[S]ix weeks after President Donald Trump loosened restrictions on “association” health care plans, Vermont officials have responded by issuing their own, tougher regulations.
The state Department of Financial Regulation has released an emergency rule that immediately imposes licensing, reporting and financial requirements on association plans, which allow small employers to band together to offer health coverage.
Most importantly, the state’s new rule says all such plans must cover the 10 essential health benefits listed in federal law. That undercuts a key potential cost advantage of association health plans, but state officials say it’s important to require comprehensive health coverage.
Department Commissioner Mike Pieciak said he believes the state has the right to impose such rules without running afoul of the Trump administration.
“We think we went right up to the line and created a very robust regulatory framework,” Pieciak said.
As part of an ongoing effort to roll back Obama-era health laws, Trump last year signaled his intention to expand association health plans. His Department of Labor followed through with new regulations in June.
Essentially, the federal government has made it easier for associations to form and expand. For example, the government is now allowing businesses to create an association based only on geography. Additionally, sole proprietors can now get involved in association plans.
Proponents say the federal change makes it easier for small businesses and their employees to find affordable health insurance.
Meg Hansen, executive director of Montpelier-based Vermonters for Health Care Freedom, argues that expansion of associations “would lower the rates for a significant niche of our population.”
“When you can participate in the association health plan and be a part of a larger pool … you’re able to then achieve an economy of scale and scope, and you will have an opportunity to get lower premiums,” Hansen said.
But others worry that association health plans could offer spotty coverage and will siphon younger, healthier people from the overall insurance risk pool, thus driving up premiums for the rest of the population.
Mike Fisher, Vermont’s chief health care advocate, said he wants to “sound an alarm” about association health plans for that reason. “It boils down to, what’s good for a few people will be bad for most people,” Fisher said.
“I’m going to fight to see what we can do with policymakers to not allow for the bad old days to come back, where there was segmentation in the marketplace,” Fisher added.
He noted that the rate-hike effect is happening already: Blue Cross and Blue Shield of Vermont, in its 2019 rate plan for insurance offered on Vermont Health Connect, has said a portion of its proposed increase is due to the anticipated expansion of association health plans.
State officials appear to have come down on Fisher’s side of the debate.
Act 131, which was passed by the Legislature this year and signed by Gov. Phil Scott in May, gave the Department of Financial Regulation authority to adopt rules regarding association plans “to protect Vermont consumers and promote the stability of Vermont’s health insurance markets.”
The result was this week’s release of an emergency state rule and a draft final rule.
The two documents are for the most part identical and include a host of new requirements on the “fully insured” variety of association plans — in other words, plans that purchase coverage from an insurer rather than self-insuring.
The new state requirements include:
• Associations must be licensed annually by the Department of Financial Regulation. Applications have to contain a variety of detailed information about employer members and association administrators.
“We want to know who these people are – what their business plan is, what their financials are,” Pieciak said. “It’s going to help us sort of verify the sophistication, the resources, of the associations that are looking to offer a very important commodity to Vermonters.”
• Associations must maintain a minimum surplus of either $250,000 or $500,000 depending on how member premiums are collected. An association also must obtain a surety bond “sufficient to cover 20 percent of its annual premium for Vermont members.”
• Insurers offering benefits by way of an association must “guarantee acceptance” of everyone in that association and their dependents. The insurer also must guarantee rates for at least 12 months.
• Every association has to file an annual audited financial statement with its members and with the state.
• The state is requiring that “any person, including a licensed or unlicensed agent, a broker or other individual (who is) soliciting, offering, or selling a health benefit plan on behalf of an association” must file written notice with the department.
The additional requirement that association plans must cover all essential health benefits may attract the most attention in the state’s new rules.
Federal officials declined to impose such a mandate, arguing that it “would run contrary to the goal of leveling the playing field between small employers in (association plans), on the one hand, and large employers, on the other, who generally are not subject to the (essential health benefit) requirements.”
Hansen says allowing “different kinds of plans” with differing types of conditions covered would allow Vermonters to “tailor their needs and access what they want.”
But Pieciak doesn’t see it that way. He said that, when state officials solicited input on their emergency rule, there was “consensus … that having coverage that was robust including the 10 essential health benefits was something that made sense.”
The lack of such a requirement would “lower the quality of the plans,” Pieciak said. “It may lower the dollar amount, but it makes people susceptible to buying plans that don’t actually protect them in the event that they have a health emergency. So we thought it was the most prudent way to go.”
Asked about Vermont’s ability to enact such a rule, a U.S. Department of Labor spokesperson didn’t comment directly but pointed to sections of the federal association plan rule that indicate states’ continued ability to mandate benefits, financial reporting, licensing, registration and certification.
Pieciak said he believes the state’s temporary, emergency rule struck a balance between allowing “legitimate” association plans to operate while also protecting Vermont consumers. He said the state will be soliciting input on its final rule, including hosting a not-yet-scheduled public hearing.
“It will get the full vetting by all of the stakeholders, so we look forward to that,” he said.
While association health plans have been getting most of the attention lately, the Trump administration this week took a related action by easing restrictions on “short-term, limited duration” health plans.
Those plans had been limited to three months. But the U.S. Department of Health and Human Services now says the plans can last for 12 months, and they can be extended for up to 36 months.
Short-term plans, which are not subject to the same coverage requirements as other types of health insurance, had been meant for people who needed stopgap coverage – for instance, someone who is between jobs. But Health and Human Services Secretary Alex Azar said the plans “can provide a much more affordable option for millions of the forgotten men and woman left out by the current system.”
Vermont’s Act 131, in addition to its association health plan provisions, also anticipated federal action on short-term health plans by mandating that those plans can last only for three months and can’t be renewed.
Given those new regulations, “we think we’re well-covered” on short-term health plans, Pieciak said.
“But certainly, one thing we’re going to be doing at the department is looking at the final (federal) rule, looking at what our statute says now, and determining whether any additional rule-making needs to occur,” he added.
