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How Association Health Plans Could Increase Long-Term Costs

Analysis  |  By Gregory A. Freeman  
   June 20, 2018

Allowing more consumers to band together for group insurance could further undercut the Affordable Care Act. Health plans will be cautious about the risk inherent with these plans.

The recent move by the Trump administration to allow small businesses to create association health plans (AHP) could exacerbate existing problems in the insurance industry.

AHPs will be able to charge lower premiums in exchange for less extensive coverage that does not meet the minimum requirements of the Affordable Care Act.

Employers and consumers might benefit from the availability of AHPs, but will have to avoid being wooed by lower premiums on coverage that could cost them more in the long run, says Kevin Fine, who leads the healthcare strategies advisory group at Kaufman Rossin.

The final rule on AHPs still leaves questions unanswered about exactly how the plans would work, Fine notes, and that means the potential impact on the insurance industry is still elusive.

Effects Could Ripple

But he says there will be losers.

"This will be a disruptor, because people will look at the lower premiums and make jumps to the new plans. That will decrease membership in ACA plans and it could have detrimental effects on the healthcare system, health plans, taxpayers, everyone who foots the cost of providing healthcare," Fine says.

"This could result in greater sickness and more hospital stays if people switch to this lower level of coverage and don't receive the same level of care they might have under an ACA plan, leading to greater costs and worse health conditions down the road," he says.

Health plan leaders are looking at the AHP expansion with caution, waiting to see what the impact might be, Fine says. The impact on any particular health plan is likely to be determined by its particular market focus.

"Each insurance carrier has its own bread-and-butter they go after—commercial plans, Medicare, larger or smaller groups, and certain demographics. I don't expect health plan CEOs will be adjusting their insurance portfolios in response to this until they get a better sense of how this fits into the market they typically go after," Fine says.

"Some may find that this is something their customers are looking for and will go to other plans if they don't offer it. But they will be cautious about pulling together different types of members from different geographic areas and demographics in an association plan without understanding the types of risk that comes with, because combining different groups like that will always entail risk," he says.  

Lower Premiums Attractive

Fine does expect consumer demand for AHPs to increase. The lower premiums will be irresistible to some employers and individuals, he says.

"People will always rate shop without having a clear idea of what they're getting for that premium, or even accepting the low level of coverage if they do understand. And you'll always have health plans that push their products without giving consumers a good idea of what they're getting," he says. "That will happen no matter what administration or type of health plans are out there."

The Congressional Budget Office estimates that expanded availability of AHPs could prompt  more than 4 million people to ditch ACA-compliant health plans for the less expensive alternatives.

Fine notes that those people are likely to be younger and healthier, further draining ACA plans of the customers needed to compensate for the sicker ones and balance the books.

Exchanges Further Crippled

In that regard, expanding AHPs is similar to how the Trump administration made short-term health plans more available and attractive.

That move was seen as a direct blow to the stability of the ACA because it siphons off the most desirable consumers.

"This rule is a way to limit the growth opportunity of the exchanges. It puts another bump in the road for them," Fine says.

The rise of AHPs was driven in part, however, by the faults of the ACA, Fine says. Like AHPs, ACA offered benefits in some areas but brought risks that came to fruition in terms of soaring premiums and deductibles.

"Any significant insurance change has a tremendous amount of risk associated with it," Fine says. "We saw in ACA that the fundamentals were great but the risks were great too, and now we've seen the majority of carriers pulling out of that market because they couldn't find a way to manage that risk."

"We can't look at an option like association plans and focus on just the benefits, because those risks can be significant and sometimes we don't understand them until we get further down the road," he says.

Gregory A. Freeman is a contributing writer for HealthLeaders.

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