Small Business Health Insurance

Issues & options.

Most small businesses are familiar with the group health insurance market. Group plans provide medical benefits that are restricted to eligible employees and their dependents. Regulations and benefit requirements differ for a group health plan depending on whether the number of total employees qualifies as a “small group” or a “large group.” Small group health plans operate under the requirements of the Affordable Care Act, which include 10 categories of mandated benefits. Large group plans, in contrast, have more flexibility regarding what benefits they include within their plan, though there are some benefits that are mandated. Large group plans also restrict profit and overhead costs more than small group plans with respect to third-party insurance company practices.

Association health plans provide a means by which many small businesses can band together and access the large group health insurance market, a market that often costs less for the same benefits.

The resources below can help you understand many of the issues and options around small business health insurance.

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small business association health insurance plans

Small Business Association Health Insurance 101

small business association health insurance

HOW DOES SMALL BUSINESS ASSOCIATION HEALTH INSURANCE WORK?

Employer pricing and regulations for healthcare is based on whether an organization is considered a small or large employer or group. Small group coverage is a plan provided to small businesses that all pay the same rate. Large group coverage allows for healthcare rates to be negotiated.

Since AHPs meet the criteria for a “large group,” qualifying small businesses have the opportunity to purchase less expensive plans from AHPs, allowing them to offer lower-priced healthcare benefits to their employees. AHP coverage could be offered to part or all of the employers in a city, county, state, or multi-state metro area. It could also be offered to businesses in an industry group or trade nationwide.

For example, if there were five million Sleek Hair Salons (SHS) that wanted to get together to form an AHP, the AHP — we’ll call it SHS AHP — would qualify as a large group. As a large group, SHS AHP would have the bargaining power of a large employer. SHS AHP could then negotiate healthcare plans and pricing with insurance carriers on behalf of its five million salons and their employees. 

AHPs also have access to stopgap plans, sometimes referred to as “skinny plans,” that are not available to small or large group employers. Skinny plans are meant to be for terms shorter than three years and don’t require the  essential health benefits  required under the Affordable Care Act (ACA). Essential health benefits include laboratory services, preventative care, prescription drugs, outpatient services, mental health and substance abuse resources, hospitalization, emergency services, pediatric care, rehabilitative and habilitative services and devices, and pregnancy, maternity, and newborn care before and after birth.

Plans that don’t include essential health benefits can be a more affordable option for some employers. However, these plans aren’t comprehensive and can have a very limited scope in what they do cover, sometimes making them a less appealing option to employees when compared to traditional healthcare coverage. 

AHPs that were in place before the 2018 ruling were not affected by it. The pre-rule plans had the option to operate as before or follow the new requirements if they chose to cover the self-employed or expand within a geographic area. New AHPs that form have the option to follow either the new rules or the old.

HOW ARE SELF-EMPLOYED INDIVIDUALS COVERED UNDER AHPS?

AHPs have always been available to self-employed individuals with employees. The 2018 ruling expanded access to sole-proprietors and working owners without employees so that they could join AHPs. For many, this meant access to affordable, quality healthcare that wasn’t previously available to them due to cost barriers. The coverage available to them would be the same coverage available to the other members or businesses of the AHP they are eligible to join. 

WHAT ARE THE LEGAL CONSIDERATIONS OF AHPS?

The ACA requires group health plans outside of AHPs to offer the essential health benefits outlined above. AHPs are the exception as far as qualifying group plans are concerned — they are not required to offer essential health benefits. Otherwise, AHAs are held to the same healthcare anti-discrimination and consumer protections as are large businesses.

EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA)

AHPs are required to follow the employee welfare plan provisions of ERISA.  ERISA  “sets standards of conduct for those who manage group health plans (including AHPs) and their assets.” This means AHPs are subject to claim procedure rules, reporting and disclosure requirements, and fiduciary rules. AHPs must also comply with the health care continuation provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). ERISA Part 7 includes additional consumer protection provisions, including the Health Care Insurance Portability and Accountability Act (HIPAA), Genetic Information Nondiscrimination Act, Mental Health Parity and Addiction Equity Act, Newborns’ and Mothers’ Health Protection Act, Women’s Health and Cancer Rights Act, Affordable Care Act (ACA), and other group health plan laws.

ERISA includes several statutory exemptions, so AHPs can conduct necessary transactions that might otherwise be prohibited. For example, with a “service provider” exemption, AHPs may pay companies or individuals who provide services to the AHP if the service arrangement or contract is reasonable, the services are required for the plan’s operation, and the compensation for such services is reasonable. Conflicts of interest or self-dealing transactions are prohibited under the “service provider” exemption. Exemptions are applied for through the Department of Labor.

