ACA & The New Normal

Trump's Executive Order: Can Association Health Plans Accomplish What Congress Could Not?

A ‘back door’ path to ACA repeal opens the door to higher costs, fraud and insolvency

New research from The Commonwealth Fund. Visit here.

President Trump has indicated that he will likely sign an executive order to allow individuals and small employers to purchase health insurance across state lines through trade and professional associations.

In a new post on To the Point, Georgetown University’s Kevin Lucia and Sabrina Corlette explain that, under the order, federal regulators could allow an association health plan to be treated the same as a large employer health plan. If they do so, association plans could become exempt from offering key consumer protections, such as the essential health benefits standard and the prohibition on charging higher premiums to people with preexisting conditions.

The availability of association plans would also raise the risk of higher premiums and fewer plan options in the individual market, as well as increased fraud and insolvency.

“Policymakers looking for backdoor ways to repeal the ACA’s insurance reforms and replacing them with risky products will undermine critical protections for people with preexisting conditions,” the authors say.

Excerpts from the Post

Risk to Consumer Protections
Under current federal law, the general rule is that health insurance policies sold through an association to individuals and small employers are regulated under the same federal and state standards that apply to the individual market or the small-group market, respectively. In other words, the coverage must comply with the ACA’s protections for people with preexisting conditions and benefit standards as well as any state rules.

If, however, the federal government reverses its longstanding approach to AHPs and finds that insurance sold through an association of small employers or individuals is, in effect, a large-group health plan, the AHP would have to comply with far fewer standards. For example, a “National Dog Walkers Association” could be composed of independent small businesses and individuals offering dog-walking services. While each small business and individual would purchase a separate insurance policy, the association sponsoring the health plan would be regulated under the same standards as a large employer.

Health Insurance Protections under the ACA: Application to the Individual, Small-Group, and Large-Group Markets

Risk of Higher Premiums and Fewer Plan Options
Creating an “uneven playing field” between federally approved AHPs and the traditional insurance markets would result in higher premiums and fewer plan options for individuals and small employers buying insurance in the regulated individual and small-group markets. For example, in the mid-1990s, AHPs in Kentucky were exempt from benefit and rating requirements that applied to the traditional individual and small-group markets. Insurers abandoned the traditional markets and individuals and employers with healthy workers shifted to AHPs, with premiums dramatically increasing for those left behind in the individual market.

Risk of Fraud
States are well positioned, often with broad enforcement authority, to protect their residents by preventing or quickly identifying and closing down the operators of scam health insurance, many of whom have long used AHPs as a vehicle to sell fraudulent coverage to hundreds of thousands of unsuspecting consumers. If the Trump administration allows the creation of federally approved AHPs and exempts them from state authority, it could severely undermine states’ ability to protect consumers.

Policymakers looking for backdoor ways to repeal the ACA’s insurance reforms and replacing them with risky products will undermine critical protections for people with preexisting conditions

Instead, the U.S. Department of Labor (DOL) would have a primary role in AHP enforcement, but without the “tools, resources, and culture to protect businesses against fraud.” In fact, during one recent cycle of scams, one report noted that state insurance departments have shut down 41 illegal operations compared to the federal government’s three. Future operators of these scams could use the existence of federally approved AHPs that are exempt from state laws to sow regulatory confusion among federal and state regulators, allowing promoters to avoid state detection and shield themselves from enforcement actions.

Risk of Insolvency
It is also possible the Trump administration will exempt federally approved AHPs from the state licensing and financial requirements imposed on traditional insurers, consistent with legislation introduced by Senator Paul. This would lead to a greater risk of insolvency when claims unexpectedly exceed an AHP’s ability to pay them. AHPs have a long history marred by financial instability. For example, when a long-standing AHP in New Jersey that covered 20,000 people became insolvent in 2002, it had $15 million in outstanding medical bills. This left participating businesses and their employees’ claims unpaid even though employers paid premiums to the AHP.

 

Read the entire report here.