Choosing Your Health Plan

Limited Health Plans: AHPs and STLD Plans

Summary

Two types of health insurance plans often have serious limitations you should know about. They are association health plans (AHPs) and short-term, limited duration (STLD) health plans. Because they don't have to comply with the Affordable Care Act (ACA), these plans sometimes cost less than regular health plans (though they may also cost more). But they can deliver a lot less too—leaving you with high bills or, for some services, no coverage at all. So if you are considering any of these plans, be sure to study their documented terms and conditions carefully in advance.
  • Unlike regular group insurance and the plans offered on ACA exchanges, AHPs and STLD plans don't have to cover all of the ACA’s “10 essential benefits.” So, depending on the plan, you might not be covered for things like childbirth, mental health or prescription drugs. If you’re not covered and you need that type of care, you’ll have to pay the entire cost yourself.
  • STLD plans can limit how much they pay for covered services and don’t limit how much you have to pay. Depending on the terms, you may find yourself paying most of the price of an expensive surgery, for example.
  • STLD plans may not cover preexisting conditions.
  • AHPs and STLD plans can charge higher rates based on factors like gender and age.
  • You can be covered by an STLD plan for up to 12 months. After that, the contract can be renewed for up to two years. But the plans aren't guaranteed renewable. This could be a problem if you get sick and then can't renew your contract.
  • Some AHPs and STLD plans have been associated with fraud and insolvency—going bankrupt and leaving consumers with unpaid medical bills.
Think about these issues if you consider enrolling in an AHP or STLD plan.

Limited Health Plans: AHPs and STLD Plans

The federal government has made two types of limited health insurance coverage more widely available than before. They are association health plans (AHPs) and short-term, limited duration (STLD) health plans. But beware of the coverage and reimbursement limitations of these types of plans.

AHPs and STLD plans don't have to follow the Affordable Care Act (ACA). Most regular health plans that employers offer and that you can buy through the Health Insurance Marketplace or Exchange have to follow the ACA. Because AHPs and STLD plans don't have to, they sometimes cost less than regular plans (though they may also cost more). But they can deliver a lot less too—leaving you with high bills.

AHPs

AHPs are insurance plans that permit small businesses to join together to buy health insurance. “Small businesses” include people who work for themselves. AHPs aren't new—they've been around for decades. But new rules about them went into effect on September 1, 2018. The rules have since become tied up in the courts, but here are the basics about them.

The new rules allow more small businesses and self-employed people to join these plans. They do this by relaxing the rules for forming an AHP. The federal government has also relaxed the rules for AHP benefit coverage and spending. Under the ACA, AHPs had to meet the same standards as regular plans for small groups and individuals. With the new rules, AHPs have more choice in deciding how much coverage they'll provide. Regular health plans must spend at least 80 percent of the money they take in from premiums on healthcare costs. AHPs don't have to do that.

Benefits Provided by AHPs

AHPs don't have to cover the 10 “essential health benefits.” These benefits are required by the ACA for regular plans.

The 10 categories of essential health benefits are:

  • Ambulatory (outpatient) services
  • Emergency services
  • Hospitalization
  • Pregnancy, maternity and newborn care
  • Mental health and substance use disorder services
  • Prescription drugs
  • Rehabilitative and habilitative services and devices (habilitative means helping patients gain skills they couldn't have developed on their own)
  • Laboratory services
  • Preventive and wellness services and chronic disease management
  • Pediatric services, including oral and vision care

Unlike regular Marketplace/Exchange or employer-offered plans, individual AHPs can decide not to cover certain essential health benefits. For example, AHPs can choose not to cover prescription drugs or rehabilitative services. This can cost you money if it turns out you need care for a benefit that isn’t covered.

Like regular plans, AHPs must have a maximum out-of-pocket spending limit for the essential health benefits they do cover. An out-of-pocket limit is the most a member has to pay for covered services, after paying for deductibles, copays and coinsurance. (See our article on Cost Sharing.) AHPs also can't have annual or lifetime limits on their benefit coverage.

The ACA provides a number of consumer protections. Under the ACA, insurance plans must cover preventive services, like vaccines and screening tests, without charging you a copay or coinsurance. Another ACA protection allows members' children to stay on the plan until age 26. The new AHP rules continue these protections.

