If you’re a small business owner or self-employed, there’s a new way to get health care. The Department of Labor recently expanded association health plans (AHPs) — but what are they, what does their expansion mean for you and are they a viable option for your business?
What Is an Association Health Plan?
Association health plans allow small businesses and self-employed individuals to group themselves together as if they were one larger employer. They can group themselves by geography or industry in order to get access to the same types of plans that normally only larger employers can come by. By banding together, these groups also have larger risk pools, which can mean lower premiums.
For example, an AHP might be available to employees in a certain city, such as the Los Angeles metro area, or it might be offered to employees nationwide who work in a specific industry, such as florists. The rules for these plans recently changed to allow entrepreneurs who don’t have employees (and their families) to join as well.
How Do AHPs Differ From Employer-Sponsored Plans?
Employer-sponsored health plans essentially refer to any health plan obtained through an employer (and not a federal or state marketplace). These plans most often come in the form of either health maintenance organizations (HMOs) or preferred provider organizations (PPOs), and their premiums are often lower than anything available to individuals trying to get insurance on their own.
AHPs bridge that gap, allowing small businesses and individuals to offer plans similar to employer-sponsored ones. The plans do have some differences, though.
AHPs are short-term plans, for instance, and they are sponsored by a trade or professional organization.
What Are the Pros and Cons of AHPs?
Association health plans offer many of the same protections as other health plans, according to the Department of Labor. They can’t discriminate against individuals based on age or prior health conditions, and they have to follow certain rules, such as not having an annual or lifetime limit on their coverage. For many businesses, they’re an affordable alternative to traditional health care plans.
However, there are some exceptions, as NPR notes. These plans can be more expensive based on the risk associated with a given industry (such as construction workers’ premiums being more expensive than administrative assistants’ rates).
The plans are also not bound by the Affordable Care Act’s community rating standards, meaning that rates may also vary based on gender, health and age within a region — for example, a company that has older employees or more women might face higher premiums or out-of-pocket costs with an AHP. They are also not obligated to cover the 10 essential health benefits that are required in the marketplace. So some services you might expect to be covered could be left out of the plan, including prescription drugs, mental health care and maternity coverage.
Is an AHP Right for Me?
For the right people and organizations, AHPs have the possibility of making health care premiums more affordable and customizable. But study the terms of any association closely before joining: While their premiums are most likely lower than most other insurance plans’, the plans themselves tend to offer less coverage. Businesses in low-risk industries and that employ young, healthy workers have the best chance of benefiting from association health plans.
When it comes to association health plans, it’s important to do your homework. They could be a good option for certain businesses and self-employed individuals, but be sure to consider both the plans’ advantages and disadvantages before making a decision. Just as you would with any health care plan, read the fine print, do some comparison shopping and talk to a trusted health care broker before making a final decision.
This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.
Stay up to date on the latest health care regulations and trends for your small business: Subscribe to our monthly e-newsletter.