Author(s):Several

New Regulations in Association Health Plans – United States of America

Introduction

Benjamin Carson once said that Healthcare is one-sixth of the economy of the United States. He went on to state that if the government can control, then they control just about everything. Thomas Vilsack supports these views by stating that the future of healthcare security is dependent on flexibility from the federal government. This flexibility allows the healthcare system to serve the most vulnerable of citizens and to ensure that they are catered for. Association Health Plans represent an attempt by the government to ensure that vulnerable groups, those who work for small employers are catered for. The question of whether this goal will have been achieved by the new rule on association health plans is the focus of this article.

Background

Prior to the new rule on association health plans, federal law and regulations did not consider association health plans to be a single employer. The federal law and regulations prohibited employers for grouping together solely for health insurance. Federal law and regulations required that an association be in existence for five years before offering employees healthcare coverage. To determine what market rules, apply the Department of Labour would pierce the corporate veil to see who the individual or employer is. The Department of Labour would then enforce laws and regulations in accordance with their size. This meant that three separate members of the same association would have access to the plans in the market that correspond with their size. Other laws such as the Consolidation Omnibus Budget Reconciliation Act (COBRA) also apply in this way.

Previously, employers could only create associations that sponsor healthcare plans if they shared a commonality of interest other than the interest in providing multiemployer benefits. Thus, Association Health Plans were only available to members of large trade organisations.

What are Association Health Plans

Organisations, states and regulators and consumers have been attempting to understand the impact and feasibility of the new regulations issued by the United States Department of Labor on the 19th of June 2018. The expansion of Association Healthcare plans was the result of President Trump's executive order "Promoting Healthcare Choice and Competition Across the United States". The Promoting Healthcare Choice and Competition Across the United States executive order was a response to the legislative failure to repeal the Affordable Care Act. The United States Department of labour was tasked with writing the rules of the Association Health Plans expansion. The Department of Labour then considered over 900 public comments and the final draft of the Association Health Plans was issued on the 21st of June 2018.

Association Health Plans are group health plans that employer groups and associations offer to employees to provide health coverage for employees. Association Health Plans give small employers the opportunity to offer the types of healthcare coverage that are usually provided only by large employers. Small employers can band together because several small employers can now pool their resources together to purchase such types of coverage. The small employers can group themselves according to common geography or common industry. The small employers will be recognised under the law as a single employer. There are certain specific criteria that a group of small employers must meet if they are to be regarded as a single employer. The criteria include proving commonality, structure and control of the association, health non-discrimination protections.

A group of employers must meet the following requirements if they are to establish a group health plan. The group or association must exist to participate in a group health plan. It is not necessary that the entire purpose of the association of the group be to create a health plan. An employer is defined as a person acting directly as an employer. The employer must have at least one employee who is a participant covered under the plan. The group or association must have a formal organisation structure with a governing body and has by-laws. It is enough that the group or organisation has other indications of formality. The functions and activities of the group or association must be controlled by its employer members whether directly or indirectly. This control can be illustrated through a regular nomination and election of directors, officers or other similar representatives that control the group. These directors, officers and other representatives must manage the establishment and maintenance of the plan.

The group of employers must have a commonality of interest. The commonality of interest is the criteria that require that employers may band together if they belong to the same trade, industry, line of business or profession. The second requirement is that the employers must have their principal place of business within a region that is within the boundaries of the same state or the same metropolitan area. Also, it is required that the group of association must not make health coverage available other than to employees, former employees, and their family members or other beneficiaries. The group of association must not issue or controlled by a health insurance issuer.

The last requirement is that the health coverage offered by the group or association must not infringe on non-discrimination provisions. This requirement means that the group or association must not create conditions based on health factors which determine whether an employee, former employee or employee’s family members can benefit from the healthcare plan. There is to be no discrimination on the grounds of health status, medical condition, claims experience, medical history, genetic information or disability. Compliance with non-discrimination premiums and contributions required by any participant or beneficiary under the plan is compulsory for the group health plan. Employers are not using a health factor as a means to define a similarly situated group. All similarly situated groups of people must be treated the same. The Association Healthcare Plans are permitted to sue non-health related factors to define groups

Under the new Healthcare plan, a working owner qualifies both as an employer and as an employee of a trade or business. A working owner is defined as a person who has an ownership right of any nature in a trade or business. Trade or business can be incorporated or unincorporated. The definition of an owner includes partners or other self-employed individuals. Independent contractors may be eligible to benefit under the Association Health Plan if they satisfy the definition of a working owner under the rule.

