The Small Business Health Insurance Advantage You May Be Missing: Association Health Plans

For a small business, health insurance can sometimes feel like a game where the rules are stacked against you.

You may have a healthy workforce, a relatively low number of claims, and employees who rarely use their benefits – yet your health insurance rates can still increase from year to year.

So what options does a small employer have?

One often-overlooked option is an association health plan. By bringing multiple employers together into a larger insurance arrangement, association plans can give qualifying businesses access to different pricing structures and benefit options than they may find in the traditional small-group market.

At Altura Benefits, pooled health plans are an important part of how we help small businesses evaluate their options. We particularly work with association plans serving manufacturers and contractors, giving employers in these industries another avenue to explore when it comes to employee benefits.

At its simplest, an association health plan brings multiple employers together through a qualifying association or organization.

Instead of each employer approaching the health insurance market entirely on its own, participating businesses become part of a broader pool. Depending on how the plan is structured, that larger pool can create opportunities for different approaches to underwriting, pricing, and benefit design.

The basic idea is similar to insurance in general: the larger and more predictable the pool, the more effectively risk can potentially be spread across its members.

And for a small employer, that can be meaningful.

To understand the potential advantage, it helps to look at how the health insurance market changed under the Affordable Care Act (ACA).

Before the ACA’s small-group market reforms took effect, insurers could use factors such as an employer group’s health status and claims experience when determining premiums. In practical terms, a healthier group could potentially receive a much better rate than a group with significantly higher medical claims.

The ACA changed that system. For plans subject to the ACA’s small-group market rules, insurers generally cannot simply increase an employer’s premium because that particular employer has a sicker workforce or had a bad claims year. Instead, small-group premiums are generally based on permitted rating factors such as age, geographic location, family composition, and tobacco use, subject to applicable rules.

That change provided an important benefit: businesses with higher healthcare costs were protected from being individually priced according to their employees’ health status.

But it also meant that a very healthy small business could no longer receive the same kind of health-based pricing advantage it might have received in the past.

This is where certain association arrangements can become interesting.

A properly structured association health plan can bring many employers together into a larger risk pool.

Imagine an association serving hundreds or even thousands of employees across many businesses. Rather than looking at each employer completely in isolation, the plan can evaluate the experience of the broader pool when determining its financial performance and future rates.

That doesn’t mean every employer simply gets the exact same rate. Depending on the plan’s structure and applicable rules, the experience and characteristics of participating employers can still affect their costs.

The important distinction is that the employer is participating in a much larger pool rather than standing completely on its own.

That pooling can create opportunities for small employers to access coverage that may otherwise be difficult to obtain or may be less competitive in the traditional small-group market.

There are several potential advantages, although they won’t apply equally to every employer:

• Potential savings: A well-performing employer may be able to reduce its health insurance costs compared with its current arrangement.
• Richer benefits: The biggest advantage isn’t always a lower premium. Some association plans can provide access to broader or richer benefit designs.
• More plan options: A larger pooled arrangement may offer multiple plan designs, giving employers more flexibility in choosing coverage for their workforce.
• Risk sharing: Instead of a small employer’s experience being the entire story, the employer participates as part of a much larger pool.

The actual results will depend on the specific association, plan structure, carrier, employee population, and claims experience. There is no universal percentage of savings that every employer should expect.

Association health plans aren’t automatically better for everyone.

In fact, some employers may not benefit from an association plan at all. An employer with significantly higher claims experience may see little or no savings compared with its current coverage, depending on how the particular association plan is structured. In some cases, the employer may actually be better off staying with its existing plan or pursuing another option.

That’s an important part of the equation: association plans can create opportunities for employers with favorable claims experience, but they don’t eliminate the underlying cost of healthcare.

That’s why we don’t recommend looking at association plans as a magic solution for reducing health insurance costs.

Instead, they’re another option worth comparing.

At Altura Benefits, we’ve seen employers save as much as 17% by moving into an association plan. For many employers, however, the savings are more modest – often around 2%–3%.

And sometimes the savings aren’t the most compelling part of the equation. An employer might find that an association plan offers richer benefits or better plan options for a similar overall cost.

In other words, the question isn’t simply: “Can an association plan lower my premium?”

It’s: “Can an association plan give my business a better overall value?”

There isn’t a one-size-fits-all answer.

A traditional small-group plan may be the best choice for one employer, while an association plan may provide better value for another. The right answer depends on your company’s size, workforce, claims experience, current benefits, budget, and goals.

The good news is that you don’t have to figure that out on your own.

If you’re a manufacturer, contractor, or small business owner and you’re curious whether an association health plan could make sense for your company, we’d be happy to take a look.

At Altura Benefits, our goal isn’t simply to sell you a health plan. We want to understand your business, compare your options, and help you find a benefits strategy that makes sense for both your company and your employees.

Don’t hesitate to reach out to us today – we’d love to start a conversation and see whether an association health plan (or another approach) could be a better fit for your business!