The Department of Labor (DOL) has recently released a new proposed rule that would expand access to association health plans for small business owners and self-employed individuals.
Association health plans generally allow smaller businesses to join together in order to purchase and provide health insurance options for employees on a scale more comparable to a larger business. Banding together allows the business owners to purchase either large group health insurance plans that are typically only available to larger employers, or to explore options for self-insurance.
Historically, however, employers were required to operate within the same industry in order to join together, and association health plans were also off limits to self-employed individuals operating as sole proprietors. The DOL rules would expand these restrictions so that more businesses will be able to access association health plans by allowing either businesses in the same industry or geographic area to join together, and by eliminating the restriction that requires the business to have two or more employees.
We asked Professors Robert Bloink and William Byrnes, who are affiliated with ALM’s Tax Facts, and hold opposing political viewpoints, to share their opinions on the proposed rule, which is expected to be finalized in the coming months. Below is a summary of the debate that ensued between the two professors.
Byrnes: I think expanding access to association health plans is a great idea. Some small business owners who are not required to provide employers with health coverage under the Affordable Care Act will be motivated to offer coverage if they are able to access health plans on terms that are similar to larger businesses with substantial bargaining power, which is important because the ACA restrictions on these plans are less onerous than those that apply in the small group market.
Bloink: Association health plans are only attractive on the surface, and once consumers take a closer look, they’re going to realize that these plans are not all they’re cracked up to be. These plans are not adequately regulated in most cases, meaning that they do not offer the same level of coverage that is required of ACA-compliant plans. Because of this, they’re really only beneficial for healthy individuals with fairly low medical expenses.
Byrnes: But the new rules would not block less healthy people from accessing the plans, association health plans still cannot discriminate based on pre-existing conditions.
Bloink: They don’t have to discriminate, association health plans can be tailored to provide less robust health coverage, so that less healthy individuals practically would not be drawn to these plans—because of the lack of coverage that they need—and would likely remain in the individual insurance marketplace, driving up premiums on that end.
Byrnes: We’re talking about individuals that don’t have employer-sponsored health coverage as it is, because smaller employers (with under 50 full-time employees) can’t practically offer coverage from a cost perspective. Association health plans reduce administrative costs and increase bargaining power, and give small employers an option that they may not have had access to in the past.
Bloink: Sure, but these plans are going to create more problems than they solve in the long term. Remember that after 2018, the individual mandate to obtain health coverage under the ACA is gone. This means that employees of small employers who purchased health insurance on the exchanges pre-2019 might not purchase a comprehensive health plan if they have access to an association health plan. What happens when these people need access to health coverage that the association plan doesn’t provide? They shift back to the ACA-compliant market, where premiums have skyrocketed because only those with high medical expenses have remained?
Byrnes: Some coverage is better than no coverage, and healthy individuals might choose not to stay in the individual market anyway absent the penalty. At least association health plans provide an option for health coverage at the small business level, and they level the playing field with larger businesses that are able to use the size of their workforce to negotiate lower premiums for their employees.
Bloink: This is one area where we have to look to the big picture, long-term impact of expanding association health plans. We don’t yet know what’s going to happen in the individual health insurance marketplace sans individual mandate, but we do know that association health plans do not provide sufficient health coverage for individuals with significant medical needs. The combination between the repeal of the mandate, and expanded access to skimpy, yet cheap, health coverage could spell disaster for those who need affordable, yet comprehensive, health coverage.
— Check out more content by Bloink and Brynes at Tax Facts
— Related on ThinkAdvisor: Bloink & Byrnes Go Thumb to Thumb: Trump’s RMD Rule Change