Care Act (ACA). The main tenets of the rule are as follows:1, 2
- Employers may come together under a looser definition of commonality, such as industry or region.
- These AHPs do not need the previous definition of being bona fide associations to form health plans.
- Single-life employer groups, often referred to as employee-owners or self-employed groups, are permitted to enter an AHP.
- AHPs do not have to offer ACA-compliant plans.
- Nondiscrimination practices would be in effect for these new AHPs. Primarily, varying premium or declining coverage based on health conditions is not permitted.
- Premium can vary by other acceptable risk classes, such as group size, area, or industry, for example.
It is important to note that the U.S. District Court for the District of Columbia (D.C.) has recently ruled invalid and vacated some key tenets of this new rule.3
AHP risk management considerations
To bolster the chance of long-term success for these new AHPs, active risk management of their plans is necessary. Certain key areas need to be considered and will require specific attention and monitoring, such as member engagement, pricing strategies, and funding arrangements.
In October 2017, the Trump administration issued the “Executive Order Promoting Healthcare Choice and Competition Across the United States.” This sought to provide additional health insurance coverage options for small groups and individuals outside of the Patient Protection and Affordable Care Act (ACA) market. One option the executive order addressed directly is the association health plan (AHP) for small groups and certain individuals.
In January 2018, the proposed rules for AHPs were issued, and in June 2018, the final rule was released.
Prior to the release of the final rule, associations did not have a well-defined pathway to being determined bona fide. Instead, each association’s facts and circumstances were evaluated against three broad issues:
• Does the association exist for a purpose other than providing benefits?
• Do employer members of the association have a close enough relationship to be essentially a single common entity?
• Do employer members control the health plan in form and substance?
With the new pathway identified in the June final rule, the second criteria is made much more explicit and can be satisfied by demonstrating that association members share a common industry or geography.
Many, if not most, of the currently existing associations, including local and national chambers of commerce, local or national industry groups, professional groups, and regional interest groups, could fairly easily fulfill all the conditions to become a bona fide association under the latest rules and thereby offer a large-group health plan as an employer. This was not the case prior to the president’s executive order.
In this article, Milliman consultants Fritz Busch and Jason Karcher examine the final rule released in June, evaluate considerations for sponsors of AHPs, and briefly assess the final rule’s impact on the small-group health and individual markets.
Senator Kent Conrad recently introduced what he characterized as a compromise on the contentious issue of having a public plan under healthcare reform: a healthcare co-op. This interview with Milliman principal Jim O’Connor analyzes the co-op concept in more detail.
Q: What is a co-op and how does it differ from a public option?
A: A cooperative health plan, or co-op, is member-controlled rather than government-controlled, and is typically not a for-profit corporation. A co-op must negotiate its payment or reimbursement rates for hospitals and physicians in the market, and cannot dictate them through legislation and regulation like the government could under a public plan. With a co-op, the roles of government regulator and health plan providing coverage are kept separate. The co-op concept is oriented around member decision-making and control, distinguishing it from for-profit insurance carriers. Because it would compete against for-profit and other heath carriers, however, a co-op must offer products that are attractive to the public in a marketplace with choices and must employ prudent rating and enrollment practices if it is to be successful. Determining any requirements or restrictions on those practices, as they apply to all health plans, is one of the many important questions under reform.