CNN Money: Why California is wincing over Trump-backed health plan associations

December 2, 2017
by Pauline Bartolone, California Healthline

Just a few decades ago, small businesses in California often banded together to buy health insurance on the premise that a bigger pool of enrollees would get them a better deal.

California's dairy farmers did it; so did car dealers and accountants.

But after a string of these "association health plans" went belly up, sometimes in the wake of fraud, state lawmakers passed sweeping changes in the 1990s that consigned them to near extinction.

Now, President Donald Trump wants to promote a renaissance of these health plans and make it easier for them to operate across state lines — with less regulation.

In a recent executive order, Trump directed the Department of Labor to look into ways to "allow more small businesses to avoid many of the [Affordable Care Act's] costly requirements."

Because the plans would do business in more than one state, they could "figure out a way to pull back some authority states have," said Kevin Lucia, senior research professor at Georgetown University's Center on Health Insurance Reforms.

That does not sit well in California, where key state policymakers warn that weaker regulation of these plans could destabilize the small-employer and individual markets, which have gained important consumer protections under the ACA and state health laws — including minimum benefit levels.

"President Trump is trying to loosen those rules, and return us to the bad old days" that were disastrous for consumers, said California Insurance Commissioner Dave Jones. Tens of thousands of consumers were "left in the lurch" without insurance when their associations folded, and millions of dollars in medical claims went unpaid, he said.

In the 1980s and 1990s, association plan failures hit a number of small businesses, affecting employees across industries. Thousands of farm workers suffered when a plan created by Sherman Oaks-based Sunkist Growers collapsed. When Irvine-based Rubell-Helms Insurance Services went out of business, it reportedly left $10 million in medical claims unpaid.

In 1995, California banned a common form of health care associations known as multiple employer welfare arrangements, or MEWAs, in which small businesses jointly purchased health coverage in the same way Trump is now proposing. The plans that already existed at the time could remain in business as long as they met certain financial requirements.

That ban followed "decades of bad experience," said Jones.

But some business groups say that these plans offer companies flexibility in the face of state regulations that add cost and administrative burdens.

"Small-business owners are being pummeled," said Tom Scott, California director of the National Federation of Independent Business. The looser regulations could save businesses thousands of dollars a year, he said.

Still, California lawmakers said they will do everything they can to prevent these plans from bypassing state regulations.

State Senator Ed Hernandez (D-West Covina), chairman of the Senate Health Committee, said he will consider legislation to ban the sale of policies that don't meet minimum benefit requirements.

"I'm committed to do everything I can to make sure we don't go backward to having skinny plans in the state," he said. Consumers need to be guaranteed coverage with robust health benefits and a cap on out-of-pocket expenses, he added.

Policy experts say the impact of Trump's plan will depend on the precise details, which are still being considered by the Department of Labor. But Trump has suggested he wants the association plans to be treated the same as large-employer insurance, which would free them from regulations that govern the benefits they offer.

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