5 Things to Avoid When Operating an Association Health Plan
New regulation has expanded access for small businesses and individuals to lower health insurance costs through association health plans. Several of the rules seek to protect association health plans from mismanagement and misconduct. However, despite these rules an association can still run into problems if they fail to follow sound practices. Below are five characteristics that associations should avoid in order to operate successfully.
1. Poor Governance Structure
An association health plan is intended to be controlled by the association members who benefit from the medical coverage. As such, associations must exhibit “formality,” i.e. an organizational structure that is well defined and adequate to its tasks. This formality evidences itself in matters such as: a constitution or bylaws for the association and the regular nomination and election of association officers/trustees by the members of the association.
The administration of an association health plan involves matters such as the insurance of health plan solvency, compliance, and proper disclosures to plan participants. A poor governance structure can endanger not only the proper execution of these tasks but the prompt recognition of such failures by the association. A summary of the requirements of a bona fide association, including issues of governance, can be reviewed in “What is a bona fide association?”
2. Inattention to State Regulation
While the primary regulation for association health plans is the federal law (The Employee Retirement Income Security Act of 1974 – ERISA), various state laws still apply. Which state health insurance laws apply to an association health plan depends on factors such as whether the plan is fully-insured or self-funded. Compliance with state regulation is just as important as compliance with federal regulation, and compliance failures can result in penalties. An association health plan requires either internal or external expertise in state-level health benefits regulation just as much as it requires regulatory expertise at the federal level.
Additional material on state regulatory considerations can be found in our article “Overview of Benefit Requirements for Association Health Insurance.”
3. Failing to Outsource Activities Where the Association Lacks Skills & Experience
The employers comprising an association may have no professional experience with running a health plan. Consequently, the association administering the health plans may seek outside expertise in areas where the association lacks the skills internally. For example, an association may have no experience with medical claims management and the rules governing the processing of claims. Accordingly, the use of a TPA or claims management service would be advisable rather than risk costly claims errors on the part of the health plan.
4. Deficient Vendor Evaluation
Third-party vendors can be an enormous advantage to association health plans, filling in competencies and experience lacking among association staff. However, if vendors are inadequately vetted then the association risks poor performance and wasted money spent on substandard services. Before associations enter into a contract with a vendor, vendor references should be evaluated as well as any third-party rating service records (e.g. Better Business Bureau rating).
5. Poorly Chosen Association Scope
An association brings together employers sharing either the same business segment or the same region regarding principal place of business. This shared attribute is known as the association’s “commonality of interest.” Commonalities of interest can be very broad or very narrow. Overly narrow commonalities can hinder the association’s ability to grow and maintain a healthy risk pool that can weather the occasional departure of member employers. An overly narrow association definition can also produce an association too small to qualify for large group health plan regulations and too small to explore health plan savings related to self-funding. Overly broad association definitions can produce very large associations, but that breadth may interfere with driving a consensus around health plan decisions.
