Trump administration finalizes rule to expand association health plan access

(Updated at 2:55 p.m. ET)

The Trump administration's decision to expand access to association health plans will encourage healthy people to seek the cheaper, less robust coverage options but also could lead millions to forgo coverage, according to Labor Department officials.

The agency on Tuesday unveiled the final version of its association plan rule that allows more small businesses and self-employed workers to band together to buy insurance. The final rule is part of the administration's plan to encourage competition in the health insurance markets and lower the cost of coverage. It broadens the definition of an employer under the Employee Retirement Income Security Act of 1974, or ERISA, to allow more groups to form association health plans and bypass rules under the Affordable Care Act. ERISA is the federal law that governs health benefits and retirement plans offered by large employers.

"The Trump administration hopes to level the playing field between large companies and small businesses by expanding access to association health plans," Labor Secretary Alexander Acosta said on a call with reporters Tuesday. "This expansion will offer millions of Americans more affordable coverage options."

As many as 4 million people could be covered under the new plan offerings in the coming years, according to Acosta. That includes 400,000 people who previously did not have insurance coverage, he said.

The government's estimates are in line with Avalere Health's prediction that as many as 4.3 million people will leave the individual and small-group insurance markets to enroll in association health plans over the next five years.

Mostly healthy, young people are expected to make the exodus to association plans, which would spark rising premiums in the ACA individual and small group markets. Avalere projected premiums would increase by as much as 4% between 2018 and 2022. The healthcare consulting firm's analysis was funded by the insurance industry lobbying group America's Health Insurance Plans.

The Labor Department in its own analysis confirmed a potential shift of healthy young individuals to association plans.

"(Association health plans') exercise of their relative flexibility will lead to some degree of favorable risk selection toward AHPs and adverse selection against individual and small-group markets," according to the rule. "This risk segmentation will increase premiums somewhat in ACA-compliant individual and small-group markets."

Advocates remained concerned that consumers will select less robust plans and be unable to receive the care they need in the future.

"These garbage health plans are just the latest Trump administration attempt to undermine and sabotage our health insurance, sticking Americans with higher costs and chipping away protections for millions and millions of people with pre-existing conditions," Brad Woodhouse, campaign director for Protect Our Care, a consumer advocacy organization, said in a statement.

Low- and moderate-income individuals will be insulated from premium increases in the individual market thanks to the tax credits they'll receive, according to the Labor Department. However, higher-income individuals with household incomes above 400% of the federal poverty level, or $100,000 or more for a family of four, are ineligible for that assistance, the agency said.

Individuals insured in the small group and individual markets outside the exchanges might also experience premium increases, according to the agency. It estimated that 6 million individuals insured in individual markets in 2015 had incomes above 400% of the federal poverty level. These individuals either have no connection to a small business or work for a small employer that does not offer insurance coverage. As a result, they are unlikely to qualify for AHP enrollment and could see their premiums rise, which may lead them to forgo coverage altogether, the Labor Department said.

Under the rule, association health plans cannot restrict membership based on health status or charge sicker individuals higher premiums, which were two of critics' biggest concerns about expanding association health plans. Experts say that protections will help mitigate association plans' negative effects on the marketplace.

Federal regulations had made it difficult for association health plans to meet ERISA's large-employer insurance requirements. Many existing association plans had to comply with small-group and individual insurance market regulations, including protections for people with pre-existing medical conditions and covering the ACA's 10 essential health benefits.

Small businesses and self-employed workers had to be part of the same industry to form an association health plan under the previous rules. The new rule would change that, allowing workers in unrelated professions to band together to obtain coverage through an association health plan so long as they are in the same geographic region, said Chris Condeluci, a health policy consultant who was a Senate GOP staffer when the ACA passed.

The rule also would allow association health plans made up of a members of the same industry to offer coverage to workers across the country.

Self-employed workers can join association plans under the new regulation, and groups that want to form an association plan don't need to have another purpose beyond providing health coverage to members.

Several hospitals and clinician groups warned the federal government prior to the rule's finalization that uncompensated-care costs could soar if access to these plans expanded.

However, they noted that association health plans pose a unique threat to providers because they have a history of fraud spanning decades and the proposed regulation doesn't seem to strengthen oversight of such plans adequately, according to the American Heart Association. Several lawsuits have been filed over the years from patients and employers regarding unpaid medical bills.

"Many plans collected premiums for health insurance coverage that did not exist," Dr. John Warner, president of the American Heart Association, said in a comment letter dated March 5. "Some plans did not pay medical claims, leaving businesses, individuals and providers exposed to millions of dollars in unpaid bills."

Ana Gupte, an analyst at the investment bank Leerink Swann, said the rule poses little to no risk to acute-care facilities, and the 400,000 uninsured individuals joining AHPs would create a small increase in revenue.

The Labor Department attempted to address provider angst about the rule by requiring association health plans to have a formal organizational structure with a governing body and bylaws so they can act in the interests of participating employers and ensure claims are paid.

However, this may not be enough to fully assuage provider concerns, the agency warned.

"The department anticipates that the increased flexibility afforded AHPs under this rule will introduce increased opportunities for mismanagement or abuse, in turn increasing oversight demands on the department and state regulators," the department said in the rule.

The Labor Department said it is aware of industry requests to increase its enforcement activities in tandem with expanding access to AHPs. However, it may be unable to do so.

"This increase would require Congress to appropriate additional funding for the department's oversight of expanded AHPs and for the department to expand staff and related enforcement support resources to meet that broader enforcement," the department stated in the rule.