6 August 2018Actuarial & underwriting

AHP final rules well intended but fall short on delivery

Earlier this year, proposed association health plan (AHP) regulations issued by the US Department of Labor (DOL) had presented affordable healthcare plans for groupings of smaller employers - and in turn opportunities for captives - but the more recent final rules have left a lack of regulatory uniformity from one state to another.

This is according to Phillip Giles, vice president–sales and marketing, accident & health, at QBE North America, speaking to Captive International ahead of the VCIA annual conference in Burlington, Vermont.

The intent of the proposed and final AHP rules is to deliver expanded options for more affordable healthcare plans to smaller employers, including self-employed individuals.

An AHP is a group of small employers that have come together to replicate the profile of a much larger single entity - allowing the collective grouping to attain greater underwriting credibility, leading to enhanced pricing leverage and reduced administrative costs.

The rule would effectively broaden the definition of an “employer” under the Employee Retirement Income Security Act of 1974 (ERISA) to include AHPs which provide properly qualified health benefits to participants.

However, Giles noted that while the final rules help define what entities are eligible to form and participate in an AHP, they also allow each state to continue regulating AHPs under their existing multiple employer welfare arrangement (MEWA) legislation.

“Instead of having a uniform set of regulations nationally, we are left with the same inconsistent, fragmented patchwork from one state to the next,” he said.

Giles added that there is also no mandate requiring any state to permit an AHP. Currently, only around half of the state permit MEWAs, and even fewer allow self-funded MEWAs.

“The lack of sufficient continuity will create regulatory conflicts and inhibit the formation of multijurisdictional AHPs. This impedes the ability of most national associations, that would otherwise meet the “bona fide entity” requirements (outlined below) from offering an AHP to members,” said Giles.

“Consequently, we are left with regulations that allow individual self-funded employers with the ability to pre-empt state insurance mandates but do not empower self-funded MEWAs with the same capability.”

Giles said he has been working with several well-established self-funded MEWAs that have expressed an interest in converting to a single parent captive, and he expect more existing MEWAs to explore the same option.

“If nothing else, the new rule process has increased market awareness of AHPs and MEWAs, which may lead to some new formations, but I believe that this will deliver only moderate—much less than originally anticipated—impact within the self-funded market and will have even less impact in the captive world.”