small business association health insurance plans

Small Business Health Insurance

Issues & options.

Most small businesses are familiar with the group health insurance market. Group plans provide medical benefits that are restricted to eligible employees and their dependents. Regulations and benefit requirements differ for a group health plan depending on whether the number of total employees qualifies as a “small group” or a “large group.” Small group health plans operate under the requirements of the Affordable Care Act, which include 10 categories of mandated benefits. Large group plans, in contrast, have more flexibility regarding what benefits they include within their plan, though there are some benefits that are mandated. Large group plans also restrict profit and overhead costs more than small group plans with respect to third-party insurance company practices.

Association health plans provide a means by which many small businesses can band together and access the large group health insurance market, a market that often costs less for the same benefits.

The resources below can help you understand many of the issues and options around small business health insurance.

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Small Business

What are association health plans, by sydney garrow updated on october 21, 2022.

You may have heard the term “Association Health Plan” thrown around before, but not really understood how it’s different than a traditional group health insurance plan. Even if you’re looking for a small group health insurance plan, or already covered by one, it’s good to know what innovations are emerging in the health insurance world.

Let’s explore what Association Health Plans could mean for you, as a small business, and how they may differ from the typical group health insurance plans you may be looking at for your small business.

What is an Association Health Plan?

Association Health Plans (AHPs) are formed when multiple small employers band together to offer a single large group health plan.  Many small business owners are attracted to AHP insurance because of its potential cost-savings. Potential savings can be in reduced health insurance administration costs (administration cost of one plan is shared among multiple employers), a larger pool of plan participants with which to spread the insurance risk, the improved position to negotiate the cost of care with community providers and the cost of coverage with insurers. 

What are the types of Association Health Plans?

AHP insurance plans share many common characteristics of large group health plans. AHP benefits often incorporate plan participating healthcare providers as cost-containment and quality of care measures. Such plans may be Health Maintenance Organizations (HMO), Exclusive Provider Organizations (EPO, Point-of-Service (POS), or Preferred Provider Organizations (PPO). 

Also, the multiple employers sponsoring an AHP insurance plan can choose to have the plan fully insured, fully self-funded, or partially self-funded up to a designated medical expense cap, at which point the plan’s future expenses are insured by an insurance carrier, typically the entity that is administering the plan, or its reinsurance carrier. 

As with other health insurance, AHPs must comply with applicable state and federal laws. 

How do Association Health Plans (AHPs) differ from group health insurance?

• The term group health insurance typically refers to an insurance product offered by a single business. If you purchase group health insurance, it provides coverage for you, your eligible employees, and eligible dependents. 
• If you offer health insurance to your employees as a small business, it must be compliant with Affordable Care Act (ACA) standards for small group plans, and it must cover all  essential health benefits .
• Association Health Plans, on the other hand, have to conform to certain ACA requirements, but generally enjoy the greater flexibility large group plan sponsors have to structure the benefits of their plans.
• AHP can technically be “insurance sold across state lines” since the businesses involved in the association may not be required to be in the same state.

Association Health Plans are not actually insurance products

Association Health Plan is an overarching term to describe how the group health insurance plan comes about—by multiple employers coming together to form or purchase a single group health plan. It is not a health insurance product sold by insurers, per se. 

According to the health insurance trade association, AHIP, Association Health Plans are organized around a commonality, such as:

• Professional organization
• Industry group
• Trade organization
• State or local chamber of commerce

What resulted from the presidential executive order concerning Association Health Plans?

AHPs formed prior to the Trump administration and the Department of Labor’s new rule had to have members share a common interest, create the association for purposes other than providing health insurance, and have one or more employees in addition to the business owner to be treated as a group health plan under the Employee Retirement Income Security Act (ERISA). 

The Trump administration proposed a change that would expand the ability of small employer groups and individuals to band together to obtain health insurance through Association Health Plans. The Department of Labor’s final rule, issued by executive order during the Trump administration, relaxed certain key requirements governing AHPs. Key changes in the final rule include:

• Unrelated employers in the same geographic location — in addition to employers in the same trade, industry, line of business or profession — can form an AHP. The same geographic location can be state-wide or cross state boundaries. 
• The primary purpose of the employer group or association can be to provide health benefits, although it must also exist for another substantial business purpose.
• “Working owners”  (e.g., sole proprietors) can participate in an AHP.

