Association health plans are enticing but not worth the risk

As a business owner, I think association health plans are a great idea. I think they’re a great option to provide to employees. I think they can save both the employee and the employer a lot of money. How?

For starters, they’re easy to form. The way the Department of Labor's (DOL's) 2018 rule (which went into effect this year) was written, businesses that share an industry affiliation or are even located in a similar geographic area could band together to form their own "association." So a group of packaging distributors or a bunch of merchants on Main Street would be able to do this.

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Secondly, they’re customizable and cost effective. As long as the number of employees working for these businesses exceeds 100, the “association” wouldn't be subject to the more onerous small-group requirements of the Affordable Care Act, which basically means they can ignore essential benefits.  

Some may think that’s a terrible thing to do to one’s employees, but an association can pick and choose what benefits are covered based on their employees’ demographics and could then go to the market and theoretically negotiate their own plan tailored to their employee group.

The DOL regulation even has protections for employees. An association health plan (AHP), for example, must still include coverage for those with pre-existing conditions. People can't be excluded because of their health history. Rates cannot be discriminatory.

So far so good, right? Well, for a small business, it gets better.

These plans could be offered in addition to our existing health plans. So for my small business, I could continue to carry my high-deductible plan and, if I choose, I could also add an AHP to the mix. That way, my employees have more options. 

Because my AHP may not include coverage for certain conditions, it's likely that the premiums under this plan would be lower. So both the employee and me, the employer contributing to their health-care cost, would both pay less money if an employee chose the AHP. But again, they don't have to. They could stick what they have. No harm, no foul.

To me, this sounds like a great idea. But I’m not going to offer this to my employees. Why? Because it’s just too risky.

This is a regulation. Not legislation. It wasn't approved by Congress. It was ordered by the president, written up by his DOL and then signed into existence by his secretary of Labor.

It carries no more weight than any of the other countless executive orders and regulations enacted under the Obama administration that were so quickly overturned within hours of President TrumpDonald John Trump2020 Democrats spar over socialism ahead of first debate Senate passes .5 billion border bill, setting up fight with House 'Teflon Don' avoids the scorn of the 'family values' GOP — again MORE taking office.

That fact certainly became clear last week when the U.S. District Court for the District of Columbia struck down the policy, writing: “The Final Rule was intended and designed to end run the requirements of the ACA.” 

The court added that the Labor Department rule “relies on a tortured reading of the ACA’s statutory text that undermines the market structure that Congress so carefully crafted.” This ruling came after 11 states contested the DOL regulation.

That's not to say that AHPs aren't without support. Some states, like Iowa, New Hampshire, Wisconsin and Nevada, have actively embraced the initiative and at least six other states have issued "non-binding" guidance documents to help businesses interested in pursuing these plans.

Kev Coleman, president and founder of AssociationHealthPlans.com, believes that the AHP market could grow to as much as $18 billion in premiums by 2022.

He also claimed that 28 AHPs recently opened in 13 states, six more are poised to launch and "thousands of employees and family members within the small-business community have already enrolled in AHPs." 

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Unfortunately, all the uncertainty around the initiative is what's killing AHPs. What typical business owner or HR manager wants to spend the time and resources investigating, educating their employees and then implementing these kinds of plans when they may ultimately be found illegal by the Supreme Court?

What insurance agent would want to sacrifice commissions and their clients' trust by recommending such a strategy if it turns out to be for naught? Who knows what will happen if a new administration takes over the White House after the 2020 elections.

Wait ... I know. 

AHPs would ultimately suffer the same fate as any other "regulation" or "order" that was implemented by the other party and not backed by law. For most of my small- and medium-sized business clients, the potential rewards from an AHP — given today's political climate and uncertainty — just isn't worth that risk. 

Gene Marks is founder of The Marks Group, a small-business consulting firm. He has written on economic and financial issues for The Washington Post, The New York Times and The Guardian. He also frequently appears on CNBC, Fox Business and MSNBC.