Association Health Plans Act Expands Health Options for Small Businesses, Allows Risk-Based Pricing

The Association Health Plans Act aims to shake up the small business health insurance market by changing federal rules to let groups of employers—even those in different industries—band together to offer health plans. This move essentially treats these associations as one giant employer under federal law (ERISA), potentially allowing them to offer coverage across state lines and pool risk more broadly.

The Association Advantage: Bigger Pools, Broader Reach

What’s the big idea? Right now, small businesses often pay much higher premiums because their risk pools are tiny. This bill, covered in Section 2, lets associations form to create a much larger pool, provided they meet strict rules: they must have at least 51 employees total across all members, the association must have existed for two years for a purpose other than just buying insurance, and they must have a formal governing board where 75% of the members are participating employers. Crucially, the bill also allows self-employed individuals—the freelancers, contractors, and solo entrepreneurs—to join these plans, counting them as both the employer and the employee. This is a game changer for the gig economy worker who currently has to navigate the individual market.

The Pricing Catch: Risk-Based Rates

While the bill maintains critical protections—specifically, Sections 3 and 4 confirm that these plans cannot deny coverage based on pre-existing conditions or discriminate based on health status—it introduces a significant change in how premiums are calculated. The plans can use a modified community rating to set a base rate but then adjust the final premium up or down based on the specific risk profile of the individual member employer. For a small business owner whose employees are generally healthy, this could mean lower premiums. For a business with employees who have higher healthcare needs, this flexibility could translate into higher costs than they might face under strict state-level community rating rules, which require everyone in a geographic area to pay roughly the same rate.

Real-World Impact: Who Pays and Who Saves?

Consider a small construction company in a state with strong consumer protections. If they join an Association Health Plan (AHP), they might see lower premiums if their workers are young and healthy. However, if they have an older workforce with chronic conditions, that company’s “risk profile” could be flagged, leading to a higher premium adjustment. This provision could create a two-tiered system where healthier small businesses gravitate toward AHPs for savings, potentially leaving the state-regulated small group market with a higher concentration of sicker members, driving up costs for those who remain. The bill is clear that existing federal rules for health plans still apply, but the power to adjust rates based on risk is where things get complicated for consumer protection advocates.