As a result of these modifications, the rule sought to provide more small businesses and proprietorships greater access to AHPs. Supporters of the rule change suggest that AHP’s would drive down the costs of group health insurance plans, and more small businesses would be able to offer health insurance to their employees. Opponents caution that broadening access to AHP insurance could potentially destabilize the market created by the ACA.

While the Trump administration eased requirements for the AHPs with the DOL rule, the U.S. District Court for the District of Columbia struck down the rule in 2019. Presently an appeal pends with the U.S. Court of Appeals for the D.C. Circuit and the Biden administration has not signaled that it plans to take any action. Some states have moved forward with regulations related to AHPs.

How does the expansion of Association Health Plans affect small businesses?

The expansion of Association Health Plans would result in more small businesses and sole proprietors able to pool together to offer an AHP insurance plan. If you are uncomfortable with the unclear direction AHP regulations may take, however, you still have other attractive, cost-efficient options for offering group health coverage.  You may want to consider an individual coverage health reimbursement arrangement, or ICHRA, or a group health plan designed for small business.  Learn more about the differences between ICHRAs and small group health plans from our article, ICHRA vs Group Health Insurance . 

Be sure to visit our small business health insurance page and explore the many affordable group health insurance plans available to you and your business. The eHealth plan search tool makes it easy to compare plans. And if you have questions, eHealth licensed agents are ready to assist you in finding the right plan for your business needs at an affordable price. 

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Health, Life and Disability Insurance

Comprehensive employee benefit packages will help you attract and retain top talent. The Small Business Association of Michigan’s Harmony team can help you understand what benefits you need to succeed, and walk with you throughout the quoting process.

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• Designed for small businesses with two or more W2 employees.
• Offered in partnership with Blue Cross Blue Shield of Michigan and Blue Care Network.

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Life and Disability

• Group life and disability insurance from Dearborn Life Insurance Company, which are offered as Group Specialty Benefits in cooperation with Blue Cross Blue Shield of Michigan.
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Working in Harmony

Offering health, life and disability insurance as an employee benefit is advantageous to both small business owners and their workforce. 

Request your no-obligation quote today and learn how simple and affordable it is to enroll your employees in an SBAM-sponsored insurance plan.  SBAM’s Harmony team helps  manage the administrative tasks  and provides personalized customer service along the way.

Disclaimer: Dearborn Life Insurance Company’s group insurance products are offered as Specialty Benefits in cooperation with Blue Cross Blue Shield of Michigan. Specialty Benefits group insurance products are issued by Dearborn Life Insurance Company, 701 E. 22nd St. Suite 300, Lombard, IL 60148. Dearborn Life is a separate company and does not provide Blue Cross Blue Shield of Michigan products and is financially responsible for the products it issues. For illustrative purposes only. May not be available in all jurisdictions. Coverage may be subject to limitations, exclusions and other coverage conditions contained in the issued policy. Please consult the policy for the actual terms of coverage.

The Best Health Insurance Options for Small Businesses with Under 20 Employees

Key takeaways

• While businesses of all sizes face challenges in accessing affordable health insurance, for small businesses with under 20 employees, it feels near impossible.
• Sales processes that take many weeks and high participation rates are extra challenges for businesses with small teams. Is it any wonder that more than 60% of SMBs with under 10 employees do not offer health benefits?
• Fully insured health insurance plans have historically been the "go to" for small employers, and now level funded health plans. But a new pre-tax, fixed benefit option called ICHRA has emerged that small employers are flocking to.

Small businesses have it tough when it comes to finding affordable health insurance for their employees. For businesses with fewer than ten employees, it's nearly impossible. Let's count the ways:

• Long-winded sales processes for traditional small group plans often take 30 or more hours over six weeks. Eek.
• Challenging participation criteria, often requiring 70% or more employees to enroll is a high hurdle.
• And, oh, the cost. Employee health insurance for small businesses has become an expensive venture with the average premium cost rising 25% in 10 years .

But how can you retain your current talent and recruit new ones, without health benefits? It's not all doom and gloom. There are a few health plan options for smaller-sized small businesses to consider including fully Insured, level funded, fixed pre-tax benefit (also known as ICHRA ), and association plans. Let's dig into the advantages and disadvantages of each.

