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August 27, 2018

CT holds the line on association health plans

Photo | HBJ File Insurance Commissioner Katharine Wade has rebuffed President Trump's decision to allow small employers to band together to purchase cheaper but skimpier health plans.
Photo | CNNMoney

A recent move by the Trump administration to open an avenue for small businesses to access cheaper but skimpier health plans is a nonstarter in Connecticut, regulators say.

In June, the Trump administration released its final rules governing so-called association health plans, which have existed for decades and allow companies with a provable relationship — such as franchisees — to formally associate and provide benefits to their members.

The new rules broaden association health plan access for small businesses, which could help those employers save money by avoiding some of the mandated benefits prescribed by the Affordable Care Act, which Trump has been trying to dismantle, arguing the sweeping healthcare law championed by former President Barack Obama raises costs for individuals and businesses.

But the Connecticut Insurance Department (CID) indicated this month it would hold fast to existing rules that effectively block self-insured association health plans in the state. That policy has been in place for nearly 30 years, originating due to concerns about fraud, market disruption and consumer protections.

A major concern among insurers, health advocates and others is that the new federal rule will redirect healthier small business employees currently enrolled in state-based Obamacare exchanges or commercial benefit plans into association health plans. That would leave sicker, higher-cost patients in the exchanges or traditional insurance market, making coverage more expensive.

CID's action is expected to limit the federal rule's impact in Connecticut, but questions remain. Ted Doolittle, the state's Healthcare Advocate, wonders whether out-of-state association plans will be able to enroll Connecticut companies and business owners, while avoiding the state's rules.

“The feds are going to need to referee here at some point,” Doolittle said.

Allowing new alliances

DOL's new regulations expand association health plan eligibility, opening them up to businesses in the same geographic or metropolitan areas. The latter could include the massive New York metropolitan area, which reaches into several Connecticut counties.

The new rules also allow associations to form solely for the purpose of providing benefits, and permit sole proprietors to join them — which was previously forbidden.

Because they are exempt from having to cover Obamacare's 10 essential health benefits, association plans could avoid paying for certain prescription drugs, mental health services, substance use treatment and other care.

Various industry groups, including the National Association of Realtors, National Federation of Independent Business and National Retail Federation supported the expansion, hoping to create association health plans that could cross state borders and allow small companies to access the same health insurance advantages enjoyed by large companies.

However, Politico reported last month that those groups have recently backed off their enthusiasm, due to perceived complexities of the law and other factors. NFIB, for example, said the expanded eligibility still likely won't allow its member businesses, which fall across a wide range of industries, to associate. There are also concerns about states applying their own regulations to a multi-state plan.

Christina Cousart, senior policy associate with the National Academy for State Health Policy, said major industry associations tempering their support for the plans is telling.

“That, to me, sent a strong signal about how many of these associations may actually proliferate,” Cousart said.

Doolittle said the logistics of building provider networks in multiple states may prove daunting.

“Maybe they find out it's not so easy or attractive once they try to do it,” he said.

Doolittle, who said he agrees with the goal of stemming insurance costs for small employers, opposed the new regulations, writing to federal officials earlier this year that association plans had the potential to further burden many individuals and small businesses, including those who purchase plans on Connecticut's Obamacare exchange, Access Health CT.

Health insurers, too, wrote to DOL to share concerns.

Bloomfield-based Cigna said DOL's decision to allow new associations to form solely for the purpose of purchasing insurance “creates opportunities for fraud, imbalances the playing field, and diminishes the distinctions between associations and insurers.”

Meanwhile, ConnectiCare parent EmblemHealth, which sells plans on Access Health CT, worried that association plans would siphon off low-risk individuals, resulting in “skyrocketing costs” for those that continue to purchase insurance from traditional markets.

A long history

Similar to large employers that self-insure, all association health plans are governed by a federal law called ERISA.

However, many states, including Connecticut, began to more tightly regulate or block the plans in the 1990s after a wave of insolvencies and fraud, particularly among self-insured plans.

According to the U.S. Government Accountability Office, association health plans in multiple states left at least 398,000 beneficiaries with more than $123 million in unpaid claims between 1988 and 1991.

Connecticut was at the forefront of state regulation, mandating in 1990 that self-insured association health plans be licensed as insurers in the state. A Virginia-based association plan sued, but Connecticut successfully defended the case in court, and the rule persists to this day.

Wade said in a statement to HBJ that any self-funded plan that conducts insurance business here must be a licensed carrier, “or it will be considered an illegal operation.”

And for fully insured association plans, insurers will continue to be forbidden from applying potentially favorable large-group pricing methodologies to small employers. Meanwhile, counter to the new federal rules, sole proprietors here will continue to only be able to purchase insurance through the individual market.

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