In October 2017 the Department of Labor proposed a rule that will make it easier for small businesses to join together to purchase health insurance. This three-part series-The Association Health Plan Opportunity – examines why Franchisors and their small business franchisees should seek to capitalize on this expanding opportunity but do so carefully.
What is an AHP?
An Association Health Plan – or AHP– is the strategy for individual member companies of an association or Trust to secure collectively-sourced group health benefits. Individually, most franchises, unless big multi-unit operators, are usually too small to qualify for the most competitive benefit plans, but as an aggregated group single store and even multi-unit operators can drive real cost savings and improvements to benefits offerings to aid employee attraction and retention in a tight labor market. The benefits of aggregated sourcing are enormous, as health benefits group purchased can typically deliver as much as 10-30% savings compared to individual small employer purchasing, often with better, broader benefits.
Historically, not all Associations or Franchisees would qualify for collective sourcing, or “Trusts” under strict definition guidelines regarding common business ground necessary to form an association or Trust. Current Employee Retirement Income Security Act (ERISA) guidelines allow only groups of businesses with “common business interests,” such as an industry or a franchise group, to form collective benefits sourcing programs. Further, businesses are prohibited from grouping together for the sole purpose of buying medical benefits – in general, the collective sourcing “Trust” must add other value to its Members than just Medical insurance purchasing
However, an effort underway at the Labor Department would dramatically increase the number of small businesses and their employees that would qualify for an AHP. By changing the definition of “common business interests” in the current ERISA guidelines and broadening its applications, the government is loosening restrictions on who can pursue collective benefits sourcing programs. An amended rule would make it possible for more small businesses, franchises and small associations with less stringent industry, geographic or professional affiliations to form an AHP.
This change would mean that much wider groups of small businesses, franchises, smaller associations, and even sole proprietors could qualify for collective sourcing of benefits through an AHP. For example, groups of restaurants in the same or different states might qualify – something that would not have been possible prior to the modification.
Ultimately, broader requirements of existing regulations will expand the universe of employers that can offer company-sponsored benefits plans. This will widen the pool of available benefits to employers and employees and can reduce the administrative overhead of millions for small businesses. It will also help small businesses become more competitive in attracting and retaining talent because they can now offer benefits on par with larger companies.