The most traditional route: Fully insured group health plan

If you decide to offer traditional group health insurance, it's most likely a fully insured plan. That's because small businesses don't have the size or scale to offer a self-funded (which means the employer bears the risk.) Small businesses with under 20 employees will likely have to find a one-size-fits-all health plan for everyone. (In fact, a 2019 survey revealed that 76% of employers with under 200 employees only offered one health plan.) 

Advantages of a fully insured group health plan

• Less Risk: The insurance company bears the risk if the total claims exceed the premiums. This is a benefit for small businesses, where unexpected costs can have a much bigger impact.
• Regulated Coverage: Fully insured health plans are subject to state laws and regulations. This means that they provide certain standard benefits, ensuring employees have access to basic healthcare. (This could also fit the "less risk" category.)

Disadvantages of fully insured health plan

• Higher Costs: Fully insured plans often have the highest premiums.
• Less Flexibility: These plans are harder to customize. Small businesses often need to choose from the pre-designed plans offered by the insurer and one plan for all employees. (The disadvantage of this is pretty clear. Does everyone in your company really have the exact same healthcare needs?)
• Stringent Participation Rates: Most plans require that at least 70% of employees enroll. That's often a high bar.
• Unpredictable Premium Increases: If employees file many claims or there's an increase in the general cost of healthcare, the insurance company will increase premiums at the time of renewal. This can make it tough sustaining a benefits budget year-over-year.
• Complicated Enrollment and Onboarding: Small business owners, especially very small ones, are often managing the paperwork themselves, which can take 30 or more hours over many weeks every year. Oh, and wait until those open enrollment questions pour in from employees.

Health insurance is local, and not all carriers are available where your small business is located (or employees, if they are distributed in other states). The top 3 largest carriers across the U.S. include:

• Blue Cross Blue Shield
• Kaiser Permanente
• Aetna (CVS Health)

The step-sister of fully insured: Level funded health plan

Level funded health plans may present a more attractive alternative for small businesses with healthy workforces, somewhat bridging the gap between fully insured and self-insured models. (We just introduced a lot of terms here, so check this blog with some background on these group plan options.)

With level funded plans, monthly premiums are based on a company's projected medical claims, offering potential savings if actual claims fall below this estimate. The way they get to this projection is through underwriting, a process that includes a survey for each employee and their dependents. Common questions include address (where they live), weight, height, and if they or their dependents smoke. (If it seems weird that your employees health is surveyed, well, it is one of the disadvantages of this type of group health insurance.)

The risk is shared with the insurance company, reducing potential financial exposure for the business, but not to the level that a self-funded plan does. This also presents another problem. If claims are well above the estimate premium costs will rise significantly or your group plan might be canceled.

Advantages of level funded plans for small businesses:

• Cost Savings: If claims are lower than predicted, the business could see substantial savings. (See also the first bullet point under disadvantages.)
• Risk Management: These plans share risk between the business and the insurer. This means that businesses are not as exposed to high-cost claims (as they would with a self-funded plan), providing a degree of financial safety.

Disadvantages of level-funded plans for small businesses:

• Potential High, Unpredictable Costs: If employee claims exceed the projected amount, premiums will jump, which is hard to predict year-to-year. Or, your insurer may drop coverage altogether.
• Complicated Enrollment and Onboarding: Similar to enrollment for fully insured plan, the paperwork is a lot.
• Stringest Participation Rates: Like fully insured plans, a 70% participation rate may be too high to achieve for some employers.
• Underwriting Can Feel Weird: Requiring that employees provide their weight and height to get a quote may feel like an uncomfortable zone.

Nearly every major health insurance company and some insurance companies who do general lines (like workers comp and home) are getting into the level funded game. More on why here . In fact, small business owners who go through the quoting process for a small group plan might not even realize the option presented is a level funded one. Examples of companies offering level funded plans are:

The newest option: Fixed, pre-tax health benefit (ICHRA)

One of the newest and most flexible health insurance options for small businesses is the Individual Coverage Health Reimbursement Arrangement or ICHRA. The name is a mouthful, but the way it works is actually quite simple. Rather than offering traditional group health insurance, ICHRA is a newish small group option that allows employers to give pre-tax money to their employees (as their health benefit) to help cover premiums for a health plan the employee buys and owns.

