February 16, 2024
Office of Regulations and Interpretations
Employee Benefits Security Administration
Room N–5655
U.S. Department of Labor
200 Constitution Ave. NW, Washington, DC 20210
Attention: Proposed Rescission of AHP Final Rule RIN 1210–AC16
Dear Acting Secretary Su:
Paragon Health Institute (“Paragon”) and the cosigners to this Comment Letter respectfully submit these recommendations in response to the Employee Benefits Security Administration’s proposed rescission of AHP Final Rule RIN 1210–AC16, entitled “Definition of ‘Employer’ — Association Health Plans.” The original 2018 AHP Final Rule to be annulled had introduced, alongside the legacy guidelines, a more generous “commonality of interest” test for new employer groups than the Department of Labor (DOL or Department) had adopted in previous sub-regulatory rulings. The final rule expanded small business access to the ERISA large group health insurance market beyond what had existed in the United States for decades. The ERISA large group health insurance market generally provides the same benefits at lower costs than the small group health insurance market. ERISA-based health plans cover approximately 133 million Americans, according to the Department of Labor.
The proposed rescission represents a reversal of the agency’s 2018 position, and the rationale supporting this rescission rests on numerous errors that this comment letter illuminates. We urge you to reconsider this unwise proposed rule and instead pursue policies that would help small businesses offer more affordable coverage and employees at small businesses obtain employer-based coverage.
1. EBSA mistakenly suggests that AHPs operating under the 2018 AHP Final Rule would be more likely to offer “skinny” coverage
Among the reasons put forth by the Employee Benefits Security Administration (EBSA) to justify its reversal of the 2018 AHP Final Rule is the claim that AHPs have the potential to offer skinny coverage; “skinny” in this context refers to what the Department considers an inadequate range of covered medical care. The basis for this claim is the absence of Essential Health Benefit (EHB) requirements for large-group ERISA health plans. Specifically, the proposed rule states, “the 2018 AHP Rule allowed small employers and working owners to band together to qualify as a single group health plan to purchase coverage in the large group market, thus avoiding the requirements on small group market and individual health insurance coverage and making it easier for AHPs to offer such skinny plans.”
The agency neither provides any evidence for the likelihood of this scenario nor explains why skinny benefits are highly uncommon among employer-based health plans that already operate without EHB requirements. Employer-based health plans outside the requirements of EHBs cover over 130 million employees and dependents. Consequently, if the absence of EHBs results in a prevalence of skinny health coverage, these skinny benefits would be widely observed among employer-based health plans.
Skinny health plans are not standard or common within employer-based health benefits because such benefits are 1) used to attract and retain quality employees, and 2) the benefit designs are typically approved by top management, who themselves will use the benefits.
A review of nearly three dozen AHPs created under the 2018 AHP Final Rule further discredits the fear of widespread skinny benefits. This study found none of the new AHPs evidenced a narrow benefit design. Moreover, EBSA overlooks that AHPs are subject to numerous laws affecting their plan designs (e.g., ERISA, HIPAA, The Women’s Health and Cancer Rights Act, The Genetic Information Nondiscrimination Act, COBRA). These requirements include but are not limited to covering pre-existing conditions for any health plan benefit corresponding to an EHB, covering preventive care services with no out-of-pocket costs, prohibiting annual and lifetime spending limits for any health plan benefit corresponding to an EHB, and continuing child coverage until age 26 for those plans offering dependent coverage.
2. EBSA mistakenly suggests that AHPs operating under the 2018 Final Rule would promote adverse risk selection and market fragmentation
The proposed rule claims that the “implementation of the 2018 AHP Rule would have increased adverse selection against the individual and small group markets by drawing healthier, younger people into AHPs, thus increasing premiums for those remaining in those markets.” Part of its justification of this claim was AHPs ability to “tailor plan benefits so that individuals with pre-existing conditions, or those who are otherwise anticipated to have higher health care costs are discouraged from joining AHPs, causing further adverse selection, market segmentation, and higher premiums in the individual and small group markets.” There are several errors operative in EBSA’s reasoning. First, as employer-based health insurance, AHPs can’t selectively market to healthier individuals. Instead, AHP enrollees are restricted to the workers of the association’s employers. Based on business needs, employers predicate hiring decisions on professional qualifications, not health status. Likewise, AHPs are prohibited from basing plan participation or plan rates on individual health status or pre-existing conditions.
