Are association health plans an answer for NC nonprofits?

David Heinen, Vice President for Public Policy and Advocacy

Nonprofits regularly tell the Center that one of their most significant operational challenges is the inability to provide affordable, high quality health insurance for their employees. Many of these nonprofits ask us why nonprofits can't pool their employees together to negotiate a group health insurance plan for nonprofit organizations throughout our state. The simplest answer is that the NC Department of Insurance currently will not association health plans (AHPs). An important follow-up question might be: Are association heatlh plans the right answer for nonprofits's health care challenges? The answer is not simple and requires an analysis of both operational and mission-related considerations for nonprofits.

Operational benefits of AHPs for nonprofits

On the operational side of the equation, AHPs could potentially create opportunties for nonprofits to offer more affordable health insurance for their employees. Small nonproifts - like small businesses - have seen the cost of employre-provided health insurance escalate in recent years. Because they have a small "risk pool" of employees, small organizations can't negotiate as competitive of pricing with health insurance companies as large businesses can. They also don't have enough employees or assets to be able to consider self-insuring. As a result, health insurance cost has been a major - and rapidly growing - line item in many nonprofits' budgets. Some organizations' "solutions" have been:

  1. To offer skimpier health coverage to their employees;
  2. To require their staff to pay a greater portion of their own health care premiums; or
  3. To drop employer-provided health coverage altogether.

One obvious work-around would be for many small nonprofits to pool their employees together to have better leverage to negotatiate for more robust coverage and/or more affordable rates from health insurers. To do this, nonprofits would work together to form an association health plan. While these are allowed under federal law, they are also regulated by states. As noted above, the NC Department of Insurance (DOI) isn't currently approving AHPs in North Carolina, so this option isn't available to small nonprofits and small businesses in North Carolina.

A number of business groups are advocating for the NC General Assembly to approve legislation creating a process for DOI to approve AHPs. Based on extensive interest from our members, the North Carolina Center for Nonprofits has talked with Marsh & McLennan Agency about the possibility of creating a statewide association health plan for Center members.

Mission-related concerns for nonprofits

While association health plans sound like a great way to expand health care options for nonprofits, some nonprofit health advocates have expressed concerns about them. Specifically, these advocates note that AHPs could:

  1. Be a way for associations to "cherry pick" healthy individuals by offering cheap, low-quality health coverage to them, while essentially excluding other "riskier" employees;
  2. Cut costs by excluding certain essential health benefits - such as mental health services or cancer treatment - from their health plans;
  3. Create regional health coverage gaps in rural areas by forming local business associations that only cover employers in large, metropolitan parts of the state;
  4. Leave member businesses or nonprofits without health coverage if plans become insolvent; and
  5. Disrupt the overall health insurance marketplace, leading to higher health costs for individuals and businesses that don't participate in AHPs.

Many of these concerns will undoubtedly resonate with nonprofits, which often provide services to individuals who are uninsured or underinsured and who could be harmed if the health coverage gap becomes worse. Of course, most of these concerns can also be addressed by thoughful legislation to enable AHPs.

Legislative proposals for AHPs

Last year, the state Senate tried to pass legiislation creating a process for DOI to approve AHPs. This bill came late in the session and ignored most of the valid concerns expressed by health care advocates. Consequently, it did not become law. However, it was a model for legislation that the Senate passed earlier this year. That bill (S.86) would allow businesses to form association health plans with relatively few consumer protections, solvency requirements, or assurances that plans would be equivalent to those offered under the Affordable Care Act health marketplace. Under the Senate plan, AHPs could be formed by statewide associations of employers with a common business interest (again, nonprofits would qualify for this) or by local or regional groups of businesses or self-employed individuals in the same part of the state.

The Senate plan would likely lead to many of theconcerns that health advocates fear. Furthermore, it might preclude the possibility of creating a statewide nonprofit association health plan, since some nonprofits might find that cheaper local plans with lower qualtiy coverage open to any employer might be a more affordable option than a more robust statewide nonprofit plan. Without the benefit of these nonprofits (and adding their employees to the larger pool), it might no longer be viable to create a statewide nonprofit health plan, effectively cutting off this coverage option for nonprofits in rural areas and in cities without a regional association plans.

In June, the House began consideration of its ovn version of S.86, which is very different from the Senate version. Among other things, the bill being considered by the House would:

  1. Require associations forming AHPs to have members with a commonality of interest based on either: (a) operating in the same trade, line of business, industry, or profession (an association of nonprofits would meet this criteria); or (b) being a statewide association of employers. Unlike the Senate version of the bill, regional associations would not meet this "commonality of interest" standard.
  2. Require members of the association to maintain membership and participation in the AHP for at least two years.
  3. Include solvency and non-discrimination requirements for AHPs. Under this proposal, AHPs would not be able to deny coverage based on health factors, disability, or preexisting conditions.
  4. Require health plans offered by AHPs to include hospital and physician services and the essential health benefits that must be covered by Affordable Care Act health plans.

The House plan appears to address most of the mission-related and operational concerns that might arise from nonprofits if the Senate's plan were enacted.

What's next?

It is unclear whether the General Assembly will ultimately approve AHP enabling legislation this year, and, if so, whether the House or Senate version (or some hybrid of the two) will prevail. Regardless of what happens, please know that the Center remains committed to exploring all possible options for improving access to quality, affordable health coverage for nonprofits to be able to provide to their employees.

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