- Association health plan (AHP) basics
- Why these plans save money on insurance costs
- Who can enroll in this coverage
- Benefit flexibility for “large group” association plans
- How to get help if you want to launch your own AHP
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:
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.
At the heart of AHP eligibility is the nature of the association sponsoring the health insurance. Associations can be founded on a membership requirement related to profession or related to geographic region. Membership in a professional association can be based on any of the following shared characteristics:
Membership in a geographically-based association can be established on any of the following regional characteristics shared among the association members’ principal place of business:
Both professional and regional associations can also use narrower membership definitions if they so choose. For example, a professional association could restrict its membership to cloud-based data storage vendors and a geographically-based association could be restricted to part of a county.
The Health Insurance Portability and Accountability Act prohibits group health plans from discriminating in eligibility, benefits, or premiums against an individual within a group of similarly situated individuals based on a health factor. Health factors, in this context, include diseases, illnesses and other medical conditions, claims experience, medical history, genetic characteristics, or disability. Since association health plans are a form of group health insurance, this prohibition applies to them as well.
While associations are composed of employers, employers can include freelancers, sole-proprietors, and also the self-employed. This opens up associations to the millions in the “gig economy,” where supplemental work done part-time can still qualify for association membership so long as the person meets the other criteria of membership and the association accepts “working owners.” Working owners are individuals who do work on their own, with or without incorporation. Within an association, a working owner is treated simultaneously as an employer who has a say in the control of the association and as an employee who can participate in the association’s health plan. For more information on how freelancers, sole-proprietors, and the self-employed can participate in association health plans, read “What is a “working owner?”
Unlike traditional small group health plans, large group association plans are not required to provide all 10 Essential Health Benefits (EHB) mandated by the Affordable Care Act. Instead, these plans may tailor their benefits around the needs of their employees.
While association large group health plans have more flexibility with respect to benefit design than Affordable Care Act plans, they still have various requirements regarding benefits and the conditions under which they are offered. These benefit requirements include:
Even with the above requirements, large group association plans still have much more benefit latitude than insurance plans that must comply with the Affordable Care Act. As mentioned earlier, Affordable Care Act health plans must offer all Essential Health Benefits. Essential Health Benefit categories are groupings of medical benefits. The 10 standard categories mandated by the Affordable Care Act are listed below. An association health plan may design its benefits from within this framework, but they are not required to include all of these benefits (e.g. pediatric dental and vision benefits). Association health plans can also choose to add additional benefits outside of these categories (such as hearing or disability benefits). Within association health plans, some benefits (such as mental health care) have requirements dictating that out-of-pocket costs must be at the same level as other medical benefits within the plan.
For additional information on federal and state benefit obligations for association health plans, see “Association Health Plan Benefit Requirements.”
Association health plans can be traditional “fully-insured” or “self-funded” (otherwise known as “self-insured”). “Fully-insured” refers to a third party insurance company assuming all the risk associated with the payment of medical claims for health plan participants. “Self-funded” refers to the health plan retaining that risk and operating the health plan on its own (or through the use of various service vendors). Normally, a self-funded plan insures itself against catastrophic levels of medical claims through the use of a stop-loss insurance policy. Additionally, a self-funded plan leverages set-aside financial reserves to deal with situations where there is an uneven pace of medical claims.
In the fully-insured model, the operations of the plan are largely handled by the third-party insurance company providing the medical coverage. The insurance company would not only handle activities such as claims management, record keeping, and compliance, but it would also produce the documents required for plan participants.
In the self-funded model, the plan is managed by the association itself, not by an insurance company. However, the association would still use third-party vendors for those activities where it lacked skills and experience.
For more information on the difference between the two plan types, see “Self-Insured Health Plans vs. Fully-Insured Health Plans.”
Whether fully-insured or self-insured, an association health plan can choose to deliver insurance benefits through a health maintenance organization (HMO), a preferred provider organization (PPO), an exclusive provider organization (EPO), or other common means of healthcare delivery.
Association health plans are primarily regulated by the Employee Retirement Income Security Act of 1974 (ERISA). However, various other federal and state regulations apply to these plans. For example, association health plans have obligations under regulations such as:
The government’s new regulations make it much easier to launch an association for the purposes of offering health insurance. Our website is designed to help you start a new association health plan or improve an existing one. We have numerous resources to help you learn about the ins-and-outs of this form of insurance. We will continue to revise and expand these resources as time goes by.
To understand the basics of the AHP creation process, see our article “How to start an association health plan.”
Through new regulation, groups and associations can form an AHP more easily in order to to expand access to affordable health care.
“Working owners” such as sole proprietors and other self-employed individuals are now able to participate in AHPs.
Employees of small companies sponsoring an AHP can benefit from the lower costs related to large group medical insurance.