Why would Sen. Rand Paul praise as “conservative care health reform” a proposed regulation that increases Washington’s power?
A proposed rule released Thursday regarding association health plans (AHPs) will likely provide more affordable health coverage options to the self-employed, or individuals working for small businesses. However, it would do so by increasing the number of individuals purchasing health coverage regulated by Washington, making it a mixed bag for conservatives.
A Look at Current Law
Obamacare created multiple new requirements for insurance coverage, based upon whether that coverage was purchased in the individual, small group, (i.e., fewer than 50 workers), or large group (i.e., 51 or more workers) markets. Many coverage requirements in the law apply only to individual and small group plans, including:
- Essential health benefits (including actuarial value requirements, limits on out-of-pocket expenses, and deductibles in the small group market);
- Risk adjustment payments;
- Single risk pool requirements (i.e., requiring insurers to consider all individual coverage, and all small group coverage, offered in a state as one block of business); and
- Premium variation requirements imposing strict limits on age-rating, and prohibiting variation by anything other than age, family size, geography, and tobacco use.
The absence of all these requirements gives large group coverage a decided regulatory advantage compared to individual and small group coverage. Self-insured health plans—that is, employer plans that retain the insurance risk themselves—are likewise exempt from the Obamacare requirements listed above, regardless of the business’ size (i.e., whether they have more or fewer than 50 employees).
However, for AHPs that currently buy coverage from insurance carriers (i.e., “fully insured” plans), the Obama administration in 2011 issued guidance that stated regulators would “look through” the association to its members to determine whether their coverage qualified as small group or large group. To give an example, consider an association of restaurant franchises with two members: one with 30 employees, and one with 75 employees. While the restaurant with 75 employees would meet the standard of a large group plan, the one with 30 would classify as a small group plan.
As a result of the 2011 guidance, coverage for the latter would have to meet all the Obamacare coverage requirements for small group plans listed above, making coverage for the larger employer either administratively cumbersome (because two employers would have two different regulatory benefit packages), costlier (because the larger restaurant would have to comply with the small group requirements as part of an association, even though that restaurant would not have to comply if it bought coverage on its own), or both.
What the Proposed Rule Does
Issued as a response to the executive order President Trump issued in October, the proposed rule looks to make it easier for businesses to join associations to form AHPs. By doing so, the rule hopes to facilitate more AHPs self-insuring—assuming the financial risk for the association, rather than ceding that risk to an insurer from whom the association purchases coverage—thereby exempting more association plans from the Obamacare regulatory regime outlined above.
In general, the proposed rule would:
- “Relax the existing requirement that associations sponsoring AHPs must exist for a reason other than offering health insurance.” Associations must still be run by their members—for instance, Blue Cross or other insurers couldn’t try to form, and run, an “association” just to offer group health coverage—but need not exist for other purposes.
- “Relax the requirement that association members share a common interest, as long as they operate in a common geographic area”—either a state, or a metropolitan area encompassing multiple states (e.g., greater Washington DC).
- “Make clear that associations whose members operate in the same industry can sponsor AHPs, regardless of geographic distribution.”
- “Clarify that working owners and their dependents,” including the self-employed, “are eligible to participate in AHPs.” These individuals must meet certain proposed requirements—working for the business at least 30 hours per week, or 120 hours per month, or generating income from the business equal to the cost of coverage for the owner and his/her family—designed to ensure individuals do not form “businesses” solely for the purposes of purchasing association health coverage.
The Effects on Insurance Offerings
Even prior to the rule’s release, liberal Obamacare supporters claimed the policy represents another attempt to “sabotage” the law, because healthier people will purchase AHP coverage lacking Obamacare’s “consumer protections.” Attempting to respond to that criticism, the proposed rule includes several non-discrimination provisions, prohibiting associations from discriminating in offering membership based on the health status of members’ employees, or varying premiums or eligibility for benefits based on health status. Liberals respond that employers could discriminate through benefit offerings—for instance, not covering chemotherapy to discourage businesses with cancer patients from applying.
However, large employers already exempted from the Obamacare benefits don’t have to offer any such coverage currently, and I have yet to hear any major reports about IBM or General Motors “discriminating” against patients with pre-existing conditions. If these employers haven’t used an exemption from Obamacare coverage requirements to offer shoddy health coverage, then why do liberals believe that other employers will?
In terms of premium and coverage impacts, the proposed rule lists, but does not attempt to quantify, some modest effects. In the rule, the Labor Department notes that the proposal may increase the deficit, albeit modestly, because more people will use the tax break for employer-provided coverage to purchase insurance on a pre-tax basis, thus reducing revenues. The rule also mentions “administrative savings” at least a dozen times, claiming that such savings, by reducing premiums, will allow AHPs to attract less healthy individuals, minimizing any risk that exchanges will be “stuck” with a sicker-than-average population.
How This Affects Federal Power
In general, the rule would expand cross-state purchasing of health insurance. However, it would not do so by allowing people to purchase coverage across state lines—for instance, allowing a Maryland resident to buy a policy regulated in Virginia. Instead, it would allow more individuals to buy federally regulated coverage, regardless of the state in which they live.
Because the rule would eliminate the need for AHPs to comply with Obamacare requirements, it would lower premiums in the short term. However, in the longer term, the nature of the proposal raises two risks. On the one hand, a future administration could revoke the rule, minimizing AHPs’ scope and impact. On the other, a new administration—or a Democratic Congress—could easily glom more federal regulatory requirements on to AHPs and other forms of group coverage.
As I have written previously, the regulatory regime represents the heart of Obamacare. The proposed rule attempts a “kludgy” work-around of that regime, but one that, by increasing federal control over health insurance, may end up causing more trouble over the long term. Congress can—and should—do far better, by repealing the regulatory regime outright, and returning control of health insurance markets where it belongs: To the states.
Mr. Jacobs is founder and CEO of Juniper Research Group, a policy consulting firm. He is on Twitter: @chrisjacobsHC.