President Donald Trump came one step closer this week to seeing his plan to allow small businesses to more easily band together to buy health insurance for employees. While South Carolina’s top insurance regulator supports the president’s intention, history shows such health plans can be risky and have a troubled past in this state.
The United States Department of Labor announced a proposed rule change Thursday that would allow small businesses to purchase this coverage following an October executive order from the president.
Under the Affordable Care Act, businesses with more than 50 employees must purchase group insurance for their workers. Generally, those who are self-employed or employed by a small business — think restaurant workers, realtors and fishermen — need to purchase their own insurance.
The “association health plans” Trump supports would allow small businesses to band together, consider their employees as a pool and therefore buy insurance as a bigger group. They could potentially do so even across state lines. The Labor Department said Thursday these association health plans could provide a path for 11 million uninsured Americans to become insured.
The Affordable Care Act did set up a mechanism for small businesses to purchase health insurance that covered 10 essential health benefits. But those plans were often too expensive for small businesses to purchase. By contrast, the association health plans do not guarantee all of those essential health benefits, which include mental health care and women’s health care.
Frank Knapp, president and CEO of the South Carolina Small Business Chamber of Commerce, said his group has long opposed association health plans. Small businesses simply can’t afford to offer employees health insurance of any kind, he said, and the Trump administration’s proposal won’t change that fact.
“(The association health plans) don’t work. They’re very risky. They’re very much subject to fraud,” Knapp said. “They give business owners false hope.”
South Carolina has a short but fraught history with association health plans. The South Carolina Health Cooperative, established in 2012, covered 4,549 people before it became insolvent in 2014 and could no longer pay any claims.
The S.C. Department of Insurance found the group’s letters of credit, amounting to $8 million, were fraudulent. Among the cooperative’s members were construction companies, dentists and hardware store owners across the state.
Despite a history of fraud with association health plans across the country, Trump issued an executive order on Oct. 12 asking the Labor Department to consider loosening its rules on these plans. Current rules require these plans to offer all 10 essential health benefits. Trump argues that association health plans would offer more options to hourly workers and farmers, for instance.
The proposal has now entered a two-month public comment period, and could go into effect as early as this summer.
The Federal Register stated the goal of the changes would be to “expand access to affordable health coverage” by “removing undue restrictions.”
But a number of prominent health industry groups, including the American Heart Association, America’s Health Insurance Plans and the national Blue Cross Blue Shield Association have criticized the proposed changes. The group sent a recent letter to states’ departments of insurance asking them to “take action to protect consumers in your states.”
“We hope the federal agencies will avoid harming or undermining the individual market risk pool as they consider changes to the federal rules …” the letter reads.
The groups’ concern stems from worries that allowing such plans could pull the young and healthy away from the broader individual insurance pool. That could, in turn, raise the cost of insurance for those insured through the federal marketplace, for example.
Patti Embry-Tautenhan, a spokeswoman for BlueCross BlueShield of South Carolina, said the company is aware of the proposal and is awaiting a final ruling.
“The details of the final rules warrant our close attention and our focus remains on ensuring access to health care and reining in rising health care costs,” she said in a statement.
Ray Farmer, director of the state’s Department of Insurance, generally supports the president’s proposal, but said he wasn’t sure the rule would be the catch-all solution some hope it might be.
“I’m in favor of employers finding ways to cut back on costs as long as it does so in a way that doesn’t cause harm to themselves or their employees,” he said, “if they need to band together, do that.”