In Wake of Individual Mandate Penalty Repeal, Federal Association Plan Rule Could Further Destabilize NY Markets

NEW YORK, NEW YORK June 8, 2018—A proposed federal rule on Association Health Plans (AHPs), expected to be finalized soon, could further destabilize New York's small and individual health insurance markets by making it easier for sponsors to create healthier groups for coverage that are exempt from benefits and rating rules established by the Affordable Care Act (ACA), according to a report released today by United Hospital Fund.

The new HealthWatch report, The Other Shoe Drops: Federal Association Health Plan Regulation Is Next Threat to Coverage in New York, explains how the proposed Trump Administration rule could greatly expand AHP operations in New York through U.S. Department of Labor reinterpretations of arcane terms such as “bona fide” organization and “commonality of interest.” These new definitions would make it easier for AHP sponsors to package groups of “working owners” or small groups together as if they were a large employer group. Sponsors of these newly created large groups could then offer cheaper coverage to younger or healthier individuals and small groups by factoring in their age, gender, group size, and occupation—prohibited in the individual and small group—or by offering stripped-down benefit packages that would not have to meet mandated essential health benefit standards. That could leave a sicker population with comprehensive coverage in the regular market, at increasingly higher premiums, a dynamic known as “market segmentation.”

“The designers of the ACA realized that, if you want to increase coverage through the private insurance market, you need to make certain that the underlying risk pools are strong and stable in the long term,” said Peter Newell, director of UHF's Health Insurance Project and author of the report. “That keeps premiums more affordable, and makes health plans willing partners. The repeal of the individual mandate and now the AHP regulation goes in the exact opposite direction, and could erase many of the gains New York made under the ACA.”

New York's health insurance market was already roiled by the repeal last year of the Affordable Care Act's individual mandate penalty, which caused plans to boost proposed rate increases for 2019 by an extra 12 percent, according to NYS Department of Financial Services data.

The new report, a follow-up to an earlier UHF HealthWatch brief, both explains the complex AHP proposal and summarizes reaction among stakeholders, nationally and in New York. The report also cites examples from New York and other states that illustrate the tradeoffs and hazards of the AHP proposal.

Support for the report was provided by The New York Community Trust and The TD Charitable Foundation. A PDF of The Other Shoe Drops: Federal Association Health Plan Regulation Is Next Threat to Coverage in New York can be downloaded here.

June 8, 2018
Focus Area
Coverage and Access
Health Insurance Project