In March, as House Republican leadership reconsidered their vote options on the American Health Care Act (AHCA) they pressed forward with bills in the party’s third bucket of healthcare reforms—legislative actions that require consideration under regular order.1 Backed by the Trump administration, on March 23, the House passed the Small Business Health Fairness Act of 2017 (SBHFA) in a largely party-line vote of 236-175.2 The SBHFA would amend the Employee Retirement Income Security Act of 1974 (ERISA) to allow for the creation of association health plans (AHPs)—plans that would enable small employers to negotiate and purchase health insurance collectively across state lines.3 AHPs would be federally regulated and exempt from individual state regulations and assessments.
AHPs have been a top priority for small business advocacy organizations and the U.S. Chamber of Commerce for decades.4 In 2005, U.S. Republican Senators Olympia Snowe and Jim Talent introduced an earlier incarnation of the SBHFA (of 2005), following the ninth passage of the similarly named bill in the House, only to have its passage stall.5 AHPs have been a staple of pre-AHCA Affordable Care Act (ACA) repeal proposals, including the proposal from then-Representative Tom Price (now Secretary of U.S. Health and Human Services).6 House Speaker Paul Ryan is also a staunch AHP advocate.
“I love association health plans,” the Speaker has stated, believing them a “market mover.”7 His “A Better Way” policy paper further explains the motivation:
“Small businesses and voluntary organizations—such as alumni organizations, trade associations, and other groups—should have the ability to pool together and offer healthcare coverage at lower prices through improved bargaining power at the negotiating table with insurers just as corporations and labor unions do. By increasing the negotiating power of small businesses with healthcare insurers, AHPs would free employers from costly state-mandated benefit packages and lower their overhead costs.”8
States Strongly Resist AHP Proposals
While they have some strong advocates in business and at the federal level, AHP proposals have faced consistent and stiff resistance at the state level. The National Governors Association, the National Conference of State Legislatures and the National Association of Insurance Commissioners (NAIC) all have persistently advocated against AHPs, believing that they would destabilize local small-group markets and further erode state protections, authority and autonomy.9,10 As the NAIC noted on February 28, it believes AHPs would pull the healthiest and lowest-cost members from small-group markets, leaving employers with older or less healthy memberships with ever-higher premiums:
“We fear the [SBHFA could] increase the cost of insurance for many small businesses whose employees are not members of an AHP. This legislation would encourage AHPs to ‘cherry-pick’ healthy groups by designing benefit packages and setting rates so that unhealthy groups are disadvantaged. This, in turn, would make existing state risk pools even riskier and more expensive for insurance carriers, thus making it even harder for sick groups to afford insurance. In addition, the legislation as written would eliminate all state consumer protections and solvency standards that ensure consumers receive the coverage for which they pay their monthly premium. These protections are the very core of a state regulatory system that has protected consumers for nearly 150 years.”11
The SBHFA would also further accelerate the erosion of state authority in regulating employer-sponsored health insurance, a position otherwise inconsistent with the broader Republican reform agenda.12
For decades, the proportion of residents covered by state-regulated employer-sponsored insurance—those in fully insured health insurance plans—has precipitously declined, as more employers have worked with payers and third-party administrators to implement federally regulated, self-insured arrangements.13 Unlike in fully insured plans, in self-insured plans the employer, not the insurer, bears the financial risk of paying for members’ healthcare claims costs. Similar to AHPs, self-insured plans are pre-empted from most state regulations by ERISA, including reserve requirements, mandated benefits and other state protections.14
The Impact of the Self-Insurance Migration on State Authority
A Manatt analysis of data from American Community Survey and the Kaiser Employer Survey illustrates the impact the self-insurance migration has had on the reach of state authority in the employer-sponsored insurance (ESI) market. Between 2000 and 2015, the proportion of Americans covered by ESI fell by nine percentage points to 56% as ESI membership held constant, while Medicaid and subsidized and unsubsidized exchange membership expanded significantly (Figure 1).15 Over the same period, ESI members covered under state-regulated, fully insured arrangements declined by 14 percentage points—or a percentage point per year—to 37%. Taken together, the proportion of state residents with health insurance who were covered by state ESI regulations fell by approximately a third over the 15-year span, from covering one in three residents in 2000 (33%) to covering barely one in five in 2015 (21%).16
While state authority has simultaneously expanded to cover millions of new “individual purchasers” through state- and federally-facilitated—though federally regulated—health exchanges, the introduction of AHPs could present new challenges to state purview. Sole proprietors, who are currently guided to purchase insurance through the individual marketplaces, may be able to purchase through the proposed AHPs.17,18 Remaining fully insured employers, which tend to be smaller and more averse to self-insured risks, may similarly find AHP offerings attractive.19
States’ ability to regulate their employer-sponsored insurance markets autonomously continues to be challenged by Washington, D.C. The Democratic-led ACA reshaped states’ health insurance landscapes, setting new federally mandated private market and exchange regulations and standards, while the Republican-led SBHFA and “Self-Insurance Protection Act of 2017” would allow for—if not incentivize—further outmigration of members from state authority. With the specter of the Trump administration’s promise to allow the selling of health insurance across state lines, the future of state authority over local employer-sponsored insurance markets grows ever more uncertain.20