California DMHC Forces UHC’s ACEC Association Health Plan to stop offering coverage to Small Businesses

United Health Care (UHC) must end the ACEC association health plan coverage for small businesses (1-100 employees) by January 1, 2025, according to the California Department of Managed Health (DMHC).  ACEC is the American Council of Engineering Companies and they have over 1,000 small business employees and dependents enrolled in their health plans.

This November (2023) UHC and ACEC informed its members that they must prepare to leave the association health plan (AHP.) The UHC/ACEC Association Health Plan offers about a 15 percent discount on medical insurance premiums compared to California small business medical insurance plans.

UHC/ACEC will not renew coverage starting February 1, 2024.  To maximize the length of time a small group can stay with ACEC, they encouraged impacted businesses to renew their ACEC plans January 1, 2024 so that they will obtain a full twelve months of coverage before the plans end.

DMHC’s actions reflect a long simmering battle between insurance companies (particularly UHC) which have set up or tried to set up AHPs. In 2019, DMHC notified all insurance companies that they cannot offer large group coverage to small businesses.

ACEC’s association plan was in effect before the notice and DMHC allowed a phase out period for small business already enrolled in an AHP.  Originally set to phase out by July 1, 2021, DMHC now requires all AHPs for California small businesses to end by January 1, 2025.

Background on Association Health Plans

We often get calls from small businesses asking if they can join an association or group to lower the cost of the medical insurance plans. They are referring to “Association Health Plans” (AHPs) that allow companies in a specific industry such as the Chamber of Commerce, to band together and offer lower cost medical, dental and vision insurance to their members.  The thinking is that AHPs have lower marketing costs and unique risks that result in lower insurance premiums.

Association Health Plans are a political hot potato

President Obama forbid AHPs in the Affordable Care Act (ACA, Obama Care) (see this court case) based on the belief that “cherry picking” healthy groups for an association plan, leaves the unhealthy groups in the small group market which increases the cost of the plans in the non-Association plan pool.

In 2017, President Trump allowed states to offer AHPs with Executive Order 13813

AHPs are popular in some states, but not in California. Reasoning that association health plans weaken California’s strong market for small businesses medical insurance, in 2018 legislators passed SB 1375, which forbid AHPs.

Despite SB 1375, in 2019 United Health Care announced plans to introduce association plans in 9 different industries. These plans would have been medically underwritten and used a large group platform with composite rates.  Fireworks ensued, and shortly after their announcement, UHC withdrew their proposal to expand AHPs in California.

In December 2019, the California Department of Managed Healthcare (DMHC) issued an “All Plans Notice”which clearly stated that Association Health Plans are not allowed in California. Pre-existing plans were supposed to cease by July 1, 2021, according to the notice.  DMHC extended that deadline until January 1, 2025.

Further Background on AHPs and PEOs

The California Health Care Foundation (CHCF) recently release a policy brief entitled California Policy Perspectives on Association Health Plans.  This document describes the policy considerations and concerns of AHPs and it is worth reading.  Interestingly, the article mentions that PEOs (Professional Employment Organizations) create a similar threat to the California market for small business medical insurance.  The article suggest that regulators should examine this potential threat and says that:

Interviews with current market participants and observers suggest a potential need for additional oversight of both AHPs and PEOs. Absent such oversight, the spread of coverage products not fully compliant with the consumer protections codified by the ACA may lead to adverse risk selection and undermine the functioning of individual and small group markets both within and outside the Covered California health insurance exchange.

So, the latest DMHC crack down on AHPs may be just the beginning.  Will they crack down on PEOs next?  We’ll have to wait and see.

Benefits Cafe is here to help

If you want assistance with setting up or maintaining a group medical insurance plan, please give us a call at Benefits Cafe.  Our toll-free number is (800)746-0045.

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