Providing better deals for health coverage

More than a dozen state attorneys general just sued the Department of Labor over a new rule that makes it easier for small businesses and self-employed individuals to form “association health plans.” AHPs enable these firms and sole proprietors to band together to negotiate with insurers for better deals for health coverage.

The attorneys general claim the rule violates consumer protections in the Affordable Care Act. But the opposite is true — the rule will work to the great benefit of consumers.

Since Obamacare’s many rules took full effect in 2014, the cost of insurance for small firms and self-employed people has skyrocketed. AHPs will grant them access to the affordable, high-quality health plans they want and deserve.

Previously, small businesses could only form AHPs if they met strict requirements. They couldn’t band together solely to purchase health coverage. They needed to have a separate, legitimate reason for forming an association — like lobbying on behalf of their members, or hosting educational and networking events. Firms also had to share a “commonality of interest.” In other words, they had to operate in the same industry.

Sole proprietors were banned from AHPs; only businesses with at least one employee could join.

These restrictions forced the majority of small firms and sole proprietors to shop for insurance in the small-group and individual markets, which are heavily regulated by Obamacare. The health law requires all plans to adhere to a slew of costly regulations. For instance, plans must cover 10 essential health benefits — including maternity care, pediatric dental services, and substance abuse treatment — regardless of whether people want or need them.

These comprehensive benefit requirements, and the law’s other mandates, imposed huge new costs on insurers. They responded by hiking premiums. In Maine, for example, small group premiums increased 16 percent this year. They went up 11 percent in Georgia.

Small employers have been increasingly unable to cope with these rising costs. The share of businesses with fewer than 50 employees offering health benefits declined from 35 percent in 2012 to 29 percent in 2016.

Sole proprietors, who have historically had to shop in the individual market, have faced even more drastic increases. From 2013 to 2017, premiums for individual policies on Obamacare’s exchanges doubled. As a result, 400,000 fewer people signed up for such plans this year than last year, when 12.2 million enrolled.

A sizeable number of them were no doubt sole proprietors who decided they’d rather pay the individual mandate penalty of the greater of $695 or 2.5 percent of income than purchase insurance through their exchange.

AHPs could be a more affordable option. The finalized rule will allow companies and self-employed individuals who live in the same region or work in the same industry to join AHPs starting Sept. 1. Local chambers of commerce, for instance, could set up an AHP. Uber and Lyft drivers nationwide could do the same. And they’ll be able to do so solely to obtain health benefits — they don’t need a separate reason for being.

AHP premiums are generally lower and more stable than small-group and individual market plans. Avalere, a health care consulting firm, projects that annual AHP premiums will be almost $3,000 lower than small group plans and nearly $10,000 lower than individual market plans by 2022.

The Congressional Budget Office estimates that AHPs will attract 4 million enrollees within five years. About 400,000 of those enrollees would otherwise have gone without insurance.

By making affordable coverage available to more individuals and businesses, AHPs will accomplish what Obamacare failed to do through mandates, tax credits and intrusive federal regulations.

Nevertheless, critics are blasting the new rules, saying they’ll cause people with pre-existing conditions to lose coverage.

That’s misleading. Federal law prohibits association health plans from denying coverage to enrollees or charging them more because of their health status. But AHPs don’t have to comply with Obamacare’s mandates to cover substance abuse treatment and the like.

Critics also claim that the growth of AHPs will cause exchange premiums to rise, as healthy people abandon the exchanges for them.

Maybe. But exchange plans are already unaffordable for millions of people, who go without insurance as a result. Denying these Americans affordable association health plan coverage to prop up the failing exchanges is deeply cynical.

Millions of people will soon gain affordable health cover, many for the first time. For that, they’ll have the Trump administration’s AHP rule to thank.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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