A lot has been going on with insurance these days. Despite a fast-moving and somewhat tumultuous political landscape, many small business owners are still asking “what are we going to do about health care?” With many of the main components of the ACA gutted, and several Obama-era rulings reversed, much of what companies have been hurrying to comply with is no longer relevant. What remains has left many small businesses without options for their modest pool of workers.
The Department of Labor formally opened up one option, however, with their final rule on Associate Health Plans (AHPs.) Even the tiniest of businesses – the sole proprietor – can now band together with peers to form a buying pool and get access to plans not available to them previously. Here’s how it works:
Self-Funded vs. Fully Insured
First, it’s important to know the difference in plan types. Currently, associations (or employers, in general) can choose to be a fully-insured or self-funded (or “self-insured.”) Fully insured companies operate like anyone buying health insurance; they send a fixed premium into a third-party company, such as Blue Cross Blue Shield, and that third-party covers the claim payments. Self-insured, on the other hand, acts more like the insurance company in that the company or association pays for claims and costs from the revenue of the employees’ or members’ premiums. The employer or association carries the risk of the group, and this isn’t always feasible for smaller, learner start-ups.
Underwriting rules generally show an advantage for companies with over 1,000 employees to consider self-funding. The savings for making a move is between 2 – 3.5% of administrative and risk costs. This is due, in part, to all the saved “middle-man” fees of the insurance company, agents, brokers, and taxes. Since they can also opt out of certain state-mandated benefit rules, there is more flexibility in what their plans can offer – ultimately resulting in savings opportunities. Self-insuring has few advantages for smaller companies if they would even qualify.
When to Join
Existing groups that had an AHP in place before the Final Rule can establish a self-funded AHP starting January 1, 2019. Everyone else (existing groups after the ruling or new groups) can start a self-funded AHP beginning April 1, 2019. For those who choose a fully-insured AHP, the start date is September 1, 2018.
Will You Be Affected?
For freelancers and sole proprietors without much opportunity to buy employer health plans, this is indeed good news. Many independent contractors have been trying to fit within the ACA plans offered for their area (in some cases, just one plan is available), limp from one short-term plan to the next, or simply forgo insurance altogether. The AHP revisions give them yet another options to band together with their peers, based on skill, location, or association membership. The new rules allow for those living in metro areas that encompass two states (Kansas City in Missouri and Kansas, for example) to buy “across state lines” with other plan members from the same municipality, as well.
Of course, the change is good for other small business types, as well, especially as they work to attract new talent in an age of very low unemployment. As workers shop around for benefits, having access to even the most modest AHP plan can be the deciding factor in taking on any new job. This latest rule change is expected to give an additional 15 million Americans (including the family members of business owners and sole proprietors) access to health insurance by 2023. Watch the Department of Labor’s upcoming announcements for the full details of the roll-out and how you can start your own AHP according to the rule change.
This article was originally written on August 29, 2018 and updated on January 29, 2021.
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