After the ACA took effect, enrollment in AHPs fell, partlybecause many small businesses were buying new ACA plans and manyexisting association plans had to comply with ACA rules. (Photo:Shutterstock)

When the Trump administration in June issued rules making it easier for smallemployers to band together to buy health insurance, “we startedlooking immediately,” recalled Scott Lyon, a top executive at theSmall Business Association of Michigan.

Although he offered traditional small-group health insurance tohis association's employees and members, Lyon liked adding anew option for both: potentially less expensive coveragethrough an association health plan, which doesn't have to meet allthe rules of the Affordable Care Act.

Now, a few months in, “we've got 400 companies and a couple ofthousand workers signed up,” said Lyon last week.

Related: Judge strikes down Trump admin's association healthplans

Nationally, an estimated 30,000 people are in such associationhealth plans, a type of health insurance seeing a nascentresurgence following an initial drop-off after the ACA took effectin 2014.

Most of the new enrollees joined through groups like Lyon's orlocal chambers of commerce, farm bureaus or agriculture-basedcooperatives. Such groups see the plans not only as a way to offerinsurance, but also as an enticement to boost membership.

In the first legal test, however, U.S. District Judge John Bates at the endof March sided with 11 states and the District of Columbiachallenging the law. He invalidated a large chunk of those Junerules, saying the administration issued them as an “end-run aroundthe Affordable Care Act.”

So what now?

Unless the government seeks — which it has yet to do — and isgranted a stay of the judge's order, “plans formed under thevacated sections of the rule are illegal,” said Timothy Jost, anemeritus health law professor from Washington and LeeUniversity.

Still, that won't mean anything for existing plans if the statesor federal regulators choose not to enforce the ruling, Jostsaid.

And that could cause more confusion in the marketplace.

While the states that brought the challenge are expected toenforce the ruling, some other states support broader access toassociation health plans, said Christopher Condeluci, an attorneywho represents several such plans, including the one formed byLyon's group.

“These plans are not an end run around the ACA,” saidCondeluci.

Association health plans already established under theadministration's rules cover “virtually” all the federal law'sessential health benefits, he said, with the exception of dentaland vision care for children.

Local chamber of commerce plans are mainly continuing businessas usual while watching to see if the government will appeal, saidKatie Mahoney, vice president of health policy at the U.S. Chamberof Commerce.

A few, including a plan offered through the Las Vegas chamber,may limit new enrollment for sole proprietors, she said, as thejudge sharply questioned whether they qualified as “employers”under federal laws.

Sole proprietors are generally individuals who own and operatetheir own businesses without any employees.

Bates wrote that, in the regulation, the Department of Labor“stretches the definition of employer” beyond what federal lawallows. The rule was designed to increase access to plans that“avoid the most stringent requirements” of the ACA.

The opinion by Bates, who was appointed by President George W.Bush, is widely expected to be appealed, although the governmenthas not yet done so.

The decision affects one pillar of a broader effort by the Trumpadministration to expand access to less expensive health insurance.Association plans have long been a favorite of Republicans,existing before the ACA. Supporters say they are one way to poolgroups of businesses together to get better premium rates.

Still, some plans faced problems in the past, includingbankruptcy or complaints that they misled consumers by not fullyinforming them about what is covered.

After the ACA took effect, enrollment fell, partly because manysmall businesses were buying new ACA plans and many existingassociation plans had to comply with ACA rules for small-groupcoverage anyway. People who ran their own businesses and had noemployees qualified only for coverage through the ACA's individualmarket.

But the Trump administration in June broadened the definition ofthose eligible to buy insurance through employer-based associationsto include sole proprietors and also made it easier to formassociations to offer coverage.

In addition, the changes allowed more association plans to beclassified as large-employer coverage, which exempts them from someof the ACA's requirements. For example, association plans don'thave to include all 10 of the ACA's “essential” health benefits,such as mental health care and prescription drug coverage.

Also, unlike ACA plans, association insurers can set premiumrates based on an employer's industry, as well as taking intoaccount the age range and gender makeup of their workforce.

In other words, association plans can charge less for companieswith workforces that are generally younger and male in occupationsthat involve mainly desk work than for firms with mostly olderworkers or companies doing riskier work, such as cutting down treesor roofing.

Still, such plans must abide by other ACA provisions, includingaccepting people with preexisting medical conditions.

Critics, including the states that sued, say the new rules andother administration-backed changes will weaken the market for ACAplans by drawing out younger and healthier people. The states alsoargued that the new rules would be costly for them to administer,alleging they would have to devote more resources to preventingconsumer fraud.

In Michigan, Lyon said the association his group formed, calledTranscend, offers coverage to small employers and sole proprietorsthat is just as generous as large-group plans. It is a fullyinsured plan through the state's Blue Cross Blue Shield carrierthat covers a broad array of benefits, except children's dental andvision.

“One thing we don't want to do is sell a bag of air to ourmembers,” said Lyon.

While some new members have reported large savings by enrolling,Lyon said association plans are not necessarily less expensive thansmall-group coverage. It all depends on the demographic andoccupational makeup of the small business, he said.

“Our best estimate was association health plans would be theright solution for 30 to 35% of the small-group world,” said Lyon.“It all has to come together. Age matters. Gender matters. It's sospecific to each company.”

Kaiser HealthNews (KHN) is a national health policy news service. It is aneditorially independent program of the Henry J. Kaiser Family Foundation whichis not affiliated with Kaiser Permanente.

Read more: 

• Association health plans: Hurry up andwait
• AHPs: What small businesses need toknow
• Two opportunities created by association healthplans