Association Group Health Insurance Sparks Controversy

Published February 1, 2003

Health insurance premiums are going up by double-digit rates for the third year in a row, and some workers and employers are seeing increases of 30, 40, and even 50 percent. Not coincidentally, the number of uninsured has risen to more than 41 million Americans.

A growing number of people are finding a solution in the rapidly growing, but poorly understood, “association group” market.

An Affordable Alternative

The large majority of people under age 65 with health insurance get it through their employers. While that mechanism is convenient and usually reliable, people with employer-provided policies don’t own their policies; their employers do. Employers decide what type of coverage employees will have, and when employees leave their jobs, they lose their coverage.

The self-employed and those who do not have an employer-provided health insurance option can usually buy individual health insurance policies, just as people purchase their own life and automobile insurance. While more flexible and portable than employer-provided insurance, individual health insurance has problems of its own. Individuals don’t get the economies of scale that come with group coverage, and states often impose a number of regulations and restrictions on the individual market, making those policies more expensive.

Ideally, individuals should be able to get the savings that come with group coverage, along with the flexibility and personal ownership available in the individual market. That is what the association group market provides.

What Is Association Group Insurance?

Millions of Americans are members of associations. Some of those associations are job- or career-related, some are hobby-related, and some are tied to people’s special interests. Many of them offer access to or group discounts on a whole range of products and services; for some, those products include health insurance.

Purchasing health insurance, as well as other products and services, through an association is a long-established and well-accepted model. Perhaps the oldest and largest of these associations is the AARP. Some 35 million people, roughly a third of whom are under age 60, pay annual dues to AARP because they believe they get value out of being a member. One of those options is Medicare supplemental insurance, which millions of AARP members purchase.

There are roughly 15,000 associations in the U.S. today, including such groups as the local Chambers of Commerce, the American Automobile Association, the National Rifle Association, and the Sierra Club. Following the AARP model, some associations have decided to offer health insurance to their members, using an established insurance company to write the policies.

Regulation by States

Critics of association group insurers contend they are not regulated by the states, as are the individual and small group health insurance markets. However, 46 states specifically authorize group health insurance offered through associations, and those states mandate the benefits that are offered.

In addition, the National Association of Insurance Commissioners (NAIC) has provided a model to guide states’ oversight of the association group market. The NAIC guidelines assert:

  • “The association or associations shall have at the outset a minimum of 100 persons and have been organized and maintained in good faith for purposes other than that of obtaining insurance;
  • “Shall have been in active existence for at least one year;
  • “And shall have a constitution and by-laws that provide that (i) the association or associations hold regular meetings …, (ii) … collect dues or solicit contributions from members, and (iii) the members have voting privileges and representation on the governing board and committees.”

It is true many states do not regulate the association group market to the same extent they regulate the individual and small group markets. But that is precisely why insurers selling policies through associations can offer more choices at lower prices.

Large employers who provide health insurance usually self-insure under the Employee Retirement Income Security Act (ERISA), which places their plans under federal law rather than state insurance laws. A primary reason for self-funding is that those employers have more freedom to structure their plans and control the cost of coverage. About half of those who have employer-provided coverage are in self-funded plans. These plans don’t escape health insurance laws, they just operate under different laws. The same can be said for most association group plans.

If the concern is that less regulation of association groups has created an unlevel playing field, putting the individual and small group insurers at a disadvantage, the solution isn’t to regulate association groups more but to regulate the other markets less so they too can offer a wide range of polices at affordable prices.

Are Insurers Too Close to Associations?

Another criticism is that some associations have too close a relationship with the insurers providing the coverage.

It is probably true that some insurers have a close working relationship with the associations that sell their policies. But many associations have been working closely with their insurance provider for years. You would expect the head of AARP to have a good working relationship with the CEO of Prudential, which sells policies to AARP’s seniors. And if AARP wanted to restructure some of the policies it offers, it would surely go to Prudential executives beforehand to discuss workable options and get the insurer’s input.

In fact, there is nothing inherently wrong with an insurance company playing an important role in forming an association that eventually will market its policies, just as Colonial Penn did with AARP. The NAIC and many states may discourage the practice, and most insurers follow those laws and guidelines. But it is a reasonable way to create a viable group to purchase health insurance.

One of Many Choices

Some 6 million Americans are currently insured through association groups, and more are choosing that option all the time. These people are not forced to pay additional money to join an association just to get health insurance. They choose this option.

Most states have viable individual health insurance markets, and people often have more choices at lower prices there than they get from a group policy. Thirty states have high-risk pools for those with pre-existing conditions who may not otherwise be able to obtain coverage. If consumers don’t want to join an association or don’t like the policies offered by associations, they are free to choose another option.

Denying consumers the association group option by eliminating or over-regulating them doesn’t protect consumers, it simply denies them one option among several. This is a flawed model of consumer protection; a better model seeks to use competition and choice to make insurers more accountable to their customers.

Complaints against association groups come primarily from insurers offering other types of coverage in states where association groups do business. By offering consumers more options at affordable prices, association groups increase competition and attract people who otherwise would be forced to pay higher prices. Unfortunately, calling for increased regulation of one’s competitors is an increasingly common business tactic, and consumers are invariably the losers.


Association group health insurance is a well-accepted model that already offers some 6 million Americans affordable health insurance. It is not an anomaly or a trick to avoid regulation: Associations for many years have offered people a wide range of products and services. The association model offers the best features of employer-provided and individual health insurance.

Offering a better product at a lower price always upsets established vendors who are used to a captive audience, but the freedom to innovate and compete for customers is the keystone of a prosperous society. Association group insurance should be part of any plan to encourage more people to be insured and to slow or stop the rise in health insurance premiums. Elected officials should resist calls to limit the ability of association groups to compete for new consumers.

Merrill Matthews is executive director of the Council or Affordable Health Insurance, a nonprofit association based in Alexandria, Virginia.