Frequently Asked Questions About Association Health Plans (AHPs)

What is an Association Health Plan?
What's the current problem with AHPs?
How can AHPs be saved?
Why would anyone oppose AHPs?
Are AHPs safe?
How will AHPs help small business?
How do AHPs save money?
How will AHPs help the uninsured?
How can an Association Health Plan provide small-business workers with affordable health insurance when other types of purchasing cooperatives have not been successful?
Could small-business Association Health Plans cause adverse selection?
Would AHP legislation hinder the efforts of state insurance commissioners to stop insurance fraud?
Would an expansion of AHPs damage the current insurance market?
Would expanded AHPs require a new bureaucracy?
Do AHPs respect states' rights?

 


What is an Association Health Plan?

AHPs allow small-business owners to join together across state lines through their membership in a bona fide trade or professional association to purchase health coverage for their families and employees.

For example, a small-business owner can purchase health benefits through an association of small businesses. The association then purchases and processes health insurance for a large group of small-business owners, taking advantage of their greater volume as a group to gain purchasing clout, volume discounts and administrative efficiencies.

Back to top

What's the current problem with Association Health Plans?

Unlike similar corporate and union groups who purchase health insurance at discount rates, AHPs are currently regulated by individual states.

The Employee Retirement Income Security Act of 1974 (ERISA) preempts state regulations when dealing with corporate and union organizations, giving them greater flexibility and consistency across state lines and allowing them to prosper.

However, ERISA does not currently preempt state regulations for AHPs, forcing AHPs to follow the varied regulations from state to state. As state regulations have tightened over the past decade, they have made running an AHP across state lines an administrative nightmare.

In 1990, there were more than 1,000 AHPs. Today, there are fewer than 200.

Back to top

How can AHPs be saved?

There is a simple solution. ERISA should preempt state regulations regarding AHPs. Then, AHPs would be subject to a single, consistent set of guidelines ensuring their solvency and allowing them to provide lower-cost health insurance to millions of Americans.

Back to top

Why would anyone oppose AHPs?

Organizations that currently hold a monopoly on providing health insurance to small businesses would suddenly face competition from Association Health Plans providing the same or better benefits at a lower cost if AHP guidelines were nationally standardized. These organizations often do not support AHP legislation, since they see AHPs as threatening their own profit margins.

Back to top

Are AHPs safe?

Yes. In fact, the tough new solvency standards found in AHP legislation protect patients' rights and ensure benefits are paid:

 


Back to top

How will AHPs help small business?

AHPs could save small businesses an estimated 15 to 30 percent compared with the cost of purchasing coverage directly from an insurance company. AHPs could also help many small employers who are now struggling to offer coverage to increase health benefits and/or pay a higher share of workers' premiums.

Additionally, AHP legislation would minimize the disadvantage that small businesses face in attracting and retaining quality employees. Due to the uniformity across state lines and group buying power, large companies are currently able to offer health-benefit packages that are more generous and affordable than those offered by small businesses. AHPs would rectify this inequity.

Back to top

How do AHPs save money?

AHPs achieve their savings through several types of operating efficiencies:
 
Back to top

How will AHPs help the uninsured?

About 51 percent of the roughly 45 million uninsured Americans either work in a small business or are a dependent of a small business worker. Thus, a large portion of the solution to getting quality health coverage to millions of the uninsured is to make coverage affordable for workers in small businesses.

Back to top

How can AHPs provide small-business workers with affordable health insurance when other types of purchasing cooperatives have not been successful?

Bona fide associations are already in place, and therefore do not require many of the start-up costs involved with other types of purchasing cooperatives.

In addition, Association Health Plans are uniquely structured to serve small employers and their workers by providing many different services that meet their members' needs. The expertise developed over many years of serving small- and medium-sized employers can be leveraged to provide more attractive health-benefit options designed for working families.

Back to top

Could small-business Association Health Plans cause adverse selection?

No. The 1996 HIPAA law prevents adverse selection in Association Health Plans, stating that no group health plan may deny or condition coverage on health status.

Moreover, AHP legislation contains provisions to further protect against any possibility of adverse selection. AHPs must actively market to and accept all member employers regardless of the claims history or health status of their employees. AHPs are prohibited from excluding or charging higher premiums for sick employees, and are restricted from setting their premiums in a way that might force higher claims companies to pay higher premiums than other similarly situated employers in the plan.

In addition, only bona fide associations, which are formed for purposes other than providing health insurance for at least three years, qualify to offer an AHP.

Back to top

Would AHP legislation hinder the efforts of state insurance commissioners to stop insurance fraud?

No. AHP legislation would enhance efforts to prevent fraud and abuse by clarifying the definition of a legitimate Association Health Plan. AHP legislation also grants the states and the U.S. Department of Labor greater enforcement tools, including criminal sanctions that can be used to shut down bogus plans.

The DOL Inspector General has testified before Congress that these changes in law would enhance federal and state efforts to prevent and prosecute insurance fraud.

Back to top

Would an expansion of AHPs damage the current insurance market?

No. AHP legislation would strengthen health insurance markets by creating greater competition that would benefit consumers by expanding access to coverage.

Back to top

Would expanded AHPs require a new bureaucracy?

No. The regulation of AHPs would be integrated into the current regulation of large employer and union health plans. AHPs would pay a $5,000 certification fee (which could be increased by the secretary of Labor as necessary) to cover any additional administrative costs.

In fact, AHPs have the opportunity to save the current bureaucracy money. A substantial portion of the Department of Labor's current budget is devoted to investigating and disbanding fraudulent health plans. With the new and more effective enforcement capabilities established by AHP legislation, DOL would be able to redirect existing resources to the regulation of bona fide AHPs.

Back to top

Do AHPs respect states' rights?

Yes. AHP legislation enhances states' rights by providing new criminal penalties, higher solvency standards and better enforcement powers for curbing health insurance fraud.

Currently, not all states have statutes dealing with multiple employer plans, and many states suffer from insufficient resources and ineffective enforcement of regulations, leaving fraudulent insurance schemes unchallenged.

The National Association of Insurance Commissioners has stated that current law needs to be strengthened to combat insurance fraud. Moreover, AHP legislation requires that the secretary of Labor consult with the states in order to ensure effective and efficient regulation of AHPs.

Back to top