From the Desk of Bob McNett…..

Trump Administration Proposes “Association” Health Plans.

An old, dusty concept is being revived by the Trump administration and, if approved,  will likely compete with other group health plans in the open market and individual offerings on the exchange.

In the past, we saw professional industry groups offering group health insurance coverage to their members.  For example, the Oklahoma Bar Association and Oklahoma Dental Association offered health insurance to their members for a number of years,. underwritten by insurance companies.  Over a period of time, these plans became unsustainable due to lack of critical mass (low participation numbers) and premiums that became uncompetitive against other group health plans being offered on the open market.  Now, very few association plans still exist.

If the Trump administration has it’s way, this may change soon.

A rule was proposed this month that would loosen the definition of who can band together to purchase health insurance, allowing individuals or people in small groups to form associations for buying insurance.

The key to this proposal, and the characteristic that may lend to it’s success, is that it would allow these association plans to offer coverage that circumvents certain provisions that dictate what must be covered on an ACA-compliant plan.

Obamacare group and individual plans must comply with 10 essential benefit requirements, including full maternity with no waiting periods, well-care covered at 100%, birth control and other key provisions.  Association plans, under the proposed rule, will be able to offer plans that do not include these 10 “essential benefits” currently required for all plans being offered on or outside the exchange.  This might give these plans a major pricing advantage over other group and individual plans.

From the perspective of someone that has been in the health insurance markets for 35 years, I can see some real tripping points coming down the line.

First, how can association plans offer scaled-back, lower priced coverage while other plans are forced to include expensive, “essential” benefits mandated by ACA?  This would create a rigged market giving association plans an unfair pricing advantage.  It could possibly wipe out or greatly reduce insurers offering ACA-compliant plans.  Sicker people would migrate to higher-benefit, higher-premium ACA-compliant plans.  Healthier, younger people would migrate to lower-benefit, lower premium association plans, further skewing the market.

Secondly, these concepts start out with a lot of fanfare, but seem to lose their luster in rather short order.  The ACA created so-called “co-op” plans, which were start-up health plans meant to offer more competition in the group health insurance marketplace.  Virtually all these co-ops received guaranteed government loans for start-up and ongoing expenses.  Of the 23 coops that were created with the law, only a few still exist, and even the ones remaining are all losing money.  Most closed their doors after only a year or two, most leaving their government loans unpaid.  The message:  It is really hard to make a profit in the health insurance business, and very easy to get upside down in a hurry.  The health insurance business, like getting older, is not for sissies.    Over the years. the efforts to circumvent our current insurance system by coop plans, association plans and other arrangements have littered the landscape with the corpses of these plans.  Seemingly, the mega-carriers like United Healthcare, Aetna and Cigna are the only entities able to put together a critical mass of multi-millions of customers to adequately spread risk to make the system work.  Even with that, we have seen premium increases over the years outstripping the general inflation rate. sucking capital out of businesses that could otherwise use the money for investments, new equipment, etc.  These insurers, however, have been able to provide dependable, if increasingly unaffordable, coverage that Americans know will be there when needed.

Thirdly, there is no guarantee that insurance companies will find association plans an attractive business to enter into.  It has been my experience that insurance companies, in the last twenty years or so, have been very hesitant to underwrite association plans offered by professional organizations for lawyers, doctors, CPA’s etc.  Under the proposed guidelines,a group of three or four small restaurants, for example  could band together to buy insurance.  On the surface, this sounds good because it gives each restaurant more buying power by teaming up with other employers.  In practice, insurance companies have found these arrangements unattractive, and find that it is a guaranteed way for them to lose money because of low participation rates by employees, employers that contribute little towards the cost of coverage for employees, and a propensity, therefore, to attract sicker individuals while younger, healthy employees opt out.  If insurance companies decline to underwrite the risk for these association plans, no other entities, other than perhaps the federal government, could indemnify the risk of high claims.

The new wrinkle for this old concept, as it is once again taken out of storage and dusted off, is the fact that it may be given a pricing advantage by being able to circumvent the 10 essential Obamacare benefit mandates.  But a vibrant, healthy market for any kind of product or service is created when all players must play by the same rules.  A rigged, artificial market usually does not serve the consumer well.

Robert K. McNett, LUTCF

The McNett Agency

918 294 3712 Fax 918 494 6725


Trump Administration Proposes “Association” Health Plans