On October 12, 2017, President Trump signed an executive order, “Promoting Healthcare Choice and Competition Across the United States,” with the stated purpose of facilitating the purchase of health insurance across state lines and creating a healthcare system that is affordable for the American people. His order directed the Secretary of Labor to consider proposing regulations that would allow expansion of “Association Health Plans” (AHP) by employers. On October 12, 2017, President Trump signed an executive order, “Promoting Healthcare Choice and Competition Across the United States,” with the stated purpose of facilitating the purchase of health insurance across state lines and creating a healthcare system that is affordable for the American people.
His order directed the Secretary of Labor to consider proposing regulations that would allow expansion of “Association Health Plans” (AHP) by employers.
The idea of multiple employers with small numbers of employees joining together to pool their numbers together and form a “large employer” group health plan is not new. When the Employee Retirement Income Security Act (ERISA) was first passed in 1974, it contained provisions that allowed for multiple employers to form “multiple employer welfare arrangements” or MEWAs that would allow for groups of small employers to band together and create large group risk pools to reduce overall insurance costs.
While the intentions were certainly laudable, the actual implementation strayed from the intended purpose. Some were created and run by opportunistic promoters who set up and often defrauded unsuspecting employer groups. With no state oversight because of federal preemption provisions at the time, many insurance plans formed through these MEWA’s became insolvent and left many with unpaid claims.
In response to the fraud, incompetence and abuse that occurred, Congress passed an amendment to ERISA in 1983 that gave state insurance regulators more control over certain MEWA insurance plans. After these changes, AHP’s continued to have problems with some marketers trying to skirt state regulations, while other underfunded AHPs became insolvent because they did not adequately fund the plans through proper premium adjustments.
The regulations that followed, more narrowly defined the qualifications for “employee welfare benefit plans,” preempted state insurance laws. These changes made AHPs virtually extinct.
Now, let’s fast forward to the passage of the Affordable Care Act (Obamacare) in 2010 and all that followed. The concept behind the ACA was to create universal coverage for health insurance and broadly spread the risk pools by charging those who do not wish to participate in the “exchange” (usually younger, healthier individuals) a fine to offset the costs of those who do participate and are more likely to use the insurance because they are not as healthy (adverse selection). This ‘fine’ is the consequence of the “individual mandate” provision in the ACA.
As the saying goes, “the devil is in the details” and with the ACA, there were a lot of details that made implementation problematic. In addition, different states opted out of the exchanges and with widely varying levels of participation, many bad things ultimately occurred.
Costs skyrocketed in some states, insurance providers pulled out of the market place and many parts of the country ended up with only one provider to choose from. The constant tug-of-war between socialistic and market-based advocates ultimately put the issue front and center in the last presidential election.
After the election, Congress failed to repeal the ACA, but it did eliminate the individual mandate in the Tax Cuts and Jobs Act, which takes place next year and this will set the stage for even more instability in the health insurance market place.
President Trump’s executive order is an attempt to get the free market back in control of a large segment of health insurance by requesting the DOL to broaden the definition for “employers” with a “commonality-of-interest” and loosening the requirements for AHP formation.
However, these are the two issues that cause the most concern for those close to the industry in government and among ACA advocates.
State regulators, such as the National Association of Insurance Commissioners (NAIC), are very concerned with a return to the abuses and practices of the past that left so many with unpaid claims due to mismanagement and fraud. Supporters of the ACA fear the further erosion of its solvency with the departure of millions to AHPs and the widely varying plans that they believe will leave many with inadequate insurance coverage.
But advocates for AHPs say that patientcentered, market-based solutions that increase flexibility and reduce regulatory burdens will solve the healthcare crisis and provide insurance to millions who find themselves unable to purchase insurance as small business owners, individuals and sole proprietors.
It is an actuarial reality that large employers can get preferred and reduced rates for quality health care coverage because the risk pool is able to absorb the high cost of claims from relatively few employees. In small groups, these risks are not spread and high cost claims make small group plans unaffordable. It is only through AHPs with the proper regulatory framework and flexibility to establish coverage plans that fit the group needs, where small group employers can get the benefits of large group plans.
Regulatory protections are certainly needed to prevent past abuse and negligence. But, the need for an alternative to the ACA is looming. Much will be needed to make AHPs more viable and the hope is the rules under development at the Department of Labor will create that viability.
