Beyond the AHCA: What the Small Business Health Fairness Act adds to health care

On March 22, the House passed the Small Business Health Fairness Act (SBHFA). This act allows for the establishment and governance of Association Health Plans (AHPs), which are group health plans sponsored by business associations.  

The law defines AHP as group health plans sponsored by bona fide trade, industry, or professional associations, chambers of commerce, or other associations organized for a substantial purpose other than obtaining or providing medical care. The sponsoring organization must be a permanent organization that receives support and membership dues from its members, and it must not base its membership or dues on the health status of an employer-member’s employees or their dependents. AHPs must be certified by the Department of Labor.

The Act identifies that AHPs can be either fully insured or self-insured. The certification requirements for self-insured AHPs appear to be slightly more complicated than those of fully insured AHPs, as they require stricter participation rules, as well as multiple benefit offerings beyond health insurance coverage. This law provides rules regarding an AHP’s board of trustees and solvency requirements. It also creates a grandfathered status for AHPs that already exist and meet certain criteria. 

The next step for the SBHFA is for the Senate to vote on the bill. As this bill is not going through the reconciliation process, like the American Health Care Act, it will require 60 votes to pass the Senate, rather than 50. However, changes to the bill could be made by the Senate before they cast a vote. It is important to note that there are mixed feelings regarding AHPs. This type of plan pre-dates the Affordable Care Act, and similar legislation was passed in 2003.

Below is a high level breakdown of the arguments for and against AHPs. 

Arguments for:

  • Allow small employers to band together, which in turn gives them the bargaining power of a large group and allows them to negotiate lower premiums.
  • Grant access to the group market that they may not have realistically had based on their size
  • In many instances, can increase the overall value of a plan, as benefits are often customized to meet the specific needs of the association
  • Provide advocacy related to administration of their plans they may not receive otherwise.
  • Proper plan management can be an incredible benefit from an AHP, assuming it is done right. This will be key to the success of AHPs moving forward, assuming Republicans advance other legislation related to cross-state selling of insurance policies. This type of competitive market will only complicate plan offerings, thus putting proper plan management at a premium.

Arguments against:

  • State insurers typically argue that the preemption of state law, which is afforded to AHPs, undercuts the effectiveness of state-created small group regulations. This allows AHPs to compete with state-regulated insurers, which can result in “cherry picking” of healthier groups that may not need state mandated benefits. Benefits would be required for insurance products under state regulation. This in turn would leave sicker or unhealthy groups in the state-regulated market, where they would likely want mandated benefits.
  • Prices may become lower for AHPs, but would likely rise for the population that remains in the state-regulated market. This assertion has somewhat been debunked, as it was generally raised when AHPs first came into favor. During that time, carriers would create their own AHPs, and often times they managed both an AHP and a non-AHP small business risk pool and were guilty of cherry-picking healthier groups for the AHP pool. With true bona fide associations as the sponsor of the AHP, cherry-picking becomes less of a realistic concern.

The SBHFA could be beneficial to many small employers across the country that have been struggling with rising premiums. Some of the concerns that are raised by those opposing AHPs can certainly be addressed through the act itself and subsequent regulation by the Department of Labor.

We will continue to track the progress of this bill, as it may play an important role in the landscape of health care reform for small businesses.