GUEST VIEWPOINT: Beware of Obamacare Open Enrollment Bogus Association and Union Health Plans
James Newhouse | November 2019
Last year, the Trump Administration finalized a rule that allows small businesses and self-employed individuals to band together to obtain access to large group health plans, which seem to be less expensive, but with few protections under the Affordable Care Act. The rule, which was promulgated by the U.S. Department of Labor, is titled “Definition of ‘Employer’ Under Section 3(5) of ERISA—Association Health Plans (AHPs).”
A BIG Red Flag
AHPs provide a way for self-employed individuals and small businesses to purchase large group health plans. These health plans have a darker side: They have a long history of fraud and abuse that have left employers and self-employed people with hundreds of millions of dollars in unpaid medical bills. The problems are described in dozens of court cases and enforcement actions taken over more than a decade by federal and state officials who regulate the type of plans President Trump is promoting.
The Labor Department has subsequently targeted unscrupulous promoters, third-party marketing and/or billing companies and insurance agents who sell the promise of inexpensive health benefit insurance, who could default on their obligations. In several cases, people managing the plans diverted premiums to their personal use. The plans often require joining a union to look legitimate, or had medical underwriting to weed out people with any medical problems. They typically charge a sign up and ongoing fee on top of the premiums.
Why Would Unions Sell Memberships Through Insurance Brokers?
Insurance is a benefit of joining a union, but a union is not supposed to exist just to offer health benefits. Selling the plan through brokers suggests people are joining for the health benefits, with no need for union representation. The Department of Labor says it is perfectly legal for unions to sell their health plans through a broker, but if you’re getting an association or union health plan, you should contact your state insurance department to verify if the plan is approved and licensed in the state.
The big problem is these fraudulent association health plans have left hundreds of thousands of people with unpaid claims. They operate in a regulatory never-never land between the Department of Labor and state insurance regulators. Last year, a Texas-based association plan, administered by Black Wolf Consulting based in Illinois, was marketed by a firm in New York. When it ran out of money, it left 14,000 members with $20 million in unpaid claims. Ask yourself if a plan becomes insolvent, who will help me? If your claim is denied, or what they’re willing to pay is determined by your plan sponsor, your broker can’t help and his E&O may not cover insurance fraud.
There had been some debate regarding the final rule’s ability to circumvent state regulation of AHPs. As states have varying degrees of regulation of multi-employer welfare arrangements and AHPs, with some states like New York effectively banning these entities from operating.
Many fear that the AHPs, allowed by virtue of the implementation of this final rule, will attract people since the AHPs are less comprehensive and thus cost less. Moreover, AHP enrollees may be at risk of higher out-of-pocket costs due to the ability of such plans to avoid the protections of the ACA. The effects of this regulatory initiative to broaden access to AHPs will soon be seen, though they will be tempered by state efforts to ensure that such products meet state standards and are not deceiving or misleading to enrollees.
People who want to buy health insurance through a broker, or third-party marketing firm should ask whether the plan they are contemplating purchasing is not only compliant with the Affordable Care Act, but why there are any medical questions, and whether it covers all pre-existing conditions? Is it fully insured by the insurance company providing the network, or is the plan self-funded by the association? And last but not least, is it approved for sale in the state in which you reside.