To put this into context. Consider ICHRA as a potluck party, a popular and practical solution for gatherings. In a traditional group health insurance plan, it’s like you, the host prepares all the dishes for your guests — it’s a lot of work, costly, and doesn't always cater to everyone's tastes. ICHRA is the potluck version — each guest brings a dish according to their preference, and you just contribute to the expenses. It's more affordable, and everyone gets what they prefer.

If you’re wondering why you’ve never heard of it before, it’s because it’s relatively new, made possible in 2020 due to IRS legislation . A lot happened in 2020, and it has been slow to catch up. But that’s changing .

Advantages of ICHRA for small businesses:

• Financial Flexibility and Stability: ICHRAs allow businesses to set their own budget. Rather than being tied to the costs of a group health insurance plan and the unpredictable climbing premium prices, a small business owner can decide how much they can affordably contribute toward their employees' health insurance.
• Employee Choice: E mployees are not limited to a single group plan as they are with traditional fully insured and level funded options. Rather, they can choose a health insurance plan that best meets their needs and preferences.
• Customization: Want to give a different amount to your Full-Time employees versus Part-Time? You can with an ICHRA. The ICHRA plans allow you to customize the benefit per employee "category."
• No Participation Requirements: While all employees of a similar category (such as Full Time or Part Time) must be offered the ICHRA benefit, there is no minimum participation requirement. As many or as few can enroll or waive.
• Hassle-Free Enrollment: An ICHRA reduces the administrative burden for businesses. And because they do not own the group plan, they are also relieved of the weird role of coming in between an employee and their doctors.

Disadvantages of ICHRA for small businesses:

• Employee Confusion: With the freedom to choose their own plans, some employees may feel overwhelmed by the options and struggle to make an informed choice.
• Expectation Gap: Employees used to high-end health plans with lots of bells and whistles may not find those options on the individual marketplace.

While ICHRAs are catching on, it’s still a relatively newish option. ( Here's a bit more on why that is .) StretchDollar is one of the first to focus on small businesses with under 50 employees, a group that tends to have the most challenges when it comes to finding affordable, uncomplicated health insurance.

The "non-health insurance" route: Association plans

Association Health Plans (AHPs) are group health insurance plans that allow small businesses to band together to purchase the types of coverage available to large employers. As the subtitle of this section suggests, AHPs do not offer qualified health plans, and therefore it is not health insurance.

Advantages of association plans:

• Expanded Access: AHPs can help small businesses and individuals obtain health coverage where they might not have been able to before due to cost and availability.
• Increased Bargaining Power: Grouping together allows small businesses to have more negotiation leverage with insurance providers, potentially leading to more favorable rates.
• Customized Plans: AHPs often offer more flexibility for businesses to customize plans that better meet the needs of their employees.

Disadvantages of association plans:

• Lack of Comprehensive Coverage: AHPs are not required to cover all the essential health benefits that individual and small group health plans must cover under the Affordable Care Act, potentially leading to gaps in coverage.
• Risk of Higher Premiums: If a group has employees with higher health risks, the aggregated risk will result in higher premiums for the entire group.
• Limited State Oversight: AHPs may not be subject to the same level of state regulation as traditional health insurance plans, potentially leading to fewer consumer protections.
• Employee Dissatisfaction (Especially for Those with Unexpected Health Issues): Per the reason above, these types of plans fall outside typical regulations. Employees with unexpected serious health issues may get surprise bills without a lot of options for negotiating them.
• General Risk: AHPs are not health insurance, and this concept may not be well understood among employees when signing up.

Bottom line

Small businesses for many years have had a very hard time finding reasonable small group health insurance for their employees. It feels unfair. You want to take care of your employees, but the options are complicated out of your budget. The good news is that there are more options than ever before. Before jumping into the process, consider your priorities and the pluses and minuses of each. Interested in learning more about StretchDollar's ICHRA? Check out How it Works or get started here .

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Small Business Health Options Program (SHOP)

The Small Business Health Options Program (SHOP) helps businesses provide health coverage to their employees.

SHOP insurance is generally available to employers with 1-50 full-time equivalent employees (FTEs). If you have fewer than 25 employees, you may qualify for the Small Business Health Care Tax Credit, if you buy SHOP insurance. Learn more about SHOP eligibility rules and the Small Business Health Care Tax Credit .

