Navigating health reform
Questions You Should Answer Before Offering an Association Health Plan
Association health plans (AHPs) are designed to provide exclusive benefits to members and are sponsored by an association, which gains group purchasing power so it can negotiate health insurance rates with carriers.
In mid-2018, the Department of Labor released its final rule for AHPs, effective September 1, 2018. This rule loosened some of the standards, making it easier for an association to be treated as an ERISA employer and encouraging the formation of AHPs.
On March 29, 2019, the United States District Court ruled that certain provisions of the final rule must be set aside, creating a lot of confusion about whether AHPs are still permissible and under what circumstances.
Such plans, commonly referred to as multiple employer welfare arrangements, have been permitted for decades with more stringent requirements, including a strict “commonality of interest” test and a mandate that participating employers exercise control over the program. Under this new rule, organizations permitted to form AHPs include long-established associations and their members with business or organizational purposes and functions unrelated to the provision of benefits.
While AHPs under the prior guidance are still permitted, there is much to consider before forming one and the matter should not be taken lightly. This article provides insights to consider when determining if an AHP is right for your organization.
Benefits of starting an AHP
Here are some of the most compelling reasons for starting an AHP:
- Establishes group buying power that is typically only available to large employer groups
- Creates member benefits to attract new members to the association
- Makes existing members more “sticky” (more likely to stay with the association)
- Increases the value proposition for existing association members
How to get started with an AHP
An association will need at least 50 fulltime employees to qualify as a large employer, but the sky is the limit and bigger is likely better. If you're looking for ways to increase membership, an AHP could be an effective strategy. The benefits to members are plentiful, from pool risk and reduced monthly and annual claims volatility, to a shared fixed cost and improved rate stability, members have a lot to love. Plus, providers will find an AHP with a large number of members more attractive because they act as a single purchasing unit.
Even with all of the benefits, you’ll need to determine whether an AHP is a good fit for your membership and whether your organization and its board can dedicate the time and resources required to run a successful program. As with many things, the devil is in the details. Here are some important questions to consider before adopting a program:
- Does your association have current members who would be interested in joining such a program? Having enough interested members can provide the critical mass needed to get the program going and secure competitive pricing that new and existing members will find attractive.
- How will you offer the program? An insurance broker will be an integral part of the initial roll-out to existing members. The broker will need to conduct several rounds of outreach to capture all the benefits renewal cycles at member companies. And ideally, the broker will also reach out to non-member companies and offer participation (this will require membership).
- Will members’ existing insurance brokers be able to participate in the program? This is a sensitive area, so give some serious thought to how outside participation will be handled. An outside broker will want commissions from member premiums. In addition, the primary broker will require compensation for running the program. This can be tricky because by choosing not to provide the outside broker some level of participation, you may alienate a potentially active salesforce for the program. This is because each member’s insurance broker might handle lines of coverage other than employee benefits, such as general liability and business interruption insurance.
- What is the board’s interest in an AHP? Although the insurance broker and administrator will handle much of the day-to-day program administration, the board will typically exercise fiduciary oversight and will be responsible for regulatory filings (Form 5500 for the plan, and Form 990 or Form 1041 for the trust). Do they want to take on this added responsibility?
Find the right service providers
Once your organization agrees to proceed, it is critical that your board and the association leadership hires the right array of service providers. By ensuring the association leadership and all service providers have aligned objectives and goals, you help pave the way for a prosperous program. Here are some considerations when sourcing the right broker and administrator for your AHP:
The insurance broker will be the face of the program and the primary point of contact for employers. The firm you choose will be responsible for enrollment and may also be involved if any coverage issues arise. The broker will need to have a deep understanding of the varying employer and employee needs.
The broker must view this as a long-term relationship. Initially, there will be a large investment of time to get the program established, market to the existing member base, and then eventually market to non-members. In some cases, the broker will provide a member service center to help enrolled employees access benefits under the plan or get answers about coverage and deductibles.
Third party administrator
The third party administrator’s (TPA’s) primary job is to provide premium recordkeeping and produce the necessary financial information at year-end to meet the reporting requirements under both ERISA and IRS regulations. Since the program is sponsored by the association, there is only a single plan and the insurance carriers do not distinguish between employees of one participating employer versus another.
The TPA is responsible for generating a monthly invoice to each participating employer for its employees’ coverage, collecting payments (typically through a trust bank account), and then paying the required monthly premiums to the respective insurance carriers.
The TPA also handles all adds, drops, changes, and premium adjustments associated with new hires, terminations, and qualifying life events. It is vital that the association and insurance broker properly vet the administrator to ensure it is capable of handling the complexity of the work, and most importantly, the anticipated volume of employers in the plan.
How we can help
While an AHP has the potential to provide significant cost savings to members and potential members, and to create loyalty and value for association members, a lot of planning and organization must happen behind the scenes to run an effective program.