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Human Resources
mental health conditions or alcohol or drug addiction. 4. AHPs may be able to use different geographic areas when
With less regulated coverage requirements, the plans likely setting rates. This is a consideration for associations with
could be more affordable although not as comprehensive pockets of geographic membership, such as state ski asso-
under earlier ACA rules regulation coverage requirements ciations, like the Vermont Ski Areas Association, or Ski
for health care plans. California. For example, a state may use a single geographic
area for the entire state, or may have several geographic
2. Because compliant AHPs will typically be treated as one areas that cover a mix of urban and rural areas. An AHP
single, large group employer health plan, the ACA’s small could structure geographic areas in a manner that uses dif-
group rating restrictions would not apply. Under the ACA, ferent rates in urban and rural areas, rather than a mix of
health insurers are permitted to base rate differences in the urban and rural areas.

5. It may be possible in some cases for an AHP to have
The biggest challenge facing reduced administrative expenses. For example, a self-insured

AHPs is likely to be how the AHP would not be required to pay state premium taxes.
There may be other requirements applicable to insurers—
states choose to regulate these but not AHPs—that reduce the administrative cost for an
AHP. Or some internal insurer costs such as contingency
plans. It may be difficult to offer a charges used to spread risks over an insurer’s book of busi-

compliant AHP under state laws, ness would not be needed.

if not impossible in some states. 6. And by leveraging the strength in numbers and econ-
omies of scale of a large pool of policyholders though dif-
ferent companies, an AHP may be able to negotiate more
small group market on only four factors: age, number of favorable network discounts.
individuals covered, geography, and smoker/nonsmoker
status. But with AHPs, they will be permitted to vary rates While there is no question that this final regulation will
based on additional factors, such as industry and occupa- make it easier for interested employers to join together to
tion. As a result, rates for some types of employers may be create groups or associations for the purpose of offering
lower than for others. AHPs may be able to offer lower rates health coverage, AHPs will still be subject to many rules,
to employers in industries that have historically had better regulations, and reporting requirements on both the federal
claims experience, while charging higher rates to employers and state level.
in industries that have historically had higher claims experi- The biggest challenge facing AHPs is likely to be how
ence (note this distinction must be based on industry, not the states choose to regulate these plans. As clarified previ-
the employer’s actual past claims experience). ously, AHPs are MEWAs, and as such, are subject to state
regulation—if you are an employer in a less-regulatory
3. Under the ACA discrimination regulations, health insur- heavy state that is more pro-business, this may be an enticing
ers in the individual and small group markets may vary consideration when considering forming an AHP in your
premium rates based on age, but the most expensive rate state. As a result, even if an AHP is compliant under
for a benefit option for an individual in the oldest rate federal law, it may be difficult to offer a compliant AHP
bracket may not be more than three times the rate in the under state laws, and in some states it may not be possible
youngest age bracket for adults. For example, if the rate to offer an AHP at all.
for a 20 year old for benefit option A is $200 per month,
the health insurer may not charge more than $600 per Arthur J. Gallagher & Co. is a global insurance brokerage, risk
month for a 60 year old. But for AHPs, they are not sub- management, and consulting services firm. Saralyn J. Crock is
ject to this restriction, and may use a different ratio such area vice president of the company’s benefits and human resources
as a five-to-one ratio that some commenters have stated is consulting division and can be reached at Saralyn_Crock@
more accurate from an actuarial perspective. Again, this is AJG.com, or (720) 287-6025. Debra Davis is area vice
another way to provide more coverage to more employees president and compliance counsel for the western region of
who may be uninsured, without the expensive regulations Gallagher’s benefits and human resources division. She can be
under the ACA. reached at Debra_Davis@AJG.com.

62 | NSAA JOURNAL | WINTER 2019