Association Health Plans (AHPs) are routinely in the news – nationally and regionally — as employers look for ways to save on employees’ health care. But something California employers need to know is that new AHPs are not allowed in the Golden State. We’ll take a look at why, and what alternatives are available. But first, it’s helpful to understand the history.
What Are AHPs?
AHPs have been around in some form or another for decades. They allow associations, businesses, and self-employed workers to join together to purchase health insurance coverage. Part of their appeal is the potential for lower-priced coverage by spreading risks across a larger enrollee pool. Some enthusiasts believe they are a good value for members.
During the Trump administration, federal regulators expanded the definition of AHPs. They reduced the requirements under which AHPs could form. They also expanded the definition of who is eligible to join. The changes allowed sole proprietors, partners in a partnership, and spouses (of both sole proprietors and partners) to obtain coverage through an AHP.
The goal, at least in part, was to bypass coverage requirements under the Affordable Care Act (ACA). That includes the ACA’s 10 Essential Health Benefits (EHBs). For more information about EHBs, visit the CMS website.
California’s Response
In California, there was (and is) significant support for the ACA. The California legislature responded to the national AHP expansion with Senate Bill 1375. This measure prevents small businesses with no employees and the self-employed from enrolling in a group health plan.
The bill prohibits employer group health plans from being issued, marketed, or sold to a sole proprietorship or partnership without employees through any arrangement. It requires only individual health care plans and individual health plans be sold to any entity without employees.
SB 1375 further prohibits employers from purchasing plans offering fewer benefits and protections than those established by the ACA.
In 2019, the California Department of Managed Health Care (DMHC) issued an All Plan Letter. In it, the DMHC noted that California does not permit large group coverage to be sold to small employers through any of the following:
- multi-employer welfare arrangements (MEWAs)
- association health plans (AHPs)
- voluntary employees’ beneficiary associations (VEBAs)
- any similar arrangements
The DMHC noted that AHP changes at the federal level “do not abrogate California’s law regarding associations.” While federal law allows employers and individuals to form an association or self-funded health plan, California and a handful of other states limit or prohibit AHPs.
Alternatives for California Employers
While AHPs are generally not available in California, there are other options to consider. You can go directly to an insurance company and ask for a quote. You can shop for coverage through the public exchange, Covered California for Small Business. You can also engage a broker offering a range of plans from different insurers and administrators. That includes the CaliforniaChoice small business exchange with coverage from eight different health plans.
Talk With a Broker to Learn More
If you’re interested in knowing more about AHP prohibitions in California, talk with a broker. Your broker can help you compare different employee benefit programs that are available to your business. That will help ensure you get the most value for your benefits dollars. If you don’t already have a broker, we make it easy to search for one.
