The Case for Community-Based Health Insurance: A Path Forward Beyond the ACA

The American healthcare system faces a crisis of affordability and accessibility that neither political party has adequately addressed. While the Affordable Care Act attempted to expand coverage, it has largely failed to control the escalating costs that plague individuals, families, and businesses. Administrative expenses in health insurance reached $131 billion in 2024, up from $72 billion just a decade earlier. These bloated costs, combined with opaque pricing and bewildering complexity, have left millions of Americans either uninsured or underinsured.

There exists an alternative model that could fundamentally reshape how Americans access healthcare: voluntary association health plans organized around geographic communities or shared interests. This approach is not utopian speculation. It has deep American roots, proven track records in specific contexts, and offers concrete advantages over the current system. But it also faces real challenges that must be honestly addressed. This article examines both the promise and the pitfalls of community-based health insurance as a viable path forward.

The Problem: Why the Current Health Insurance System Is Failing

The dysfunction of America's health insurance system is evident in the numbers. Between 2023 and 2024 alone, administrative costs for health plans grew by more than $3 billion, even as plans achieved modest efficiency gains. The administrative expense ratio has stabilized around 11 percent, but this masks the underlying problem: the sheer dollar volume of waste continues to grow.

Research suggests that if commercial insurers adopted best-practice administrative standards, they could reduce costs by approximately $23 billion annually in the commercial market alone. Broader estimates put potential savings from administrative simplification at $375 billion across the entire healthcare system, representing nearly 15 percent of total healthcare spending. These aren't marginal inefficiencies. They represent fundamental structural problems with how American healthcare is financed and delivered.

The ACA's approach, while expanding coverage for many, has not solved the underlying cost drivers. In many markets, consumers face limited choices, often only one or two insurers. Premium increases, though stabilized from the volatility of 2017-2018, remain unaffordable for those who don't qualify for subsidies. Employers continue to drop coverage or shift costs to employees through higher deductibles and copays. The result is a system that satisfies almost no one.

Most problematically, the current system severs the connection between those who pay premiums and those who negotiate with providers. Individuals and small businesses lack the leverage to demand better prices or higher quality. They are price-takers in a market dominated by large insurers whose interests don't always align with their own.

Historical Precedent: The Fraternal Society Model

Community-based health insurance is not a novel concept. For much of American history, fraternal benefit societies and mutual aid organizations provided healthcare coverage to millions. These societies operated on principles of voluntary association, shared risk, and mutual responsibility—concepts that have largely disappeared from contemporary health insurance discourse.

The Ancient Order of United Workmen, founded in 1868, is widely recognized as the first modern American fraternal benefit society. By the early 20th century, these organizations had proliferated extensively. A 1933 presidential research committee estimated that one in three adult American males belonged to a fraternal society by 1920. These weren't social clubs that happened to offer insurance; they were comprehensive mutual aid systems that provided sickness insurance, burial benefits, and medical care.

The scale of these organizations was remarkable. Groups like the Knights of Pythias, the Loyal Order of Moose, and ethnically-focused societies such as the National Benefit Society and the Independent Order of Saint Luke served diverse populations. The International Workers Order, a communist-affiliated organization, grew from 5,000 to 184,000 members between 1930 and 1947, becoming one of the most rapidly growing fraternal organizations in the country. It was notable for its internal diversity, accepting members from more than 15 different nationalities and all races.

Healthcare delivery through these societies was substantial. A 1919 Illinois Health Insurance Commission report found that wage earners and their families made up a majority of total Illinois membership in fraternals. The American Association for Labor Legislation noted that the fraternal societies were practically the only voluntary health insurance agencies in New York City furnishing members with medical care. Services were funded through monthly dues of approximately $2 per year, roughly one day's wages at the time.

What made these systems work was their integration of insurance with community. Members knew each other, held each other accountable, and shared common values. The societies provided not just financial protection but also social support, education in health and wellness, and a sense of mutual obligation. These weren't merely commercial transactions; they were expressions of social solidarity.

The decline of fraternal benefit societies in the mid-20th century wasn't primarily due to their failure as insurance mechanisms. Rather, it was driven by the introduction of employer-sponsored health insurance, encouraged by federal tax policy that exempted employer-provided health benefits from income tax—a subsidy worth approximately $130 billion annually today. Government welfare programs also reduced the unique value proposition these societies offered. The infrastructure didn't disappear entirely. More than 80 fraternal benefit societies still operate in the United States and Canada with over 9 million members and $380 billion of life insurance in force.

The Contemporary Model: Association Health Plans

The modern iteration of community-based insurance takes the form of association health plans. These plans allow small employers or individuals to band together through a common association to purchase health insurance as a large group. The economic logic is straightforward: larger risk pools provide better negotiating leverage with insurers and healthcare providers, reduce per-member administrative costs, and can achieve economies of scale unavailable to small purchasers.

Under regulations finalized by the Department of Labor in 2018, associations could form based on geography or industry, and working owners without employees could participate. For fully-insured plans, their status as large group health plans means they must spend a smaller percentage of premiums on administration and overhead costs than small group and individual health plans—15 percent versus 20 percent. Self-funded plans can realize additional savings by avoiding profit payments to third-party insurance companies, exemption from health insurance premium taxes, and direct control over claims data that allows for targeted cost-reduction strategies.

Farm Bureau health plans represent one successful application of this model. Operating primarily in Tennessee (since 1947), Iowa, Kansas, South Dakota, Texas, Indiana, and most recently Missouri, these plans serve agricultural communities facing unique challenges. Farmers often experience highly variable income year to year, making consistent health insurance coverage difficult to maintain. Nearly 11 percent of household members across America's family farms were uninsured as of 2015, compared to about 9 percent of the general population.

The Missouri Farm Bureau, partnering with UnitedHealthcare, launched health coverage plans in late 2024 that claim to save farmers between 30 and 50 percent compared to other insurance options. These plans offer tiered coverage options with optional dental and vision benefits. