Earlier this month, the Department of Labor proposed a rule that could dramatically expand access to affordable health insurance.
The rule would empower small businesses and self-employed individuals to band together to purchase coverage through “association health plans” or AHPs. They are exempt from many of Obamacare’s mandates, which have been responsible for premiums soaring. As a result, these plans could provide small businesses who previously didn’t offer health insurance an affordable means of doing so.
The Department of Labor rule corrects an inequity inherent to Obamacare. The health law imposed costly mandates on small-group and individual policies. But large-group plans are exempt from many of these regulations.
Small businesses have long paid more than large ones for coverage, at least on a per capita basis, because the former lack the buying power of the latter. Obamacare only exacerbated the discrepancy.
Worse, the Obama administration deliberately denied small businesses and sole proprietors an escape hatch from the even higher-cost small-group market Obamacare created. Employers were blocked from forming AHPs offering non-Obamacare-compliant coverage unless the plan’s members could meet a strict “commonality of interest” requirement.
Small businesses in the same industry — for instance, several dozen landscaping firms in the same metro area — don’t meet the requirement. Nor do sole proprietors in the same line of work, such as Uber drivers or freelance graphic designers.
The Obama administration confined small businesses to the expensive small-group market because they wanted as many entities paying premiums in that market as possible, in hopes of keeping overall costs down.
But that meant many small businesses had to choose between expensive Obamacare-compliant plans — or not providing insurance at all. In Connecticut, premiums for small-group plans jumped an average of 25 percent in 2018. Minnesota small businesses faced premium hikes of up to 23 percent. And in our nation’s capital, small firms were saddled with an average rate hike of more than 7 percent.
Consequently, many have chosen not to offer insurance. Less than one-third of American companies with fewer than 50 workers offer medical benefits.
Meanwhile, for companies insured through the large-group market, coverage has been more affordable. Between 2014 and 2016, the average premium for an individual working at a firm with 1,000 or more workers rose by less than 6 percent. That’s an average annual increase of less than 3 percent.
The DOL’s proposed rule would give small firms a way out of the high-cost market Obamacare trapped them in. And by banding together with other firms in an AHP, these businesses would gain negotiating leverage they don’t have on their own.
Specifically, the DOL rule would relax the “commonality of interest” requirement. Chambers of commerce, industry trade groups, businesses in the same geographic area, and sole proprietors in the same industry would be able to form or join AHPs that offer non-Obamacare-compliant plans tailored to the unique needs of their members.
AHPs wouldn’t be able to turn away individuals or charge higher premiums based on a person’s health status. So people with pre-existing conditions would remain protected if their employer joined an AHP.
Obamacare’s defenders worry the DOL rule will lead to an exodus from the law’s insurance exchanges. But it’s hardly fair to deny small businesses struggling with ever-rising premiums on those marketplaces access to a more affordable coverage alternative in AHPs.
Further, if exchange premiums keep rising — and recent history seems to indicate they will — then small businesses will exit the marketplaces in increasing numbers, unable or unwilling to afford the only coverage they’re legally allowed to buy.
That will cause premiums to rise further, and the cycle to repeat, until only the wealthiest, or most desperate, small businesses can afford exchange coverage.
It was devious of Obamacare’s partisans to prop up the exchanges by blocking small businesses and sole proprietors from utilizing AHPs. Fortunately, the Trump administration’s new rule will end that inequity — and give small firms and the self-employed access to health plans they can actually afford.