AHP litigation and the impact for small businesses

In March, the U.S. District Court for the District of Columbia found in favor of the state of New York (and 11 other participating states), who sued the Department of Labor over portions of the new association health plan regulations issued in 2018.

The ruling struck down two of the 2018 expansions to existing AHP regulations: formation of geography-based programs for non-same trade businesses and participation in AHPs by sole proprietor-based businesses. The ruling also essentially affirmed old rules for same trade or business and those without sole proprietors.

The lawsuit specifically called out the Trump administration’s stated desire to unravel the Affordable Care Act and ties the 2018 AHP rule to these efforts. It expressed concern that small group employees and individuals will be left unprotected if AHP collective sourcing migrates them to the large group market, because they will not have the benefits of the small group and individual market protections. The lawsuit’s concerns revolved around possible reduction of ACA policy-related benefits, cherry picking underwriting and advantageous pricing of the healthiest groups, eliminating pre-existing conditions, and lower coverage per dollar spent.

The lawsuit, however, actually affirms that traditional AHPs are valid by stating that federal courts for decades have interpreted that phrase to cover only associations whose members share a true commonality of interest, or close nexus, with one another.

Does this new ruling impact current AHPs?

Traditional AHPs remain viable under long-standing ERISA law and interpretations. This includes plans for employers with two or more W-2 employees in the same trade or business to come together for medical insurance sourcing purposes. Practically, this means trade associations of businesses in the same industry, collections of common franchisees, or franchisees of different brands in the same trade or business (like quick service restaurants) are still able to form AHPs.

Traditional association health plans are allowed under existing ERISA law and are not impacted by this ruling. Many in-progress AHP franchise and association partnerships are built upon this traditional AHP framework.

In spite of the DOL ruling last year, most AHP solutions are still based upon the four standard requirements of creating and administering AHPs:

Must be related trade or business. Partner with associations and franchises that meet the same trade or business criteria, franchises of common brands or different franchise brands in the same trade or business (ex. Various restaurant brands, or cleaning services brands).
Delivering medical and other benefits for traditional common-law employers and their W-2 employees. When there is clear regulatory and carrier support for including sole proprietors and 1099s at the state level, there may be limited opportunity for now.
AHPs created for a primary purpose other than sourcing medical Insurance. Full recruit to retire solutions for businesses for association members, can help fulfill this association AHP requirement.
For well-governed, independent AHPs. An AHP must be governed by members, for members; it cannot be broker or insurer owned or managed.

Successful AHPs and program solutions will likely be fully insured medical insurance solutions complying with ACA and state-level requirements for essential coverages, to meet the demands of ACA qualified products under existing law. Many state regulators are still leery of self-funded AHPs, and each state has different requirements for approving self-funded programs.

The AHP is still important for small business

Small businesses and individual franchises generally do not qualify for large group plans with lower rates, or expanded coverage for both medical or non-medical benefits. This dramatically impacts 6 million small businesses employing 60 million (40% of the U.S. workforce). Nationally, only 53% of small businesses offer health and other benefits to employees.

In addition to the 30 million or so small business employees that do not have access to employer-sponsored or co-funded medical insurance, those that do traditionally pay more per employee than large employers and adhere to stricter employee participation requirements. Additionally, small-group insurance providers of medical and other benefits often offer narrower coverage than those large companies can source and offer to their employees. Large companies have the advantage of employing HR and benefits professionals specifically to navigate the complicated waters of benefits sourcing and delivery.

Surveys conducted by Decisely across more than 25 different association and franchise organizations, representing more than 90,000 employees, clearly reinforce small business interest in complete benefits program solutions on a collective basis.

The key finding is that small businesses need to find solutions to address both the lack of plan benefit affordability and healthcare access.

Out of more than 1,000 small employers surveyed, the majority said they did not offer benefits because of cost, complexity and administration. To small businesses, benefits are often complicated, confusing and expensive.

AHPs are a proven method of improving the health of small businesses and their employees. For one of our AHP clients, more than 35% of franchise members were able to secure employer-sponsored benefits for the first time. Among the owners who already offered benefits, average savings on medical insurance alone was more than 20% (more than $1,100 per employee), addressing concerns of affordability. A full 36% of these employers broadened benefits offered to employees, adding benefits such as dental, vision, life and disability.

The potential of AHPs will still be a game-changer in terms of potential savings and efficiencies for small businesses and millions of employees. Appropriately defined associations, franchisors and their small businesses capitalizing on opportunity can do so with careful planning for creation and administration of their AHPs.

Chris Duncan is chief operating officer of Decisely Insurance Services.

Originally published at Employee Benefit News on June 16, 2019.