As a small business owner, deciding what health insurance plan is the best for your business is key to recruiting and retaining employees. One option is an association health plan (AHP), which is a type of health insurance that’s customized for people with a “commonality of interest,” meaning plan members must share the same industry or profession. But what does that really mean for small employers?
In this article, we’ll explore what AHPs could mean for you, how they differ from typical group health insurance plans, and what alternative health insurance options you have as a small business, including health reimbursement arrangements (HRAs).
What is an association health plan (AHP)?
AHPs are arrangements in which small businesses and self-employed workers band together within industries, professions, or geographic regions to either buy large group health coverage or self-insure. AHPs aren’t a new category of health insurance, but a way for small employers to access the existing health insurance market.
What’s more, AHPs aren’t required to stick to certain Affordable Care Act (ACA) rules, like covering the essential health benefits stipulated by the ACA and avoiding individual health insurance fees. Other advantages of AHPs include their compatibility with a health savings account (HSA) and their ability to expand your range of healthcare options.
The U.S. Chamber of Commerce reported that several successful AHPs across multiple states achieved large savings of 13% to 49% between 2018 and 2020. However, these savings could be because many AHPs don’t need to cover essential health benefits. This puts workers at risk for not having coverage for prescription drugs, maternity care, or mental health services.
Although lower in cost, AHPs come with fewer consumer protections. AHP critics claim the plan will encourage healthy workers to leave the individual health insurance market, making it less competitive and leaving behind sicker and costlier employees in the markets to fight for coverage.
How do AHPs differ from group health insurance?
AHPs work much like traditional group policies. However, the biggest difference between the two is that AHPs aren’t subject to the regulations put in place by the ACA. They’re allowed to charge members higher premiums based on factors like their age, health status, and gender, and can refuse to cover any treatment associated with a pre-existing condition.
Although both insurance options have been around for years, AHPs have a history of financial instability and sometimes leave members unexpectedly without coverage. AHPs have the ability to offer big savings for employers, but they should be considered carefully to ensure that they’re providing exactly what you want.
HRAs provide an alternative health benefit option for small employers
While they could be financially beneficial, AHPs don’t always provide the most beneficial coverage for employees in the long run. If you’re looking for an escape from expensive traditional group health insurance, consider offering an HRA. An HRA is employer-funded health benefit used to reimburse employees, tax-free, for qualifying out-of-pocket medical expenses and health insurance premiums.
Many small employers prefer HRAs over group health insurance because they’re more flexible and cost saving. Unlike AHPs, health insurance plans are typically purchased through the federal or state Marketplace and are therefore subject to certain guarantees stated by the ACA. Let’s take a quick look at two popular types of HRAs.
Qualified small employer HRA (QSEHRA)
With a QSEHRA, employers with fewer than 50 full-time employees offer employees a set monthly allowance. Employees then purchase the health insurance plan that works best for them and their family. The employee submits proof they incurred an eligible expense, often in the form of a receipt or invoice, and the employer reimburses them up to their allowance amount.
QSEHRA reimbursements are tax-free for both the employer and its employees, so long as the employee has minimum essential coverage (MEC). There are over 200 eligible expenses that are available for reimbursement, including insurance premiums, copays, prescriptions, making the QSEHRA customizable for every employee.
Individual coverage HRA (ICHRA)
The ICHRA is for businesses of all sizes and is also used to reimburse employees, tax-free, for individual health insurance premiums and other medical expenses with a monthly allowance. Unlike the QSEHRA, employees must be enrolled in individual health insurance coverage, like a plan purchased through the Marketplace, in order to be eligible to participate. From there, they’re able to get eligible medical expenses reimbursed with their allowance, just like the QSEHRA.
In addition, the ICHRA allows employees the choice to select the plan and expenses that fit their needs making it a great alternative for traditional group health insurance. With premium spikes on group health insurance becoming more typical, the ICHRA gives employers the ability to set their budgets once and for all.
AHPs can be a great cost-saving way to offer health benefits to employees, but with low regulations and high-risk, many employers don’t see it as a true benefit. Luckily for employers, HRAs have a similar appeal of an AHP. They're budget-friendly, decrease administration time, and provide a formal health benefit to employees. But because HRAs are ACA compliant and allow employees to purchase their own health insurance, HRAs avoid many of the pitfalls of AHPs.
If you’re interested in an HRA for your business, PeopleKeep can get you started. Simply schedule a call with one of our personalized benefits advisors and we will get you on your way!
This article was originally published on April 23, 2019. It was last updated on October 8, 2021.