What “Repeal and Replace” Could Mean for Small Employers – Part 5

Can Association Health Plans Level the Playing Field for Small Employers?

With some GOP leaders in the Senate still debating alternatives to the Affordable Care Act, it remains a mystery what shape our nation’s health care law will take in the future. This article discusses Employer Associations, and is Part 5 of PacFed’s series on the group health insurance options available to small business employers.

Employer Associations, also known as trade associations and employer organizations, have been pooling their resources and collective purchasing power to provide a variety of benefits to their employees for decades.

An Employer Association is composed of businesses usually engaged in a particular industry or trade within a geographic region. An Employer Association may establish an employee welfare benefit plan, or an Association Health Plan (AHP), for the purpose of providing group health coverage for their employees.  By combining all employees into one plan, the Association can spread risk over bigger pools of workers and can underwrite risk based on the group’s experience.

AHPs are generally regulated under the federal law known as ERISA as multiple employer welfare arrangements (MEWAs). Although MEWAs could always purchase fully-insured health coverage from state regulated insurance carriers, historically, MEWAs acted as unregulated insurers.  As a result, a number of MEWAs were unable to pay claims due to insufficient funding and inadequate reserves.  However, under current law, a MEWA is required to comply with both ERISA and any related state insurance law.  This dual regulation ensures that the health plan will meet state insurance reserve, contribution and other requirements applicable to insurance companies.

On October 13, President Trump signed an Executive Order directing various federal agencies to consider how to achieve three administration health reform objectives, including expanding access to AHPs.  One suggestion was to allow employers in the same line of business to cross state lines to form an AHP. Another was to allow a broader range of small employers to form fully-insured group plans or to self-insure. The Executive Order aims to level the playing field for small employers by allowing them to band together in AHPs and be treated as large groups. That way, they can enjoy the same benefits flexibility and lower costs as their large company counterparts.

With the support of the current administration, Employer Associations are expected to experience a revival in popularity in coming months. For small businesses, understanding AHPs can be difficult. Employers should consult an experienced and knowledgeable third-party administrator regarding Employer Associations and the specific benefits and services available to them.