Expanded association health plans offer small businesses relief

By Bill Maloney

Back in 1984, my partner and I started North American Drillers in a shop with a dirt floor on Grafton Road outside Morgantown. Today that company employs over 1,000 people, mostly West Virginians, and is recognized as the world leader in large diameter shaft drilling.

Starting a business then wasn’t nearly as complicated as it is today, with the current regulatory, tax and health care burdens.

When I was state chair of West Virginia’s Association of Builders and Contractors, in 2004, I worked with Sen. Robert Byrd’s office to try to expand association health plans (AHPs), which allow small businesses to join together to negotiate lower health care costs. Today, that goal is on the cusp of being realized.

The Department of Labor (DOL) is set to issue a new rule expanding AHPs, finally giving small businesses an option to escape Obamacare’s rising costs.

President Trump campaigned on allowing health care coverage to be sold across state lines. This reform will reduce health care costs because it will usher in far more supply options, reducing prices in the same way that interstate competition reduces prices in all other products and services.

Last fall, he issued an executive order directing the DOL to expand AHPs to make this longstanding dream a reality.

Specifically, DOL’s forthcoming rule will regulate AHPs at the federal level under the 1974 Employee Retirement Income Security Act (ERISA), freeing them from the confusing patchwork of statewide regulations that reduce competition and drive up prices. This will also level the playing field between small businesses and their big businesses competitors, whose health plans already fall under ERISA.

Small businesses need these AHP options. They have arguably been the biggest victims of Obamacare-induced premium increases. According to an analysis by the Employee Benefits Research Institute, small employer health coverage fell by one-third between 2008 and 2015 because of cost increases. Small businesses neither have the economies of scale nor the risk pool to negotiate the attractive plans of big businesses. AHPs allow small businesses to overcome these hurdles.

More than 95 percent of West Virginia employers are small businesses. If every one of the 115,162 small businesses identified in the state by the Small Business Administration in 2016 added one employee, our economy would truly boom without government getting involved.

That brings us to the other AHP expansion DOL will issue shortly: Relaxing AHP industry classification rules. Currently, only businesses with a “commonality of interest” — say, builders and contractors — are allowed to form AHPs.

The new rule should allow simply being a small business to meet the AHP commonality requirement. This will also allow more AHPs to form and grow, increasing their negotiating power and risk mitigation, further reducing health care costs.

Perhaps the biggest winners from such expanded AHPs would be sole proprietors, which make up roughly 80 percent of all small businesses in the country.

At the moment, sole proprietors are mostly relegated to the individual market, where costs increased by 25 percent this year in West Virginia, following several years of double-digit increases. Insurers are fleeing these exchanges; in one-third of counties in the country only one remains.

These high costs and lack of options are a big reason why small business creation continues to fall even in today’s bull market. Why would an employee with an office job take the risk of pursuing the American dream if it means giving up solid employer-provided health insurance to contend with the individual marketplace that is in the beginning stages of a death spiral?

Short of comprehensive health care reform, expanded AHPs are the most promising health care reform to reduce costs for small businesses and their employees. Combined with recently passed tax cuts and regulatory relief, they would reinvigorate the spine of America’s small business backbone.

Better late than never.

Bill Maloney is the co-founder of North American Drillers and a two-time candidate for the governor of West Virginia. This commentary should be considered another point of view and not necessarily the opinion or editorial policy of The Dominion Post.

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