Small businesses know that quality health benefits help to recruit and retain employees. However, 79% of NC small employers do not currently offer health insurance with many citing the high cost as the reason.
The Small Business Healthcare Act has the worthy goal of expanding access to health insurance for small businesses, their employees, and self-employed persons in our state.
The NC Senate drafted the bill after the US Department of Labor changed the rules regulating Association Health Plans (or AHPs). These rule changes were prompted by a 2017 Executive Order by the President to make it possible for more businesses and individuals to form these plans so they can purchase health insurance collectively.
How will small businesses gain affordable health insurance?
By expanding access to Association Health Plans (AHPs), more small employers can band together to be treated as one large employer. It is premised that small businesses will then be able to negotiate better deals with insurance companies.
These small businesses would also be exempt from costly regulations. Under the new rules, small businesses offering insurance through AHPs would not have to cover the “10 Essential Health Benefits” required under Affordable Care Act. These include maternity care, prescription drug coverage, and hospitalization. Large employers are currently exempt from covering these benefits, although many include them to attract employees.
Under the old rules, AHPs could only be formed if the businesses were in the same trade or industry.
The new rules will allow:
● Businesses who are not in the same industry to join together on the basis of geography, even if it crosses state lines.
● Allow sole proprietors and the self-employed to join up even in the absence of an employer relationship.
The North Carolina Business Council is in favor of expanding access to affordable health insurance. However, we have concerns about the US Department of Labor rule changes that underpin this law.
1. A federal lawsuit currently affects the bill’s provisions. A lawsuit brought by 11 states and the District of Columbia challenged the definition of “employer” set out by the new rules citing that it violated ERISA rules (a law which has regulated AHPs since the 1970s). Among the provisions that the judge struck down was the part allowing self-employed persons to join AHPs. The Department of Labor is expected to appeal the ruling or revise the rules. While the rules are in flux, it may be risky for NC employers to form AHPs under these new rules.
2. The cost of rooting out fraud may overwhelm the state. The Senate bill does include several anti-fraud provisions:
○ AHPs must be nonprofits
○ Have existed for at least two years
○ Have a purpose beyond providing insurance
However, the rules regulating AHPs have continued to evolve in response to years of fraud. With each fix, both real and fake associations managed to perpetuate the fraud. If large numbers of residents joined AHPs, it would require significant oversight.
3. AHPs may not achieve the promised cost savings. Mark A. Hall, a law professor at Wake Forest University, who has researched AHPs since the mid-1990s as well as Blue Cross Blue Shield, the state’s largest employer, have shed doubt on this key premise. Many opponents fear that cost savings will only be achieved by offering skimpier plans that may not meet the needs of many businesses.
4. Insurance Plans may cherry pick enrollees: Although AHPs cannot use health-related factors to exclude people, they can include:
○ Age
○ Gender
○ Group size
This may negate the promised cost savings.
5. Existing NC Association Health Plans face an uncertain future: The over 2100 businesses that participate in North Carolina’s five Association Health Plans will have the choice of operating under the old rules or expanding their membership under the new rules. There is concern that having AHPs following two sets of rules will be disruptive to the market.
Although we agree that affordable health insurance for North Carolina small businesses should be a top priority, we encourage the General Assembly to examine the possible consequences of these rule changes before passing this bill.