Are association health plans a viable small business health insurance option?

Association health plans (AHPs) are one way to provide employee benefits while reducing costs and utilizing less administrative overhead. According to the Washington Policy Center, AHPs actually provide better health insurance coverage while carrying a smaller regulatory burden for employers than the Small Business Health Options Program (SHOP), which was created under the Patient Protection and Affordable Care Act (ACA). Therefore, the Washington Policy Center believes that Congress should amend the ACA and allow small employers and their workers to make greater use of the benefits of AHPs.

AHPs. AHPs fall under a more broadly defined group called multiple employer welfare arrangements (MEWAs). Rules governing the conduct of MEWAs were put into place by Congress, and specifically for AHPs, under the Employee Retirement Income Security Act (ERISA) of 1974. In 1982, states were given the right to regulate MEWAs; in 1996 the Department of Labor was given oversight authority of all MEWAs.

In Washington, AHPs were legalized in 1995. The Washington State Insurance Commissioner attempted to limit the use of AHPs in the state twice, but both times the Court ruled against the Commissioner and in favor of the plans.

ACA impact on AHPs. The ACA imposed a new rating requirement called “community rating” for all health insurance plans sold in the United States. It also mandates certain insurance requirements within the individual and small group markets. Beginning in 2016, a small group is defined as any organization with 100 or fewer employees. An AHP with multiple employers and covering more than 100 employees total therefore qualifies as a large group and is not subject to federal mandates such as community rating, no denial for pre-existing conditions, benefits set by the government, and minimum actuarial value.

According to the Washington Policy Center, the administrative burdens outweigh the financial incentives on small employers to use the SHOP plans and AHPs would be a significantly better alternative. The organization contends that “the key is the voluntary choices made by small employers and their employees in seeking affordable health coverage, rather than attempting to navigate a narrow and complex state-run program as is the case with SHOP.”


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