Pre-existing Conditions

Under the new rules, AHPs must still accept people who have a preexisting medical condition (and can't charge higher premiums or cancel coverage for those who get sick). But AHPs can charge different rates based on gender, age and location. Older workers, for instance, are more likely to have long-term illnesses. They might have to pay higher rates. Women in their early 30s are more likely to need maternity benefits. Rates for them could be higher than in regular plans. AHPs can also charge higher premiums to people in higher-risk jobs, like mechanics and paramedics. Regular plans that have to comply with the ACA cannot charge different rates based on age, gender and location.

Who Will Benefit from the New AHP Rules

Some companies may benefit by paying lower premiums than they would for a regular health plan. For individual workers, the amount they have to pay depends on their age, gender and occupation. Healthy young men in low-risk jobs may have lower premiums. AHP rates for men in their thirties could be lower than ACA rates. Workers who earn a little too much to qualify for ACA subsidies might benefit as well.

People affected by the ACA's “family glitch” may also benefit from the new AHP rules. Workers who have access to “affordable” health insurance through their jobs don't qualify for government healthcare subsidies. Insurance is considered “affordable” if the plan for the individual worker costs less than a set percentage of the household income (9.78 percent in 2020). But that doesn't take into account that family plans usually cost much more than individual plans. A worker might earn too much to qualify for subsidies and still not be able to afford a regular family plan. He or she may be able to afford an AHP family plan, however, and at least get some coverage.

When Your Employer Offers an AHP

Individuals who work for businesses that don't offer health insurance may get subsidized coverage through the ACA. However, if the business starts to offer an AHP, and it meets minimum value standards and is considered affordable, employees are no longer eligible for subsidies. As a result, in some cases, workers may choose an AHP even if it has fewer benefits than an ACA plan.

STLD Health Plans

In August 2018, the government greatly expanded access to STLD health plans. STLD insurance was designed for people who lose their health insurance for a short time. They might be between jobs, for instance. Under the ACA, STLD coverage was limited to three months and the contracts couldn't be renewed. The new rules permit STLD coverage up to 12 months. After that, the contract can be renewed for up to two years.

Because they don't have to follow ACA rules, STLD plans can cost much less than regular health plans. They also offer much less coverage. Like AHPs, STLD plans don't have to cover all of the 10 essential health benefits. They usually don't cover (or have very little coverage for) mental health, substance abuse and prescriptions. Unlike with regular plans or AHPs, applicants for an STLD plan can be turned down or charged higher premiums based on preexisting conditions, or have those conditions go uncovered. They can also be charged more on the basis of gender, age or other factors.

Also, unlike all other individual health insurance, STLD insurance isn't guaranteed renewable at the end of the contract term. That means if you become seriously ill, you may not be able to renew coverage when the term ends. STLD plans can also impose annual or lifetime dollar limits on coverage. They can limit how much they pay for a covered service, and they don't limit how much you may have to pay. Depending on the terms, you may find yourself paying most of the price of an expensive surgery, for example.

Like AHPs, STLP plans don't have to spend at least 80 percent of the premiums they receive on healthcare services. Some AHPs and STLD plans have been associated with fraud—not being honest with consumers about their limitations. And some have been linked with insolvency—going bankrupt and leaving consumers with unpaid medical bills.

Your Action Plan: Know Where to Go

If you're considering joining an AHP or an STLD plan, take a good look at what they offer and carefully consider your health insurance needs. And watch out for the dangers.

Pros
  • AHPs may offer lower rates and more choices to self-employed people and small businesses.
  • AHPs may not exclude people with preexisting conditions.
  • STLD plans may offer lower premiums.
  • Relatively healthy individuals who don't need a lot of medical services may benefit.

Cons
  • AHPs and STLD plans don't have to cover all 10 essential benefits. If members become sick or pregnant or need substance abuse or mental health services, they might not be covered for all the services they need.
  • AHPs and STLD plans can charge higher rates based on age, gender or other factors.
  • STLD plans can turn away applicants or charge them higher premiums based on preexisting conditions—or leave those conditions uncovered.
  • STLD plans aren't guaranteed to be renewable.
  • STLD plans can limit how much they pay in a year or a lifetime, or for a specific covered service, leaving you with a large bill.
  • STLD plans don't limit how much you may have to pay for covered services.
  • Workers who qualified for government healthcare subsidies under the ACA may no longer qualify if their employer starts to offer an AHP.
 

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