Association Health Plans and Health Care Reform: A Trap for the Unwary


Trade and professional associations that sponsor health plans for their members, and organizations participating in such plans, need to be aware of an important issue arising under the Patient Protection and Affordable Care Act (“PPACA”). Specifically, depending on how the association health plan (“AHP”) is structured, insurance coverage might need to comply with the “small group market” provisions of PPACA, even though the AHP covers hundreds, if not thousands, of participants. The “small group market” provisions of PPACA are onerous and would affect the economics of, and possibly the viability of, AHPs beginning on January 1, 2014. The good news is that with proper structuring before January 1, 2014, an AHP should be able to avoid the “small group market” requirements and be treated as a “large group market” plan under PPACA.

Small Group and Large Group Markets -

PPACA imposes different requirements on “small group market” and “large group market” insurance policies. Currently, in most states, the “small group market” includes plans covering 50 or fewer employees, and the “large group market” includes plans covering more than 50 employees. Beginning in 2016, PPACA will provide (as a matter of federal law) that the “small group market” includes plans covering 100 or fewer full-time equivalent employees (FTEs), and the “large group market” includes plans covering more than 100 FTEs. Given the nature of the requirements imposed on “small group market” plans, the insurance operations of an AHP would be significantly and adversely affected if it were viewed as covering “small group market” plans. For example, insurance for “small group market” plans must provide “essential health benefits,” impose only limited cost sharing, and provide minimum actuarial value. In addition, insurers are permitted to vary premium rates for a particular type of insurance based only on coverage category (e.g., self-only, family, etc.), geographic area, age (using wide bands), and tobacco usage.

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Topics:  Affordable Care Act, Association Sponsored Health Plans, Healthcare

Published In: Business Organization Updates, Health Updates, Insurance Updates, Labor & Employment Updates, Nonprofits Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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