The Department of Labor on Wednesday released a proposed rule that aims to make it easier for small employers and certain self-employed individuals to form so-called "association health plans" (AHPs) to buy insurance.
The proposed rule stems from an executive order President Trump issued in October 2017 that seeks to ease some health insurance regulations and create an avenue for certain health plans to bypass requirements under the Affordable Care Act (ACA). The order directs federal agencies to consider changes that would loosen federal requirements on association health plans, short-term health plans, and employer-funded reimbursement accounts.
DOL will accept public comments on the rule for the next 60 days.
Proposed rule details
The proposed rule aims to expand access to AHPs by broadening requirements under the Employee Retirement Income Security Act (ERISA), such as the types of employers that are eligible to form an AHP.
According to the Washington Examiner, current regulations require members of an AHP to be in the same industry and to be involved in day-to-day decisions of a business. Further, associations sponsoring health plans currently must exist for a reason beyond providing health insurance, the Washington Examiner reports.
The proposed rule would ease those requirements and instead would allow employers in different industries to form an AHP if they reside in the same geographic region.
Specifically, the proposed rule would allow employers under ERISA to form an AHP if they:
- Are in the same trade, industry, line of business, or profession;
- All operate in a "principal place of business within a region that does not exceed the boundaries of the same State or metropolitan area (even if the area includes more than one State);" or
- Opt to "limi[t] themselves to a smaller geographic region, such as a city or county."
The proposed rule also would change the definition of an employer under ERISA to include self-employed individuals who work 30 hours per week or 120 hours per month and are considered "sole proprietors"—a move the Wall Street Journal reports that some experts say could prompt legal challenges.
In addition, under the proposed rule more AHPs would be considered large-group plans, which means they would be exempt from certain ACA regulations, such as the law's essential health benefit requirements.
According to a DOL official, the rule would not permit AHPs to charge different premiums to various businesses based on health status. The official also noted that the proposed rule would not pre-empt state law.
The goal of the rulemaking is to make coverage more affordable, particularly to small employers, by making it easier to create AHPs, the proposed rule states.
Larry Levitt, SVP for health reform at the Kaiser Family Foundation, in a tweet said, "The proposed association health plan regulations would open the door to insurance that is cheaper, mainly because it doesn't cover the ACA's essential benefits."
Levitt added that while AHPs could not vary premiums based on health status under the proposal, they would likely “find clever ways of cherry picking healthier people implicitly—e.g., based on what benefits they cover.” AHPs, he noted, “would be allowed to exclude benefits likely to attract people with pre-existing conditions, leaving plans following the ACA's requirements with a sicker pool of enrollees and higher premiums.”
According to Vox, both Nicholas Bagley, a law professor at the University of Michigan, and Tim Jost, a health law professor at Washington and Lee University, said the proposed rule's inclusion of self-employed individuals could face legal challenges.
Jost said, "That really changes the nature of ERISA, and I think there might be legal challenges based on that," adding, "It's supposed to regulate group health plans. To say an individual is a group is a bit of a stretch."
President Trump in an interview with the New York Times last week suggested millions of people could be affected by the AHP proposed changes. He said, "So now I have associations, I have private insurance companies coming and will sell private health care plans to people through associations. That's gonna be millions and millions of people. People have no idea how big that is."
Bagley noted that an influx of AHP enrollees could create "a real drain" on the ACA's exchanges and imbalance risk pools. He noted that under the proposed rules, Uber drivers who work more than 120 hours per month could qualify as sole proprietors and join together to form an association, instead of purchasing coverage through the exchanges.
Bagley also noted that under the rules associations could "redline" their geographic regions to exclude higher-cost rural areas. Bagley said, "You could imagine lots of creative efforts to define geographic areas to exclude high-cost employees and high-cost areas."
In a Dec. 14 letter, health groups, including America's Health Insurance Plans, wrote, "We are concerned that this could create or expand alternative, parallel markets for health coverage, which would lead to higher premiums for consumers, particularly those with pre-existing conditions" (Leonard, Washington Examiner, 1/4; DOL proposed rule, 1/5; Armour, Wall Street Journal, 1/4; Scott, Vox, 1/4; Cancryn/Demko, Politico, 1/4; New York Times, 12/28/17).
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