If you're a sole proprietor or self-employed with no employees, you may be able to get individual coverage through the Health Insurance Marketplace for individuals and families . 

Enrolling in SHOP insurance

Employers have two options for enrolling in SHOP insurance:

• Through an insurance company
• With the assistance of a SHOP-registered agent or broker

To learn more about SHOP visit HealthCare.gov .

Benefits of SHOP Insurance

• You control the coverage you offer and how much you pay toward employee premiums.
• You can choose from high-quality private health insurance plans that meet the needs of your business and employees.
• You can choose to offer health only, dental only, or both health and dental coverage. If offering dependent coverage and an employee enrolls, the employee’s dependents can enroll in health only, dental only, or both health and dental coverage.
• You can start coverage any time of the year.
• If you have fewer than 25 employees, you may qualify for a Small Business Health Care Tax Credit worth up to 50% of your premium costs (up to 35% for tax exempt/non-profit employers). You can still deduct from your taxes the rest of your premium costs not covered by the tax credit.  The tax credit is generally available only when an employer enrolls in a SHOP plan . Use the Small Business Health Care Tax Credit Estimator to find out if you may qualify and how much you may save.

 How to know if you qualify for SHOP 

• SHOP insurance is available to employers with 1-50 full-time equivalent (FTE) employees in most states (in some states, employers with 1-100 employees qualify). Use our FTE Employee Calculator to find out if you qualify to use SHOP.
• You must offer SHOP coverage to all of your full-time or FTE employees – generally those working 30 or more hours per week on average.
• In many states, at least 70% of employees offered coverage must accept the offer, or be covered by another form of coverage, for the employer to participate. (Employers who apply for or renew SHOP coverage between November 15 and December 15 each year can enroll without meeting this requirement.) For help calculating the SHOP minimum participation rate (MPR) in your state, visit the MPR Calculator .
• You must have an office or employee work site within the state whose SHOP you want to use.

Get more details on SHOP eligibility rules .

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Browse health and dental plan information right now. See the available plans and sample prices based on the number and ages of employees and their dependents.

SHOP Tools and Resources

• English (PDF)
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• Full-time Equivalent (FTE) Employee Calculator
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• Minimum Participation Rate (MPR) Calculator
• See Plans and Prices
• SHOP Eligibility Determination Form

SHOP regulations and guidance:

For additional resources, please visit marketplace  

Contact the SHOP Call Center at 1-800-706-7893 (TTY: 1-888-201-6445)

What Are Association Health Plans for Small Businesses?

Association Health Plans are a way for small businesses and individuals to band together to purchase health insurance. We explore the pros and cons in this article.

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To reduce health insurance costs, some small employers are banding together to offer coverage through an Association Health Plan (AHP). But before you jump on the AHP bandwagon, it’s important to know what you’re getting into.

What is an Association Health Plan (AHP)?

An AHP is an arrangement via which small employers join together and purchase health insurance as a larger group. Through the AHP, small employers can access lower health insurance premiums than if they were to buy the plan on their own. Note that small businesses lacking bargaining power reportedly pay approximately 8% to 18% more than large employers for the same health insurance plans. AHPs help level the playing field so that small employers can be more competitive, particularly in a tight labor market.

When multiple small employers come together as one larger employer, the risk (for the insurer) is spread out among all participants in the group. So, when someone falls ill, the insurer has enough monthly payments to cover the incurred expenses — and can typically charge the group lower premiums as a result.

Despite their benefits, AHPs have a long and contentious history.

AHP background

AHPs have been in existence for decades and were chiefly regulated at the state level. Originally, AHPs referred to themselves as “employers” or “employee associations,” which enabled them to claim the ERISA exemption from state insurance laws.

This exemption resulted in many AHPs defrauding consumers — by leaving numerous people with unpaid claims — and filing for bankruptcy. ERISA was later amended to stop AHPs from claiming its exemption from state insurance mandates. Now, AHPs must obey federal laws such as ERISA, COBRA, and HIPAA and applicable state insurance laws.

The Affordable Care Act (ACA), as well, joined the crackdown and has been especially influential to AHP reform. Prior to the ACA, AHPs were prone to “junk plans.” This is a term used to describe health insurance plans that lack sufficient coverage.

