The long-awaited association health plan (AHP) final rule answers a lot of questions about what AHPs will have to do, or cover, to pass muster. Namely, they must still charge all participants the same premium, regardless of health status (i.e. community rating), and they cannot bar anyone from joining, or terminate coverage because of health conditions (i.e. guaranteed issue). Both protections have long been requirements for large-group health plans and are also very popular.

AHPs have a checkered history, but do AHP version 2.0 truly offer the potential to address challenges of the post-Affordable Care Act (ACA) marketplace? Only time will tell. While we wait, let’s keep in mind that three major drivers of premium growth are: community rating, guaranteed issue, and mandated benefits. The new rule keeps requirements regarding community rating and guaranteed issue. Mandated benefits, or “essential health benefits,” are gone, but people also like having comprehensive coverage. It will be interesting to see if AHPs v 2.0 will be able to deliver lower premiums and a benefit package attractive enough to draw customers.

 Potential Winners

• Sole proprietors and their families. Options for any type of health coverage for sole proprietors is limited to the individual market, which has been subject to extreme premium variations since 2014, or perhaps a health plan offered through a union or other group. Now that it will be less burdensome to form an AHP, sole proprietors may gain an option that allows them to benefit from the protections offered by a larger group.
• Older employees of small businesses. Premiums on the individual and small group markets are segmented into age bands, meaning older employees are subject to higher premiums. Because the new AHPs must cover everyone at the same premium, older employees stand to benefit from lower premiums.
• Small employers, even if they don’t join an AHP. If the new AHPs take off, they will offer an important option to small employers that could introduce some competition in the marketplace, causing non-AHP health plans to increase their offering or reduce prices.

Potential Losers

• Fans of “essential health benefits.” The main way that AHPs will be able to control costs will be to limit coverage of the ten essential health benefits (EHBs) required under the ACA. The Department of Labor points out that AHPs will still be subject to requirements that preventative health care receive first dollar coverage, and that the Pregnancy Discrimination Act requires employers that offer health coverage to cover pregnancy-related benefits at the same level as other medical services. Likewise, the Mental Health Parity Act will still be in effect. Mandated benefits at the state level will also continue to apply. Finally, there is a market incentive for AHPs to offer a generous benefit package to attract customers, so it is unclear how many AHPs will really be able to reduce costs through less-generous coverage.
• Younger employees of small businesses. Just as older employees of small businesses stand to benefit from potentially lowered premiums, younger employees may see their premiums rise in an AHP.
• Human resource managers who like predictability. It seems likely that the new AHP marketplace will be subject to some of the same volatility that we saw on the individual market in 2014. Will plans underprice their product to attract customers and then be forced to increase premiums at a steep rate after the first few years? How stable will the market be?

It will likely be 2020 before we see the new AHPs up and running and some of these questions start to be answered. There are indications that AHPs could offer a competitive alternative to the individual and small-group market, but at the end of the day, health care services are expensive. And health care premiums are designed to cover the actual costs of care. It is unclear how directly the new AHPs will impact the costs of care, which in turn impact premium rates.