10 Things to Know About Association Health Plans, a Potential Solution to Entrepreneurs' Healthcare Problem
Editor’s Note: In this series, The Way We Work, Entrepreneur Associate Editor Lydia Belanger examines how people foster productivity, focus, collaboration, creativity and culture in the workplace.
Whether you’re an independent contractor, freelancer or even a small-business owner, you shouldn’t expect to face entrepreneurship and all of its responsibilities alone. You probably have a support group of some kind, whether it’s a network of friends or an official professional group.
One of the more complicated aspects free agents have to figure out is health insurance. But now, one long-contended, less lonely option is gaining traction on the federal level: association health plans (AHP). In short, AHPs are groups of self-employed individuals that “band together by geography or industry to obtain healthcare coverage as if they were a single large employer,” according to the U.S. Department of Labor (DOL).
In June, the DOL passed a rule expanding access to AHPs, following the signing of President Donald Trump's executive order, “Promoting Healthcare Choice and Competition Across the United States” in October 2017, which outlined plans for the expansion. By April 1, 2019, the government will allow new associations to form for this purpose, as well as for associations that are already out there to establish themselves as AHPs if they have not already done so.
AHPs are a decades-old concept, and many already exist. However, what’s new this year is that geographic barriers are no longer a factor for people in the same industry who are interested in forming an AHP together, which is meant to drastically expand access. Also, sole proprietors will now be able to join them, along with small businesses, and obtain coverage for themselves and their families.
For example, freelance writers across the country could join forces and form their own association. The caveat is, a group of self-employed folks can’t just form an AHP for health insurance and no other reason, explains David Feinberg, VP of operations and risk at HR platform Justworks.
The Congressional Budget Office estimates that 4 million Americans will join an AHP by 2023, but additional context may make that projection seem a bit ambitious. The National Federation of Independent Businesses (NFIB), a long proponent of AHPs, has even cooled on the idea after years of advocacy, given the ways the new rules are structured.
That said, associations are soon going to be within reach for many entrepreneurs that may never otherwise have considered them to fulfill their needs, health insurance and beyond. Entrepreneur spoke with Feinberg and two other experts (on the gig economy and healthcare plan management, respectively) to find out more about what’s at stake with AHPs.
1. States tend to regulate one type of AHP more loosely than the other.This article won’t go too far into the weeds on the differences between the two types of AHPs -- “self-funded” and “fully-insured.” It’ll focus less on how they’re funded, per se, and more on what factors might limit each type.
Self-funded AHPs are regulated primarily at the federal level, meaning states will be less likely to limit what is covered under them, and interested groups of entrepreneurs can’t establish them until Jan. 1, 2019. Fully-insured AHPs, on the other hand, are allowed beginning next week (Sept. 1).
“Plans need to be self-funded, in my opinion, to offer the greatest flexibility” in terms of what’s covered," Feinberg says. He adds the caveat that “there are certain states that have laws on the books specific to AHPs and self-funding.”
Given the fact that the biggest change within the DOL’s recent rule is that AHPs can form across state lines, this might mean that a self-funded association decides to form in a more lenient state, then offer its plan to people broadly. (Think of it along the lines of how many LLCs set up in Delaware.) But that doesn’t mean that other states won’t perceive these approach as a loophole and fight it.
2. States are already suing the Department of Labor.Last month, 12 states filed a lawsuit against the DOL on the grounds that it exempts “a significant portion of the health insurance market from the Affordable Care Act’s consumer protections,” or eschews Affordable Care Act (ACA) compliance with coverage of what are called “essential health benefits.”
As Freelancers Union blog contributor Carol Poster contends in a June 21, 2018 post, the proposed changes to AHP regulations were “explicitly intended … to undermine the ACA insurance marketplaces and cause them to fail.”
When people band together across geography, they might self-select into a group of people that doesn’t have common health insurance coverage needs, from maternity care to mental health care to opioid treatment programs. A larger-size association would likely mitigate this, but it’s still important for entrepreneurs to pay attention to.
Entrepreneurs will have to make their choice between state-level marketplaces and AHPs after comparing pricing and coverage, keeping in mind the ability of each individual state to further regulate certain conditions or procedures AHPs can or cannot cover, explains Bryan Komornik, a director with business and tech consultancy West Monroe Partners and a member of the firm’s healthcare practice.
“I would suggest not necessarily getting caught up in whether it’s AHP or not AHP,” Komornik says. “It’s about the right type of coverage for you.”
And if you don’t know where to start or how to make sense of your options, “identify and reach out to a broker or someone who you trust who understands it to help you through the complexities and administrative challenges with getting enrolled,” Komornik advises. “As an entrepreneur, you can’t just do it all by yourself.”
3. Even without the states’ lawsuit, the new rules aren’t written into law.The states’ challenges are just one potential hurdle to the viability of AHPs. President Trump’s executive order is just that: an executive order, not a law.
“You have to at least bear in mind that with a new administration, that executive order could be changed,” Feinberg says.
4. Insurance companies and healthcare providers also have to get on board.“There’s a storied history of AHPs, not all of which ended well both for carriers and employees,” Feinberg says. “They’re looking to underwrite this properly.”