All Association Health Plans are Multiple Employer Welfare Arrangements under the final rule. , and they are subject to state law regardless of size. State coverage mandates, certain consumer protection and the establishment of funding reserves and other risk management apply to Multiple Welfare Arrangements. Some states are more favourable to Multiple Employer Welfare Arrangements than others.

State insurance departments are delegated authority to regulate the Association Healthcare Plans. States are at liberty to enforce existing regulations or create new regulations to limit or prohibit these Association Health plans. States may also make these subject to state law regardless of size.

According to the 2019 Economic report released by the Department of Labour, it was stated that the association health plans must be short term, limited duration health plans. These health plans are supposed to create to $249 billion in value over the next ten years.

The new Association Health Plan Department of Labor final rule expands the formation and treatment of Association Health Plans. These new Association health plans create a new methodology for multiple employer groups to come together as a single large employer to purchase a health plan. The new rule allows small businesses, including self-employed workers to band together and obtains healthcare coverage. Employers within a region or an industry can aggregate, which allows certain entrepreneurs to participate even If they do have any employees.

It is possible, in terms of the Association Healthcare Plans to charge different premiums to different classes within a given employer member. Different premiums can be charged as long as they are not based on the health factor. Premiums can also be charged based on employment classification that exists within the business, for example charging different premiums for full-time employees versus part-time employees.

Several obligations are placed on groups or associations offering Association Healthcare Plans under the new rule. These responsibilities are derived from the provisions of ERISA, and they include fiduciary duty, required disclosures, for example, Summary of Material Modifications, as well as compliance with rules regarding the operation and administration of the Association Healthcare Plan. Furthermore, groups and associations offering Association Health Care Plans must fulfil the requirements of the Affordable Care Act. These requirements include a Summary of Benefits and Coverage, employer reporting, plan requirements and medical loss ratio requirements.

Other laws that apply to health plans include Network adequacy, Pregnancy Discrimination Act of 1978, Federal non-discrimination laws, Mental Health Parity, COBRA, Medicare secondary payer rules.

Impact of the Association Healthcare Plans

The new methodology affects the implementation of the Affordable Care Act (ACA) and other laws that regulate the actions of employers. The success or failure of the new rule is dependent on the state, insurance carriers and each association itself. Currently, the states that have the new association health plans include Texas, Florida, Ohio, Georgia, Michigan, Wisconsin, Minnesota, Virginia, Vermont, Nevada, Nebraska, West Virginia and Vermont. At the time of writing 71% of the new association health plans were launched by regional associations. Third-party insurers insure 86% of the new association health plans. 43% of the new association health plans are available to sole proprietors and the self-employed. 50% of the fresh Association Health Plans include a medical savings account. Multistate association health plans require additional preparation and insurance filings.

Advantages

The rhetoric surrounding the Association Health Plans is that it expands affordable health coverage options for small businesses and their employees in America. It has been argued that America’s laws have had the effect of making healthcare coverage more expensive for small businesses than large companies. Accordingly, the Trump Administration is aimed at providing more choice, more access and more coverage. The Department of Labor wished to create more affordable alternatives for individuals and small employers. The Department of labour also wanted to offer plan options that are do not have to comply with the ACA or state coverage mandates. This change is advantageous because it would lower the cost and eliminate the requirement to purchase coverage that the individual may not need. The new Association Healthcare plans were purposed to bring affordable alternatives to previously uninsured business owners. Furthermore, there was a need to provide working owners with the group health care option as an alternative to the individual market.

It is essential to evaluate these healthcare plans in light of the goals outlined by the Trump Administration. There are numerous advantages available to small employers under this plan. Firstly, small employers may now be able to attract the calibre of employees that large employers attract. This is because they can offer the same type of healthcare coverage that employees in large companies enjoy. Secondly, these small employers will be able to provide such cover inexpensively. Thirdly, the healthcare plans referred to can be tailored to the needs of their employees.

