The U.S. Department of Labor recently announced regulations that will allow for the expansion of Association Health Plans (AHPs). But what exactly are AHPs, and what do they mean for small businesses?
Essentially, AHPs allow small businesses to band together to purchase health insurance. The definition of a small business varies by state, with most states capping it at 50 employees, and California, Colorado, New York, and Vermont at 100 employees. While we have seen efforts to promote AHPs since the 1980s, the new rules are unique in that they also allow sole proprietors – or someone who solely owns an unincorporated business – to join the associations. Previously, sole proprietors could only buy individual coverage, but now they have the option of participating in the association plans.
The new rules allow carriers to introduce AHPs as early as September 2018, so we may see plans on the market as soon as this fall and early next year.
How many small businesses and sole proprietors does this affect?
According to the U.S. Small Business Administration, there are over 5 million small businesses in the United States, which in total employ almost 40 million people. There are also about 23 million sole proprietorships, which will likely continue to increase along with the growth of the gig economy and number of freelancers in the workforce. The expansion of AHPs, therefore, has the potential to impact the lives of a huge number of people.
Today, there are more than 35,000 associations in the United States, organized by geography (state or greater metropolitan area) or industry. Some examples include your local Chamber of Commerce, the National Restaurant Association, and the National Writers Union. Existing associations can be grandfathered in under the new AHP regulations, but new associations will have to meet the following criteria: 1) be in the same geographic area or the same industry; and 2) have another business purpose other than offering health insurance.
Existing options for these small businesses and sole proprietors aren’t going away. Small businesses can still participate in the small group market and Small Business Health Options Program (SHOP), while sole proprietors will still be able to purchase individual coverage. AHPs will just add another layer of choice to the market.
AHPs provide small businesses with the opportunity to offer health insurance at lower premiums, which is important because cost is one of their main concerns. Healthcare costs are an issue for almost everyone, but are especially significant for small businesses, which are usually juggling between growing their business and paying for increasing costs of growing their team.
AHPs are likely to provide lower premium options for two reasons: 1) they are exempt from requirements to cover the 10 essential benefits required by the Affordable Care Act; and 2) the law allows for more flexibility in the way AHP premiums are set.
Thus, AHPs allow some small businesses to be able to offer health plans with lower premiums. In turn, these lower premiums may mean that businesses can offer insurance to their employees when previously they could not afford to do so.
But with some caveats
While AHPs offer lower costs for some, it’s also important to remember that you don’t get the same benefits as you would with a traditional health plan.
The Affordable Care Act outlined certain essential benefits that have to be included in health insurance plans, including preventive care, ambulatory services, emergency services, hospitalization, mental health services, maternity care, prescription drugs, rehabilitation, laboratory services, and pediatric care. AHPs are exempt from these regulations and may not cover some of these things.
The new AHPs are better for relatively healthy individuals without high needs for medical services. If small business or sole proprietorship clients need any of the services mentioned above, or just generally utilize care more frequently, be aware that AHPs may not cover all the benefits they frequently use. The expansion of AHPs makes it especially important to understand plan benefits before purchasing health insurance. Buyers should compare premiums, benefits, and network coverage between AHPs and other existing options on the market (including fully-insured or self-funded plans). By doing this research, you can help clients make an informed decision and pick a plan that best meets their employees’ health needs.