Trump Rule on Association Health Plans Could Devastate Small-Group Markets

The Trump Administration’s proposed new rule to dramatically broaden enrollment in association health plans (AHPs) would likely have a devastating effect on small-group insurance markets, raising premiums for small businesses with older or sicker workers and reducing coverage and consumer protections for people in AHPs. It would likely hurt the individual insurance market as well.

If finalized, the rule, which is open to public comment for 60 days, would roll back a number of federal limits on AHPs — health plans that a trade association, professional group, or other association offers to its members. First, it would make it easier to form AHPs and expand their enrollment, such as by eliminating the requirement that the association have a purpose other than offering health insurance and by allowing self-employed individuals to access AHPs. Second, it would enable AHPs to be treated as large employer plans for purposes of health coverage requirements, even if they provide coverage to small businesses or individuals. Current rules generally require AHPs offering coverage to small employers to abide by the same consumer protections that otherwise apply in the small-group market; individual-market rules similarly apply to AHPs offered to individuals.

Treating more AHPs as large employer plans would effectively exempt AHPs with small business and individual members from many standards and consumer protections that would otherwise apply. For example, AHPs would not have to cover the Affordable Care Act’s (ACA) list of essential health benefits, so they could — and likely would — exclude or sharply limit coverage of benefits such as mental health care, substance-use disorder services, and prescription drugs.

Under the rule, an AHP couldn’t base eligibility or premiums for an individual employer on the health status or claims history of the employer’s workers, but it could base premiums on the AHP’s overall enrollee pool. Thus, AHPs could be structured to attract firms with healthier-than-average workforces (or healthier-than-average self-employed individuals) and offer them lower-than-average premiums. AHPs also could charge sharply higher premiums due to age and tobacco use (a practice that the ACA restricts in the individual and small-group markets) or base premiums in part on characteristics such as a person’s occupation or gender.

Because the rule would subject AHPs to substantially weaker standards than ACA-compliant plans in the small-group and individual markets, they could — and likely would — be structured and marketed to attract younger and healthier people, thus pulling them out of the ACA-compliant small-group market and leaving older, sicker, and costlier risk pools behind. Enrollees who need comprehensive coverage, or those with pre-existing conditions and with incomes too high to qualify for subsidies, would face rising premiums. (Short-term plans and health reimbursement arrangements, which President Trump also promised to expand under an October 12 executive order, raise similar risks of adverse selection — separating insurance markets into healthy and unhealthy risk pools, which reduces affordability and access to comprehensive coverage.)

While the rule’s potential danger to small-group markets is quite clear, the harm to individual insurance markets may be more limited but still significant — 1 in 5 enrollees in the ACA marketplaces was self-employed or a small business owner in 2014, the Treasury Department reported. Under the rule, they would be eligible to join an AHP that functions as a large-group health plan. Healthier self-employed people leaving the regular individual market in favor of lower premiums and skimpier benefits could undermine the risk pool and raise premiums in the individual market. That would compound the Administration’s ongoing actions to sabotage the individual market and the pending repeal, in 2019, of the individual mandate that most people get coverage or pay a penalty.

The rule would also put people who enroll in AHPs at significant risk, particularly if they have a pre-existing medical condition or develop costly health needs. For example, a small business owner with a predominantly healthy workforce might choose to enroll in an AHP with lower premiums, but employees who later develop cancer or HIV might find that important treatments are not covered.

In addition, many workers at small businesses that do not offer coverage have benefitted from subsidized coverage in ACA marketplaces. If the small firms that employ those workers join AHPs, some people with modest incomes could be barred from receiving subsidies if they have an affordable and adequate offer of employer coverage.

By weakening federal limits on AHPs, the rule also could make it easier for unscrupulous AHPs to set up shop. AHPs have a history of financial instability and fraud. And while the rule suggests that states could set standards (such as benefit requirements) for AHPs that would help protect consumers and guard against adverse selection, it’s not clear how this would work in practice.

AHPs have long drawn criticism from a wide variety of stakeholders and experts — from state insurance regulators and governors to insurers, actuaries, and consumer advocates — for the risks they pose to enrollees, to access to comprehensive coverage, and to market stability. The Administration should pay greater heed to these dangers and avoid finalizing this proposed rule.