AFFORDABLE CARE ACT (ACA)

Under the ACA, AHPs cannot discriminate or charge higher premiums based on health status or pre-existing conditions. Nor can they deny coverage for a pre-existing health condition that would otherwise be covered under the plan. Also, AHPs cannot place an annual or lifetime dollar limit on essential health benefits the plan covers or cancel coverage because a member of the plan becomes ill. AHPs are also prevented from charging employers varying ranges based on their employees’ health status.

ASSOCIATION HEALTH PLAN LAWSUITS

After the issuance of the new rule for AHPs, several  state attorney generals  filed lawsuits challenging the legality of AHPs under the rule. Many argue that AHPs are a way to work around or undermine protections provided by the ACA. The D.C. federal court of appeals heard arguments, including those from U.S. District Judge John Bates, in March 2019, with hopes of a ruling against allowing AHPs. In July 2019, U.S. District Judge Richard Leon ruled in favor of the administration, to which the National Alliance on Mental Illness, the Association for Community Affiliated Plans, and AIDS United appealed the ruling.

Similar challenges have surfaced with skinny, or short-term, plans that were intended only to be stopgap. The Trump administration expanded them to offer up to three years of coverage.

Despite the challenges and legal rulings, many states  allow AHPs  under the new rule, and many groups are fighting for affordable coverage as part of an AHP. AHPs are the only option for many small businesses and self-employed individuals to get and provide healthcare to their employees.

WHO OVERSEES ASSOCIATION HEALTH INSURANCE?

Direct oversight of AHPs falls under each state. The enforcement authority of AHPs is shared by the state and federal government.

Since 1974, the Department of Labor’s Employee Benefits Security Administration has monitored large company plans to protect consumers and ensure legal compliance. It does the same for AHPs.

HOW CAN I JOIN AN ASSOCIATION HEALTH PLAN?

An AHP has to be a “bona fide group or association of employers.” Your organization must share a “commonality of interest” with the members of the AHP to join it. Before the new rule, “commonality of interest” meant the same industry, profession, line of business, or trade. Under the new AHP rule of 2018, an AHP can also be created based on geographic location or region, such as a metro area, city, county, or state.

An AHP’s primary purpose can be to offer health insurance to its members. However, the rule states that it must also have one or more expressed business purposes not related to offering health insurance coverage.  Examples of business purposes  — which are not required to be for-profit activities — cited in the rule include: having conferences, offering classes, or sharing educational materials on business issues of interest to association members; setting business standards or practices; and engaging in public relations activities such as advertising, education, and publishing on business issues of interest to association members.

AHPs have to be member-controlled. The members are not required to run the day-to-day operations of the AHP. Trustees, directors, and the like can be elected to run the AHP. Insurance issuers, subsidiaries, or affiliates cannot own or control an AHP.

Your benefits broker should be able to walk you through the details of an AHP and help you determine what AHPs are available for your small business based on location and trade.

IS AN AHP RIGHT FOR YOUR ORGANIZATION?

In early 2019, not long after the June 2018 AHP rule went into effect, there were positive cost and benefit trends among 28 newly launched AHPs in 13 states, as reported by  AssociationHealthPlans . Self-employed and sole proprietors are eligible to join 43% of the new AHPs, and 71% percent of the new AHPs were launched by regional associations that were most-often sponsored by chambers of commerce.

Of the new associations, 86 percent were insured by a third party instead of being self-funded, with major players like Blue Cross Blue Shield and UnitedHealthcare insurers being the most common companies in the new AHP market. These two providers offer 75% of the coverage for AHPs that do not opt to self-fund. These trends speak to the viability and possibilities of the emerging AHP market.

EXPLORE YOUR SMALL BUSINESS HEALTH INSURANCE OPTIONS WITH KBI BENEFITS

At  KBI Benefits , we understand the importance of offering affordable and quality healthcare for your employees. We also understand how costly medical plan benefits can be for small businesses. We are here to help you determine the best healthcare benefit options for your company, including whether or not an AHP is the best option for you. If it is, we will work with you to identify which AHPs are viable choices for your organization.

If you are ready to explore the 401(k) discrimination testing and other programs we offer, contact us today by submitting our  online contact form  or calling us at 408.366.8880 . We look forward to working with you!

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Los altos, ca 94023, united states, 408.366.8880.

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COMMENTS

  1. Small Business Health Insurance

    Association health plans provide a means by which many small businesses can band together and access the large group health insurance market, a market that often costs less for the same benefits. The resources below can help you understand many of the issues and options around small business health insurance. Typically businesses with 50 or ...

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