Trump Administration Proposes to Expand Association Health Plans; Congress Targets Employer Mandate

The Trump Administration and Republicans in Washington are continuing their efforts to dismantle the Affordable Care Act after failing to directly repeal the law last year.

The Trump Administration recently proposed new rules that would expand the definition of “employer” under the federal law governing entities that can sponsor group health coverage and let certain small businesses and trade groups band together to buy health care.

This expansion of what is commonly known as association health plans would enable smaller employers to form an association to purchase large group health insurance, thereby offering employees plans that are less strictly regulated and currently available only to larger employers. Large group plans are exempt from several Affordable Care Act regulations, such as the requirement to cover a set of essential health benefits, and are typically only available to employers with more than 50 employees.

The proposed rule stems from an executive order President Donald Trump signed last October directing federal agencies to loosen restrictions on short-term health insurance and association health plans.

Employer groups, including the American Trucking Associations, support the proposed rule, arguing that expanding association health plans will lower premiums and increase the bargaining power of small employers looking to purchase insurance for their employees. The International Franchise Association also said that it would look into offering coverage for its members. Critics say the change could further segment the market, leaving sicker individuals with higher premiums in the individual and small group markets.

The new Labor Department proposal comes just after Congress repealed the “individual mandate” under the Affordable Care Act as part of recent tax reform. Many Republicans in Congress now have their sights set on eliminating the “employer mandate,” which requires large employers (with 50 or more full-time equivalent employees) to offer coverage to employees.

Although many large companies have long offered health benefits, employers have objected to the detailed requirements under the Affordable Care Act, including onerous and expensive reporting rules. Opposition to the employer mandate may increase as more employers are fined for not offering coverage or for not meeting federal standards for adequate, affordable coverage. The penalty is $2,260/year multiplied by the number of full-time employees in excess of thirty.

Below is a more detailed overview of the Trump Administration’s proposal regarding Association Health Plans. 

CURRENT LAW

The size of each company determines how its insurance coverage is regulated.  Employers cannot form associations to purchase large group insurance together.

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PROPOSED CHANGE

Businesses can form an association to purchase large group insurance.  The rule would make it easier for the association to cross industry and state lines.

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Definition of a Small Group Employer Varies by State

Originally, the Affordable Care Act was written so that a small employer would be redefined in 2016 as any employer with fewer than 101 employees.  However, in October 2015, Congress passed the Protecting Affordable Coverage for Employees (PACE) Act, which kept the existing definition with a threshold of 51 employees.  The PACE Act allowed states to opt in to the higher standard, but only four states have done so.

Deciding which definition to adopt is a balancing act for state insurance regulators.  On one hand, employers classified as large employers can purchase large group insurance for their employees, which is less regulated and sometimes cheaper to purchase. On the other hand, large employers are required by the ACA to provide insurance coverage.  Many small employers prefer to leave their employees in the individual insurance market, which may be less costly to the employer.

State definition of a small employer in the insurance market

Tan: Up to 50 employees           Red: Up to 100 employees

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