5 Things to Know About Labor Dept.'s New Health Plan Rule

Small businesses will soon have access to a new model of health care, following the release last week of a high-profile Labor Department rule. Here’s what you need to know about it.

The regulation expands access to a type of group health insurance known as an association health plan. The style of group health care isn’t new, but the loosened requirements under the DOL rule have the potential to dramatically alter small group and individual health care in the U.S.

The rule is multifaceted. The history of association health plans is complicated. But five key points stand out.

(1) Who Benefits?

Small businesses, like self-employed individuals, can now form groups and purchase health insurance as a large group.

The final regulation June 19 changed the definition of the word “employer” to allow more small businesses to band together and form an association by industry or geography for the sole purpose of getting health insurance. They previously would have needed to have another reason to form a group.

The plans in the next five years will provide coverage for 4 million small business workers, including 400,000 who didn’t already have health care, the Congressional Budget Office estimates.

Franchisers and independent contractors will also be joining and forming plans after the final rule included language addressing concerns from both about liability.

Small businesses in the plans won’t be on the hook for claims brought by another employer’s workers, the rule clarified. The International Franchise Association, among others, requested the protection as a result of franchises’ history with joint-employer liability.

Independent contractors also won’t be considered “employers” as a result of joining an association health plan under the rule, which is something “gig-economy” giant Uber Technologies Inc. voiced concern over.

(2) The Rule Moved Fast

The DOL developed and published its final rule in about eight months from start to finish, breezing through what is typically a complex rulemaking process.

President Donald Trump asked the agency to explore options for expanding association health plans in an October 2017 executive order.

Trump’s order came three months after the Republican health-care bill that would have repealed some parts of the Affordable Care Act failed in the Senate. It also called on the secretaries of Labor, Treasury, and Health and Human Services to expand access to short-term and limited-duration insurance, and a rule on that hasn’t yet been finalized.

(3) Politics at Play?

The rule could provide political fodder for Republicans fighting for seats during the upcoming midterm elections.

Support for the rule falls mostly along party lines.

Republicans and the business community hailed the rule as an escape from the ACA’s costly requirements and that it gives small businesses the same bargaining power for health insurance as large companies.

Democrats and health-care advocates, on the other hand, warned that offering cheaper, skimpier plans under the new rule would lure healthy people out of the ACA marketplace and leave a sicker population behind to founder.

(4) When Does This Happen?

The rollout for the rule is staggered to allow the Labor Department and state regulators to update their laws and regulations.

New and existing “fully insured” association health plans can operate under the rule on or after Sept. 1. Fully insured plans buy a product from an insurance company to get their coverage.

Associations that sponsored association health plans on or before the date the regulation was published can establish a “self-funded” plan under the new rule on or after Jan. 1, 2019. Self-funded plans operate independently by paying insurance claims from their own reserves and are more common among large companies.

All other new and existing associations can form self-funded plans on or after April 1, 2019.

(5) What’s the Catch?

Association health plans have a history of fraud and abuse that wasn’t addressed in the rulemaking, critics say.

The plans left 200,000 people without coverage between 2000 and 2002, and racked up $252 million in unpaid bills, according to a 2004 Government Accountability Office report. That’s the last time the federal government has released data about these plans.

Fraudsters used falsely low rates to lure customers and would run off or deny coverage when claims rolled in. Plans were also mismanaged by their operators, who typically didn’t have health insurance experience, leading to insolvency.

With this history in mind, the attorneys general for New York and Massachusetts announced June 20 they would sue the Trump administration over the rule. The rule, as proposed, is “unlawful, and would lead to fewer critical consumer health protections,” they said.