For example, AHPs can’t create different rate structures or deny coverage based on health status or pre-existing conditions, but they can for part-time vs. full-time workers, or HVAC contractors in New York vs. computer programmers in New York.
As far as these different rate structures go, Poster makes an important point on the Freelancers Union blog: “AHPs can vary charges by industry, raising the specter of higher costs for industries that traditionally employ more women or ethnic minorities.”
Anyone selecting insurance also has to be aware that, if they’re already committed to a certain physician or specialist, that medical professional may not be covered under a new plan, Komornik notes.
5. Health insurance is only one thing AHPs offer …With some of the looming obstacles to AHPs established, Feinberg says that entrepreneurs still have a lot to gain from them.
“Anything that offers competition in the marketplace and affords people the opportunity to get affordable health insurance relative to their needs is a good thing,” Feinberg says. “At the end of the day, I would rather see those who don’t have access today, or don’t have access to affordable coverage, get the coverage they need.”
After freelancers evaluate whether the coverage provided in an AHP corresponds with their needs, they should look at what else it’s founded on. Again, AHPs have to have a reason besides health insurance for forming. They might host an industry conference or receive group discounts on supplies or software purchases, Feinberg says. Moreover, the association can have existed before, for purposes unrelated to insurance, then pursue insurance and AHP status through the appropriate channels (the insurers and the government) on top of its previous initiatives.
6. … and there’s a practical reason for that.AHPs have to provide more than health insurance to their members for a reason. They have to be from common trade, for instance, to mitigate risk. By requiring that members have things in common, it allows the insurer to have a better idea of who the members are and what health needs they bring to the table. If a payer is uncertain as to the level of risk within a given pool of people, it will err on the side of charging a higher premium, Komornik explains.
That’s also why he says franchise businesses seem to be prime candidates for AHPs.
“You already have a platform or a product which is the same, aside from potentially your location, and a workforce that also falls into that same type of trade,” Komornik says. “Individual sole contributors have to do a lot more legwork to educate themselves to make the right decision.”
7. Lower-cost AHPs may destabilize the ACA plan market.One major concern about AHPs is that, because they’re not bound to ACA rules regarding coverage of essential health benefits, they’ll sometimes be less expensive than ACA plans. Entrepreneurs who pursue AHPs to save money may find themselves faced with a hefty medical bill down the road if they require treatment that isn’t covered by their AHP.
Meanwhile, if people with fewer health issues are enticed by lower-cost AHPs with less comprehensive coverage, "the impact could be that ACA plans are left with Americans in poorer health and, as a result, monthly premiums will continue to rise," Ryan McCostlin of benefits brokerage and HR software company Bernard Health told the Society of Human Resource Management. On the other hand, some worry that people with more health issues will seek out AHPs because they’ll need insurance, creating a higher-risk pool and therefore making the AHP more expensive.
8. Competition will be fierce.Just as AHPs will compete with ACA plans, they’ll also compete with each other.
“If associations spun off and were making money for a health insurer, now you have a competitive market where another health insurer would be interested in it,” Feinberg says. Conversely, if an AHP has attracted a pool of participants which has tremendous or uncertain health risk, an insurer may back away.
The goal of building an association should be to “strengthen the leverage by teaming up with others and make your market position better to lower those costs,” Komornik says.
Competition will also be a factor in terms of employee turnover. For small businesses participating in AHPs, if the AHP opts out of say, maternity care or mental health coverage, some employees may quit their jobs and try to find another employer with a benefits package that meets their needs.
9. The costs of getting set up may outweigh the savings.While inadequate coverage may present surprise costs despite the affordability of an AHP, so may the administrative costs of enrolling in one. Whether you’re spending your own time doing research or working with a broker or another expert to determine which plan is right for you, the health insurance selection process will almost certainly cost time and money.
This is not an issue specific to AHPs, of course, says Arun Sundararajan, professor of business at New York University and author of The Sharing Economy.
“Freelancers have not gotten to the point where they’re factoring in those additional costs when pricing their services,” Sundararajan says. And independent workers’ wages often aren’t sufficient to cover them.
One benefit of AHPs is that they’re a collective to turn to for answers, Sundararajan says.
“While there are a number of ways in which independent workers can potentially replicate the benefits that full-time workers have, the challenge is often bandwidth and the ability to have the right options placed in front of you,” Sundararajan says. He points out that, just as full-time employees often chat amongst themselves about their plan options, AHP participants may be able to lean on one another for guidance.
10. They show promise for independent workers to form collectives to other ends.While AHPs already must provide value beyond insurance, such as conferences or shared resources, they also may pave the way for independent workers’ to mobilize and amplify their voices regarding aspects such as wages and income stabilization.
If AHPs are starting to sound like unions, well, that might be a rabbit hole for another article, but there are obvious differences, such as the lack of an AFL-CIO equivalent to back up the associations. Still, Sundararajan says, people joining forces to fulfill an essential need such as health insurance could plan the seed to for the group to morph into something bigger.
“There are certain organizational inefficiencies that are associated with a lot of today’s unions, which are in particular sort of wedded to this notion that work comes in full-time employment chunks that we call jobs,” Sundararajan says. “The basis for collective bargaining and strengthening worker voice in the future of freelance work is going to have to come from a new generation of collectives.”