By Kevin Lucia and Sabrina Corlette
A recent Washington Post article calls association health plans (AHPs) “promising” and asserts that AHPs are “consumer friendly,” offer “generous benefits,” and have “lower prices” than Affordable Care Act (ACA) plans. It appears to have been largely informed by an organization called associationhealthplans.com, which was set up to promote AHPs. A more balanced analysis seems warranted, as the Trump administration’s policy to encourage the expansion of AHPs has the potential to broadly impact consumers, small business owners, providers, and health insurance markets – and not necessarily in a positive way. Indeed, a coalition of state attorneys general is currently suing in federal court to enjoin the new federal standards.
A thoughtful analysis of the AHP market would look more broadly at the risks and benefits of these arrangements. The Post piece highlighted established associations working with established health insurers. Many of these AHPs are fully insured, meaning that the insurance company, not the association, bears the financial risk if premium revenue doesn’t fully cover claims costs. However, the Trump administration is also encouraging the formation and expansion of “self-funded” associations. Recent history is littered with examples of the insolvency and even fraud committed by associations that self-fund their plans. In these situations, no amount of premium discount is going to make up for the millions of dollars lost by consumers, small businesses, and providers due to unpaid medical claims.
Further, there is no basis on which to believe that AHPs are “promising.” As insurers and associations vie for employers’ business, some may offer low “teaser” premium rates and use underwriting or other tactics to cherry pick and enroll the healthiest employer groups in the market (something ACA-compliant plans are prohibited from doing). In the worst case scenario, the low teaser rate is insufficient to cover the groups’ claims costs, and the AHP, if it’s self-funded, goes under, leaving employers, employees, and providers holding the bag. More commonly, when member employer groups try to renew their policies, they may find that their rate reflects their claims experience, meaning that employers with older, sicker employees are asked to pay much higher premiums upon renewal. If this happens, many of these member-employers will likely drop out of the association and re-enter the ACA-compliant market. Meanwhile, if AHPs lure healthier people out of the ACA market, that means higher premiums, which is not promising at all for the people who remain there.
AHPs can also offer lower premium rates to small groups and self-employed people even if they offer fairly comprehensive benefits because they do not have to participate in the ACA’s single risk pool. Thus, if they can successfully enroll healthier employer groups or individuals – through medical underwriting practices or otherwise – they do not have to “pool” those healthier risks with sicker groups in the ACA market. Further, they do not have to participate in the ACA’s risk adjustment program, which requires insurers that have healthier than average risk to compensate insurers with sicker risks. AHPs are also exempt from the ACA’s health insurer tax. Moreover, AHPs that do not market coverage to self-employed individuals and meet certain other requirements are permitted under federal rules to vary premiums based on health status and claims experience. Then, small businesses with sicker older workers will clearly see higher prices, if they seek those options out.
Some AHP sponsors argue that they are somehow exercising market clout to reduce premiums. But if you’re not engaged in risk selection, then the primary way to reduce costs is to negotiate lower reimbursement rates with providers. It is highly unlikely AHPs are able to do this better than traditional insurers. For example, the Nebraska Farm Bureau , which offers an AHP and was highlighted in the Post article, has enrolled an estimated 700 members. The notion that Medica, which partnered with the Nebraska Farm Bureau, negotiated greater discounts with Nebraska hospitals and doctors for this little group of 700 than it has for the more than 80,000 marketplace participants it insures, is ludicrous. Any premium advantage touted by AHPs is more likely due either to the teaser rates described above, enrolling members with lower health risk than in the ACA-regulated market, or to the AHP’s ability to bypass the rating and risk pooling rules set up under the ACA.
Additionally, if history is any guide, many AHPs may seem strong at first because they are able to attract healthy groups and can offer low rates and generous benefits to those groups. Over time, however, as workers get older and sicker, the risk in the pool deteriorates. AHPs then either must raise rates, reduce benefits, disband, or, in the worst cases, become insolvent. Those calling AHPs “promising” would do well to check back in a year or two.
To many, AHPs may seem like a simple solution to a real and very serious problem: the high and rising price of health care. But AHPs just create new winners and losers, with the losers being those who are older and sicker. Policymakers and insurers know exactly what is really driving high and rising health care costs (as Uwe Reinhardt would say, “It’s the Prices, Stupid”). To date, however, they’ve lacked the will to provide the real relief consumers and employers need.