What is an association health plan (AHP)?

Offering a meaningful health benefit can be vital for small business owners to attract and retain workers. But, offering a traditional group health plan can be difficult and expensive.

One affordable option is an association health plan (AHP). This type of health insurance is for businesses with a “commonality of interest.” But what does that mean for small employers looking to join an AHP?

Below, we’ll explore what AHPs mean for you and your employees and your alternative health insurance options as a small business owner.

In this blog post, you’ll learn:

• What AHPs are, including the potential cost savings and risks for small businesses.
• How AHPs compare to traditional group health insurance plans.
• Alternative health benefit options, like health reimbursement arrangements (HRAs).

What is an association health plan (AHP)?

AHPs are health insurance arrangements for businesses with fewer than 50 employees and self-employed individuals. With an AHP, companies in the same industries and professions band together to buy large group health plans or self-insure. AHPs aren’t a new type of health insurance option. They’re a way for small businesses to provide health coverage.

AHPs work like group health plans. But, they aren’t required to follow many Affordable Care Act (ACA) regulations. For example, they don’t meet the employer mandate for applicable large employers (ALEs). They also don’t have to cover the ten essential health benefits, and can have limited plan options for employees.

However, there are some advantages of AHPs:

• They can qualify as minimum essential coverage (MEC) under the Affordable Care Act.

• They’re compatible with health savings accounts (HSAs) if your chosen group coverage is HSA-qualified.

You can design your AHP to best meet your staff’s health needs. For example, some AHPs offer less coverage for prescription drugs but greater coverage for annual wellness checkups with their primary care physician (PCP). So, it’s essential to understand what your employees are looking for in a health benefit before you choose to offer an AHP.

However, not every business can create or join an association health plan. Organizations with purposes or functions unrelated to offering benefits can create an AHP as part of their association. However, businesses can’t band together for the sole purpose of creating an AHP.

Additionally, each employer in the AHP must offer coverage to at least one common law employee who isn’t a spouse of the employer¹.

How much do employers save with an AHP?

AHP representatives negotiate with health insurance companies, medical network providers, and other suppliers for lower premium rates and more affordable healthcare services. Depending on how you design your plan, employers may save 10% to 30% on average on AHP premiums compared to traditional group health plans.

These savings could be because many AHPs don’t need to cover essential health benefits. This puts workers at risk of not having coverage for prescription drugs, maternity care, mental health services, and more.

Although lower in cost, AHPs have fewer consumer protections. AHP critics claim the plan encourages healthy workers to leave the individual market. This can make the market less competitive and leave behind sicker employees who are more costly to insure.

How do AHPs differ from group health insurance?

The biggest difference between AHPs and group health plans is that AHPs aren’t subject to many ACA regulations that other insurance companies must follow.

For example, AHPs can charge members higher premiums depending on:

• Age
• Current health conditions
• Gender

Additionally, unlike large group plans, they can’t refuse to cover treatment associated with a pre-existing condition.

Although both insurance options have been around for years, AHPs have a history of financial instability and leaving members unexpectedly uninsured. They can offer significant savings for employers. But you should carefully consider if they’re the right choice for your employees.

How can employers enroll in an AHP?

Like traditional group plans, employers can enroll in an AHP during the plan’s annual enrollment period. Membership criteria vary by association. But typically, you must provide certain business information to enroll.

This includes:

• Your business type (i.e., for-profit, non-profit, incorporated, etc.)
• Your business taxes from the previous year
• Your company’s location

To get a more accurate estimated rate, you must know the number of employees you’re offering the AHP, their ages, and their eligible dependents. But even if you offer your employees coverage, they can decline to join.

Once they enroll, your employees will receive an insurance card, like they would with other employer-sponsored group plans.

What are alternative health benefit options for small employers?

While they can be financially beneficial, AHPs don’t always provide the most comprehensive coverage for employees in the long run. If you’re seeking an escape from traditional group health plans, consider offering a stand-alone health reimbursement arrangement (HRA).

A stand-alone HRA is a tax-advantaged health benefit that enables employers to reimburse employees for qualified out-of-pocket medical care expenses like individual health insurance premiums.

Here’s how an HRA works in three easy steps:

1. You choose a monthly amount of tax-free money that employees can spend on out-of-pocket medical care and individual health insurance policies. Your staff can buy qualified health plans through a public or private exchange and get their essential benefits covered under the ACA.
2. Then, employees buy healthcare items and services and submit proof to you of an eligible purchase. IRS Publication 502² and the CARES Act³ outline the expenses employees can buy with their HRA funds. Employers can limit reimbursements to premiums only if they choose.
3. Once you review an employee’s claim, you reimburse them tax-free up to their allowance amount. Unspent HRA funds stay with you at the end of the plan year or if a worker leaves your company.

In the sections below, we’ll examine two popular types of stand-alone HRAs.

Qualified small employer HRA (QSEHRA)

First, let’s look at the QSEHRA. With this type of HRA, employers with fewer than 50 full-time equivalent employees (FTEs) can reimburse their staff for medical costs and individual coverage. To offer this benefit, you need at least one W-2 worker. This makes the QSEHRA ideal for employers looking for options other than self-funded policies, small group plans, or AHPs.

Here’s how the QSEHRA works:

• The QSEHRA has no minimum contribution limits, but the IRS does set maximum contribution limits. Additionally, you have the flexibility to customize monthly allowances by family status or age.
• By law, you must offer all your full-time W-2 employees the QSEHRA. You can also allow part-time staff members to use the benefit as long as they receive the same allowance as your full-time workers. Additionally, certain types of business owners are eligible to join.
• If you want to save money, you can design the benefit to reimburse employees only for their health insurance premiums.
• Employees must have a health plan that provides MEC to participate in the benefit. MEC includes ACA-compliant policies on the individual health insurance market, Medicare, Medicaid, and catastrophic plans. Employees with coverage through a parent’s or spouse’s group plan can also participate.

Individual coverage HRA (ICHRA)

The ICHRA is a popular alternative to traditional group health plans for employers of any size. Like the QSEHRA, it can help your employees pay for their individual health insurance premiums and other qualified medical costs. But it has some key differences from the QSEHRA.

Here are a few ways the ICHRA differs:

• The ICHRA has no maximum allowance requirements. This flexibility can make it an excellent choice for organizations with growing staff sizes or those looking to attract more quality workers.

• You can set different eligibility requirements and allowance amounts by employee classes, age, or family size, giving you greater control over your budget and plan design.

• Employees must have a qualifying form of individual health insurance to use the benefit.
• Large employers can leverage the ICHRA to satisfy the employer mandate. As long as the ICHRA allowance is affordable, ALEs can avoid buying group coverage while complying with ACA requirements.

Conclusion

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 them as valuable perks. Luckily, other affordable options, such as HRAs, are budget-friendly and provide your employees with comprehensive health coverage.

HRAs allow employees to buy their own health insurance, helping you avoid many pitfalls of AHPs. If you’re interested in an HRA for your business, PeopleKeep by Remodel Health can get you started. Schedule a call with an HRA specialist, and we’ll help you design your benefit.

This article was originally published on April 23, 2019. It was last updated on July 11, 2025.

1. Federal Register: Definition of “employer” in AHPs

2. IRS Publication 502

3. CARES Act