To limit AHP fraud and junk plans, the ACA requires policies obtained through an association to follow the same federal and state rules that apply to individuals and small groups, including accepting people with pre-existing conditions and offering 10 essential health benefits .

These ACA requirements led to insurers charging higher premiums for AHPs. (Note that although large groups must accept people with pre-existing conditions, they do not have to provide the 10 essential health benefits.)

In response to the new ACA standards, many AHPs disbanded.

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The dol intervenes.

In June 2018, the DOL published a final rule , which expands ERISA’s definition of “employer” and makes it easier for AHPs to buy health insurance as a large group. The rule relaxes the “commonality of interest” test for AHPs, and permits “working owners” (such as sole proprietors) to participate.

One of the most criticized aspects of the final rule is that it will produce more junk plans. Since large groups do not have to offer the ACA’s 10 essential health benefits.

Avalere, a healthcare research and consulting firm, released a report estimating the impact of the DOL rule over a 5-year period (2018-2022). Per the report, premiums for new AHPs will be “between $1,900 to $4,100 lower than the yearly premiums in the small group market and $8,700 to $10,800 lower than the yearly premiums in the individual market by 2022, depending on the generosity of AHP coverage offered.”

These premium differences assume that the AHP offers “less-generous benefits than current markets.” Critics have interpreted “less-generous benefits” to mean junk plans.

Moreover, a number of states contend that the final rule will cause them to spend too many resources on preventing consumer fraud by AHPs. Consequently, in July 2018, a coalition of states filed a lawsuit to block the DOL final rule, which was then struck down by a federal judge in March 2019.

The DOL has appealed the ruling.

While the case makes its way through the courts, the blocked ruling stands. This means that unless there’s a change in the ruling, AHPs must comply with the ACA plus state laws for the individual and small group markets, which include offering at least the 10 essential health benefits.

Federal rules for AHPs

With the DOL final rule currently blocked, these are the federal rules for creating an AHP:

• AHP members must have a common interest (or “commonality”) and a shared economic purpose unrelated to offering benefits. In other words, providing health insurance cannot be the only reason for creating the AHP. (The DOL final rule permits AHPs to be formed for the sole purpose of buying health insurance.)
• Commonality cannot be based solely on geography. Other factors are considered.
• AHPs cannot include “working owners.” Each member must have employees.

States are making inroads

While we wait to see whether the federal court ruling will remain invalidated, states are expanding their AHP initiatives. Per Mercer consulting firm , states such as Arkansas, Hawaii, Iowa, Kansas, Kentucky, Oklahoma, and South Dakota have AHP laws that rely on the DOL final rule. More recently, Arizona, Florida, and North Carolina have passed similar legislation.

But as noted by Mercer, “these [state] laws raise issues about ERISA compliance as long as the 2018 rule remains invalidated.” To eliminate confusion, some states have passed, or are considering, legislation that sets clear guidelines regarding AHPs.

Interested in joining an AHP?

There’s no blanket health insurance solution for small businesses, which is why you should do your homework before joining an AHP. You might want to:

• Partner with a health insurance broker or a benefits consultant, who can help you make the right decisions for your small business. It’s probably best to work with someone who charges you a fee rather than someone who receives a commission from an association or the insurance company.
• Get a handle on the details. This includes AHPs versus traditional health insurance options, federal and state AHP laws, pros and cons of AHPs as they relate to your small business, available AHP coverage versus your employees’ needs, cost-benefit analysis, potential plan limitations, whether you meet the eligibility requirements for participating in an AHP, and whether you should take the AHP plunge now or wait until later.
• Choose an association that you’re comfortable with (if you decide to forge ahead). Do you know other interested, legally compatible small employers? If so, you can all pool together to provide health insurance as an association. Alternatively, if you’re a member of a trade organization or chamber of commerce that offers an AHP, see what the specifics are for becoming an AHP member. Or, you can use the U.S. Chamber of Commerce website to search for an AHP.

You should know that despite their controversial history, many AHPs provide generous coverage, or at a minimum ACA-compliant coverage, and are reaping the benefits that come with offering the plan. Just be sure to do your due diligence before taking the leap.

Grace Ferguson

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