An association health plan (AHP) is a type of group medical insurance that can allow smaller companies to access the health insurance savings associated with large group medical coverage. Recent regulation has made it easier for these parties to band together and sponsor an association health plan based on a shared profession, line of business, or geographical region (e.g. a state or a city).
Strictly speaking, association health plans aren't a new category of health insurance but an instrument by which small employers can access the existing and less expensive large company health insurance market. For insurance industry insiders, large company health insurance is known as "large group" and, in most states, would require at least 51 eligible employees. In a few states, the threshold to be considered a large group is higher at 101 eligible employees.
Access to the savings and benefit flexibility enjoyed by large group health plans is the foundation of the new association health plans. Savings from large group plans can range from 8 to 18 percent for the same benefits offereing in small group policies. Savings can be increased further through tactics such as self-insuring.
Avalere Health, a healthcare research and consulting firm, has projected in a recent report that "premiums in the new AHPs are projected to be between $1,900 to $4,100 lower than the yearly premiums in the small group market and $8,700 to $10,800 lower than the yearly premiums in the individual market by 2022, depending on the generosity of AHP coverage offered. They found that the average maximum savings claims for fully-insured plans was 23 percent and 29 percent for self-funded plans.
An association is a group of employers collaborating together within a formal organization. For an association to be "bona fide" (i.e. qualified to offer an association health plan) under new regulation, it must satisfy multiple conditions. These conditions relate to a variety of factors ranging from the commonality of interest shared among association members to the control of the association by the members.
The primary advantage to offering health insurance though an association is the ability for an association to aggregate multiple employers so that the resulting health plan:
- Operates under large group health plan rules, which can save money on administrative and overhead costs as compared to small group plans
- Leverages its scale for more favorable rates when negotiating with:
Other vendors assisting with the provision of health benefits
- Uses it flexibility to explore health plan designs that may reduce costs further through an exemption from premium taxation and state-specific benefit mandates
- Explores whether a fiduciary Pharmacy Benefits Manager (PBM) could save money on prescription drug expenses
For the purpose of an association health plan, an "employer" includes any person acting directly as an employer, or any person acting indirectly in the interest of an employer in relation to an employee benefit plan. Employers can be for-profit , nonprofit , or even unincorporated in the case of "working owners".
An association health plan can either be fully-insured or self-insured. These terms concern how the AHPs are funded and who holds the financial risk associated with medical claims.
Fully-insured plans are the insurance arrangement with which most consumers are familiar. In this model, a third-party health insurance company assumes the risk of medical claim expenses in exchange for premiums. A self-insured plan, in contrast, does not transfer the risk of medical claims to a third-party insurance company. Instead, it retains the responsibility to pay those costs itself.
A self-insured plan pays for the claims from its own financial resources including any premiums charged to employees. A self-insured plan may still use third parties for activities such as record keeping, claims management, compliance, etc. A self-insured plan may also utilize "stop loss" insurance to protect the AHP from catastrophic medical expenses.
Aside from the funding types of fully-insured and self-insured, an association health plan can come in any of the traditional types of healthcare delivery:
Association health plans are regulated primarily under ERISA. However, other federal and state regulations apply such as HIPAA (Health Insurance Portability and Accountability Act of 1996) and The Public Health Service Act.
If an association health plan is "self-insured" it may come under less regulation at the state level, such as being exempted from state-specific insurance benefit mandates. However, a lower degree of regulation does not mean the absence of regulation nor does it suggest the elimination of state and federal insurance filing requirements.
Since employers within an association are not themselves regulatory specialists, regulatory assistance would be obtained from a third party specializing in federal and state regulation that applies to association health plans.