Employers can avoid regulatory restrictions that pertain only to the small group market, enhance their ability to self-insure, offer a wide array of insurance options, avoid regulatory restrictions that are applied only to the small group market. Employers are also able to increase their bargaining power and secure more favourable deals. Administrative costs for employers are also reduced through economies of scale. Furthermore, there are more insurance options available.

Disadvantages

Much of the money that is said to be saved according to the requirements of the Affordable Care Act that is commonly referred to as Obamacare. The purpose of the rules issued by the Department of Labour was to undermine the Affordable Care Act (ACA) and the Employee Retirement Income Security Act (ERISA) of 1974. The Affordable Care Act requires that insured plans offered in the individual and small group markets provide a core package of healthcare services. This core package is comprised of ten essential health benefits. The Affordable Care Act, however, does not apply to large employer group plans and self-funded plans. This means that the large employer plans are not required to offer their employees essential health benefits and have greater flexibility to plan the design of the healthcare plan. Association Health Plans fall under the category of more extensive employer plans, meaning that the Affordable Care Act does not apply. Less regulation for Association Health Plans makes them more susceptible to abuse. Furthermore, premiums are not to be based on individual demographic factors.

The Employment Retirement Income Security Act governs employee benefit plans. The Act provides certain protections to employees as long as there is a proved employment relationship. The Employment Retirement Income Security Act does not employer associations acting in the interest of an employer as employers for the act. Allowing associations created for the sole purpose of creating an association health plan undermines the objectives of the Employment Retirement Income Security Act.

11 States and the District of Columbia have initiated a suit the United States Department of labour for extending the definition of an employer as stated in the Employee Retirement Income Security Act of 1974. California, Delaware, Maryland, Kentucky, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Virginia and Washington sued the Department of Labour for overreach and misinterpretation of the law. The states also noted that the Association Health care plans would not offer all the essential health benefits that the Affordable Care Act requires. The rule allows employers to evade the Affordable Care Act consumer protections. The effect of this will be that individuals will be underinsured. The States will then become responsible for those individual costs, or the full costs for those who cannot afford the coverage.

The State stands to suffer considerable economic harm through the use of the Association Health Plans. On the 29th of March 2019, in the case of State of New York v U.S Department of Labor, U.S. District Judge John Bates called the policy an end run around the patient protections and regulations established by the Affordable Care Act. As a direct consequence of the plan, states also stand to suffer economic harm including the loss of tax revenue and administrative fees that were previously received from small group and individual insurance plans. Besides, insurance companies stand to suffer as Association Health Plans may become large enough to self-insure, meaning there will be demand for group or individual fully-insured health coverage. Group and individual fully-insured health coverage are subject to premium taxes and other fees.

Apart from financial concerns, the new Association Health Plans are a regulatory burden on the state. This is because, as more Association Health Plans form, state agencies are required to oversee their activities by reviewing new and existing health plans for compliance with state laws. The state agencies will also have to ensure that the Association Health Plans are stable enough to protect consumers. In addition, state agencies will have to respond to consumer complaints and respond to allegations of fraud and abuse enforcement. The state governments also have the burden of educating the masses on the Association health plans through media campaigns and other methods.

The Judge stated that the Association Health Plan rule “does violence” to ERISA as it deconstructs the law’s emphasis that employee benefits should arise from actual employment relationships. Essentially, Judge Bates ruled that the final rule widens the definition of an employer as the entity that can sponsor employee benefits plans beyond the scope of the Employee Retirement Income Security Act. The ruling by the district judge has been hailed to be a victory that will help ensure better health care for millions nationwide. The rule on association health plans is no longer valid in the eleven states that filed the lawsuit.

The Association Health Plans also face opposition from the American Medical Association and the American Hospital Association. Moreover, It has been argued by finance experts that the rule for Association Health Plans could result in fewer insured American, higher premiums and for those who remain in the realm of the Affordable Care Act. Consumers are at risk of fraudulent action by the new groups entering the field. For small businesses, this may mean that limited coverage and high deductibles. Such a situation can leave a small business you racing to bring in cash to cover an emergency.

Conclusion

Although the new rule on Association Health Plans widens the definition of an employer, the rule has the effect of undermining previously established employee and consumer protections. As a result, the new rule benefits employers while leaving employees vulnerable to inadequate health coverage.