Learn the Basics of Association Health Plans for Employers
What is an Association Health Plan?
When considering your organization’s health coverage offerings, it’s important to understand association health plans, or “AHPs.”
Fundamentally, association health plans are a type of group medical insurance. An association health plan can provide these businesses and individuals with significant savings, much like “large group” medical coverage provides to larger firms.
“Group insurance” means health insurance coverage providing for multiple individuals who are not related to one another by any familial relationship. You’ll typically hear about group coverage in reference to the health coverage offered to employees by their employer, or even by employee groups, like unions.
Who can Participate in Association Health Plans?
AHPs are a particularly attractive option for small to mid-size firms, or employers with 100 or fewer employees, as well as contract employees, freelance workers, and self-employed individuals. Employers can participate in association health plans regardless of their incorporation status. Participating employers can be for-profit or non-profit organizations. In June of 2018, new legislation made it possible for sole proprietors to join association health plans, as well.
When a group of employers join together to provide health insurance to their employees through an association health plan, together they form what is called a Multiple Employer Welfare Arrangement, or a “MEWA.” Less frequently, you’ll hear these groups of employers referred to as “multiple employer trusts” or “METs.” Either way, groups of employers offering a single association health plan should be aware of legally required documentation and disclosure mandates for their members. Employer groups participating in AHPs are also required to file Form M-1s and Form 5500s.
Can I Save Money by Using an Association Health Plan?
Association health plans keep their rates low by “packaging” together smaller groups of members and paying for members’ care in bulk. AHPs essentially leverage their size for better premiums. Their representatives can negotiate with insurance companies, healthcare providers, and other vendors. When you join an association health plan, those savings are passed on to you.
Association health plans are nothing new. However, thanks to a piece of federal legislation in 2018, AHPs have recently become more practical and accessible to small businesses. The 2018 regulation changes have made it possible for small businesses to group together in order to leverage their size and access lower group rates for their employees. “Large group” health insurance covers roughly 100 million people in the U.S., and depending on your state, your business would need either 51 or 101 employees to qualify for the advantages and savings associated with large group coverage. Association health plans are especially useful because they bring these benefits to smaller businesses, too.
Coverage offered as part of an association health plan can be structured to meet its specific members’ needs, and in this way, members can save money. For example, AHPs can be designed to offer less coverage for prescription medications, but more comprehensive coverage for annual primary care doctors visits.
How Do Association Health Plans Work?
Association health plans operate similarly to the traditional health insurance you’re probably already used to. Members receive health insurance ID cards, and association health plans partner with an insurance company’s network of healthcare providers.
Association health plans carry member-paid premiums, just like any other health insurance coverage plan. However, the health status and other characteristics of the group of members can affect the premium amount. For example, if most members of the association health plan group are young, your AHP premium rates will be lower than an AHP with older members. This can translate to significantly lower premium costs than large group health insurance.
On the opposite side—but still a positive—association health plans are not permitted to deny membership or raise premium costs based on an individual’s membership in a legally protected class, such as religion or race. AHPs also will not and cannot deny coverage to an individual because they are already sick or have a pre-existing condition.
Association health plans are subject to both state and federal law. This means AHPs are beholden to certain standards ensuring the protection of members, including premium limits and benefit requirements.
Types of Association Health Plans
One way to classify the different types of association health plans are: 1) Health Maintenance Organizations, or HMOs; 2) Exclusive Provider Organizations, or EPOs; and 3) Preferred Provider Organizations or PPOs.
What’s the Difference Between HMOs, PPOs, and EPOs?
Health Maintenance Organizations offer medical benefits, like any other health plans, but insured individuals are restricted to providers that are in-network. This only applies to non-emergency situations, however. To visit a specialist, individuals insured under HMOs must first visit their primary care doctor and obtain a referral.
Exclusive Provider Organizations, much like HMOs, limit their coverage to visits with in-network providers only. However, individuals insured under EPOs do not need to visit their primary care doctor for a referral in order to see a specialist.
Preferred Provider Organizations allow enrolled individuals to select from either in-network or out-of-network providers. Group members insured under PPOs do not need a referral from their primary care doctor to get lab tests or visit a specialist. PPOs are typically associated with higher premiums.
What’s the Difference Between Fully-Insured and Self-Insured Health Plans?
There are two key types of association health plans: 1) fully insured AHPs and 2) self-insured AHPs. The difference between fully insured and self-insured AHPs comes down to how the plans are funded, and how the financial risk accompanying medical claims will be distributed.
If you are an employer setting up an association health plan, you need to understand the difference between fully insured and self-insured health plans. Most people are more familiar with fully insured plans. These are the insurance arrangements where a third-party health insurance company takes on the risk of medical claim expenses. They do this in exchange for payment in the form of member-paid premiums. In a fully insured plan scenario, the employer-company pays a premium to the insurance company. Premiums are set based on the number of employees participating in the health plan and receiving coverage. The premium will only go up within the benefits year if the number of enrolled and participating employees rises month-to-month. Participating employees and their dependents bear the costs of deductible and co-pays, just like they would under a traditional health plan.
On the other hand, a self-insured association health plan (also known as a Section 105 plan) keeps the responsibility for medical claim expenses within the plan. Self-insured plans, in other words, do not operate by transferring the payment of medical claims to a health insurance company. Self-insured plans can still use premiums to fund the cost of claims, like fully insured plans.
Self-insured plans, however, must fund claim costs from their own resources. Association health plans classified as self-insured don’t have to go at it completely alone, however. Many still contract with third-party companies for services like legal compliance and claims management. They can even obtain what’s referred to as “stop-loss” insurance to protect from major, unforeseen costs. Stop-loss insurance can be a very helpful tool in limiting a self-insured employer’s risk. This type of insurance will cover an employer for claims that rise above a pre-set amount. Stop-loss coverage can be drawn upon when the claims of either a specific covered individual or the aggregate group as a whole become too much for the employer to fund.
Can I Save Money by Using a Self-Insured Health Plan?
In many ways, self-insured plans are more flexible than fully insured plans. Self-insured plans can carry lower premiums than fully insured due to the fact that they are not subject to health insurance tax. Further, third-party health insurance companies (and the cost to use them) are not a part of the picture, unlike with fully insured plans.
How Does a Self-Insured Health Plan Work?
An employer choosing to offer a self-insured health plan first should calculate how much the plan will cost their organization. Make sure to take into account both the fixed costs and variable costs associated with the plan. In the end, you will need to make the decision of whether the money you will save by offering a self-insured health plan to your employees is worth your organization’s exposure to the risk of paying their medical claims.
Fixed costs you will need to consider include but are not limited to administrative fees, software fees, management fees, and all fees that are assessed per employee, based on the number of participating individuals. You will also need to factor in the cost of stop-loss coverage if you choose to enroll.
The major variable costs associated with self-insured health care plans are the payment claims. Remember that you will not only be paying the claims of your employees, but also any covered dependents.
Choosing the Right Association Health Plan for Your Organization
After learning all about AHPs, you’ll want to weigh the pros and cons of this type of health plan for your organization. It always helps to talk to an expert, and Benely is here to help. Contact Benely for assistance in finding the perfect coverage for your employees.