Association Health Plans

Simply stated, association health insurance is just a group health plan where multiple employers (including the self-employed) join together to offer medical benefits. By joining together and increasing the number of participants to the point where the association qualifies as a “large group” health plan, the association can:

• Take advantage of less-expensive health plans that have a lower percentage of premiums spent on insurer profit and administrative costs
• Design plan benefits according to best practices among large businesses & explore the value of digital health program innovations
• Negotiate better rates from healthcare providers and insurers
• Consider self-insuring to lower plan administration costs further and avoid health insurance tax

For a more detailed overview of association health insurance, read our article “What Is an Association Health Plan?” or you can explore our book-length treatment Association Health Plans & the Future of American Health Insurance.

Much of the interest in association health plans (AHP) concerns its potential to lower health insurance costs for smaller employers as well as the self-employed, freelancers, and workers belonging to the “gig economy.” A survey by the National Federation of Independent Business (NFIB) found that the “cost of health insurance” was ranked as a critical problem by 52% of small business owners.

In a recent report, healthcare research firm Avalere has projected that association health plan premiums will have significant savings advantages over alternative insurance options. They predicted that association plan premiums will be “between $1,900 to $4,100 lower than the yearly premiums in the small group market and $8,700 to $10,800 lower than the yearly premiums in the individual market by 2022.”

There are multiple reasons why association health plans can reduce the cost of health insurance coverage. First, by allowing smaller employers as well as individuals to band together, these plans can avoid the very expensive, and often limited, insurance options within the Affordable Care Act market. Second, in most states as few as 51 total employees within a group health plan will qualify it for “large group” status. An insurance company providing large group health coverage is required to spend a smaller percentage of premiums on overhead and profit than is the case for a small group health plan. Third, by banding together workers from many employers (as well as the self-employed) into a large group, associations increase the leverage these workers collectively have with respect to negotiations on insurance costs and healthcare provider reimbursement. Smaller businesses and isolated individuals have very little leverage in the traditional insurance context. Fourth, for self-funded plans, the association has access to its medical claims data, which can be used to identify overpayments to healthcare providers as well as providers who charge much higher rates for the same services. Fifth, since association health plans are not sold through government exchanges, they are not subject to the Marketplace User Fees paid by insurers distributing their health plans on government exchanges. On the Healthcare.gov federal exchange, these fees amount to 3.5% of premiums. Sixth, large groups are not constrained by all the benefit mandates of government exchange insurance and can design benefits around their employee needs rather than the one-size-fits-all approach of the Affordable Care Act market. While association health plans do have a variety of benefit requirements that can exist at both the federal and state level, they are generally perceived as more flexible than those within the Affordable Care Act market. Finally, the aggregation of many employees and self-employed in large groups enables the association to consider “self-funding,” where the association manages the health benefits rather than paying a third-party insurance company to perform that function. By self-funding, the association has the potential to lower administration costs as well as eliminate the profit paid to an insurance company.