Second, the market availability of AHPs operating according to the 2018 AHP Final Rule does not add a destabilizing element to the American health insurance market. Affordable Care Act (ACA) individual health insurance plans are in a stable market because of massive government subsidies that shield most participants from the actual cost of coverage. The ACA small group market has declined for a decade, and the 2018 Final Rule AHPs existed for only a brief period. According to the Journal of the American Medical Association, small-group health insurance coverage has declined over 38 percent, from 18.8 million lives in 2011 to 11.5 million lives in 2021. Even the Small Business Health Care Tax Credit, restricted to ACA small group health plans for 24 or fewer workers, has yet to reverse this trend. Self-funded plans used by small groups have grown during this same period without the accusation of market fragmentation. In 2013, 13.3 percent of businesses with fewer than 100 workers had at least one self-insured health plan. By 2022, the percentage of small businesses with self-insured options increased by a third to 17.7 percent, yet there have been no resulting claims that the ACA small group market had been destabilized.
3. EBSA Ignores the Success of Purchasing Arrangements Analogous to AHPs
The consolidation of many companies into a single buying unit has numerous precedents, such as group purchasing organizations, professional employer organizations, group captives, and cooperatives (such as ACE Hardware). In each of these arrangements, demand for products and services is pooled among multiple businesses to secure lower prices from suppliers. This consolidated demand model has a proven track record of success. EBSA willfully ignores this market reality in asserting that “The 2018 AHP Rule hypothesized that plans serving small employers and their participants potentially would have benefitted from the ability to band together to offer less generous benefits, and thus reduce their costs.”
Among the group buying arrangements, the model most resembling the 2018 AHP Final Rule concerns Association Retirement Plans (ARPs). An ARP, also created through a Department of Labor regulatory action, is a type of multi-employer plan that allows small businesses to sponsor a single group retirement plan collectively. Like group buying arrangements, multi-employer retirement plans are not a recent innovation but have a long history. Their origin stretches back to 1929 and predates this DOL regulation and ERISA itself.
By pooling small businesses together, an ARP leverages scale and reduces administrative costs through centralization, just as an AHP does. The result of an ARP is the kind of lower-cost retirement plan enjoyed by large businesses. Within the ARP regulatory context, not only can a Chamber of Commerce with unrelated businesses from different industries be a bona fide sponsor of an ARP, but working owners (such as sole proprietors and the self-employed) can legally participate within the ARP. It is important to note that these features, mirrored in the 2018 AHP Final Rule for AHPs, are legally unchallenged.
4. EBSA Ignores the Costs of Rescinding the 2018 AHP Final Rule
EBSA fails to acknowledge its rescission expenses in its claim that “any costs and benefits that would have been anticipated in response to the approach taken in the 2018 AHP Rule were never fully experienced and have long since lapsed for those plans that formed and briefly existed under the 2018 AHP Rule.” First, EBSA’s position disregards the investments made in dozens of new AHPs organized under the 2018 Final Rule and how their rescission materializes losses from investments with delayed returns. Second, the rescission abandons the AHP market to its legacy regulatory framework, whose uncertainties discourage new investments in AHP-related technology and ventures. The absence of such activity stifles innovations and the savings they can produce. Third, the rescission systemically reinforces higher than necessary health insurance costs for small businesses, money that might otherwise be spent on new hiring or raises. Higher premiums discourage small businesses from offering coverage, increasing the government’s cost as more people must rely on ACA premium tax credits.
In conclusion, this proposed rule to rescind the 2018 AHP Final Rule is misguided, with EBSA using deficient reasoning. These flaws in logic exclude small businesses from the lower-cost ERISA health insurance market used by large businesses for decades and present a troubling precedent for ERISA health plans in general and self-funded health plans in particular. If AHPs can be invalidated based on their operation outside EHBs and the fear of market segmentation, why could not the same logic be used as a framework for new legislation attacking the entire ERISA health plan market? As such, Paragon, and the cosigners of this Comment Letter hope EBSA will reconsider its intention to rescind the 2018 AHP Final Rule. However, this comment letter still leaves many public benefits embodied in the 2018 AHP Final Rule unaddressed. These advantages include provisions for working owners as well as the instrument for an association to attain sufficient scale for effective price negotiations with health care providers despite the level of consolidation among doctors and hospitals. A detailed consideration of these advantages can be found within Paragon’s Policy Brief “Small Business Health Insurance Equity Through Association Health Plans.”
Thank you for considering these comments. We welcome any outreach regarding the substance of this comment letter.
Sincerely,
Brian Blase, Paragon Health Institute
Theo Merkel, Paragon Health Institute
Kev Coleman, Health care researcher, consultant, author
Doug Badger, Paragon Health Institute
John C. Goodman, Goodman Institute for Public Policy Research
Grace-Marie Turner, Galen Institute
Lanhee Chen, Hoover Institution, Stanford University
Dean Clancy, Americans for Prosperity
Kansas State Senator Beverly Gossage
Peter Nelson, Center of the American Experiment
Pete Sepp, National Taxpayers Union
Nicholas Johns, National Taxpayers Union
Stephen Parente, University of Minnesota
Affiliations listed for identification purposes only.
The letter can be found on regulations.gov here.
