Since the passage of the Affordable Care Act (ACA), the requirements of the ACA have profoundly impacted small employer plans (under 50 employees) by raising costs at a faster rate than large employer plans. 

In 2017 large employer health plan costs increased 5%-7% on average.   The same is expected in 2018 with an average cost of $14,000 per employee.  Prescription drugs are a major driver of the increased costs, even with the various cost containment policies used by these employers.

However, small employer plans costs are increasing at a greater rate.  "Small firms are much less likely to offer health benefits to their workers, and when they do, workers may find it quite costly to enroll their families," said study lead author Gary Claxton, a Kaiser Family Foundation vice president.

Last October President Trump issued an Executive Order (EO) directing Health and Human Services, the Department of Labor, and the Treasury Department to focus on rules that would permit small businesses to band together in arrangements called “Association Health Plans (AHPs),” which would allow for the purchase of less expensive, but also less-comprehensive plans, outside the ACA market requirements.

The EO envisioned AHPs to be a solution to stem the rising costs of healthcare in the small employer market. Rather than being an actual product, AHPs are an umbrella term used to refer to the concept of different associations that offer health insurance.

Early in January the Department of Labor issued proposed regulations specifically focused on AHPs.  The proposed regulations would expand the types of associations that are allowed to offer ERISA-covered AHPs; expand the types of employers that may participate in ERISA-covered AHPs; and make it more likely that AHPs qualify for the large-group insurance market, which has fewer requirements than the small-group insurance market.

The proposed regulations redefine what an AHP is.  Under current law, an AHP can be treated as "one plan" only if the association has a purpose or function unrelated to the provision of benefits. Further, an AHP can be treated as "one plan" only if the employer members have a "common economic or representational interest."  In addition, an AHP can be treated as "one plan" only if each participating employer has at least one employee who is not an owner (or related to an owner).

The proposed regulation expands the definition, so employer members can (a) be in the same trade, industry, line of business, or profession, or (b) have their principal place of business in the same state or the same metropolitan area (even if the metropolitan area includes more than one state).  It also expands the definition of who can participate to include sole proprietors and other self-employed individuals.  They must dedicate a certain amount of time to the business, or earn a certain amount of income from the business, and must not be eligible for a group health plan sponsored by another employer.

There are also non-discrimination requirements proposed as well.  First, the association cannot restrict membership based on any health factor, and the AHP cannot determine eligibility or premiums on the basis of any health factor. Second, eligibility rules must be applied equally to all participating employers in the AHP (e.g. no part-time employee would be eligible).

The AHPs would be a cost-effective tool.  Combining the small employers could take them out of the small employer market and place them in the large employer market.  Additional ACA requirements apply in the small group market that do not apply in the large group or self-insured markets, such as required coverage for essential health benefits, thereby reducing the cost of the plans. 

There are a number of issues though that need to be considered because of the complexity of the regulatory environment between state and federal.  Further, the question also becomes to what extent the AHPs do not have to comply with ACA requirements.  Employers could enroll in an AHP and later find out that the AHP does not cover cancer or other diseases. 

Comments are due March 6th.   When the final regulations are promulgated is unknown at this time.

Sources: Squire Patton Boggs 1/15/18; Venable LLP 1/12/18; Seyfarth Shaw 1/8/18; Washington Post 8/8/17, Money 8/9/16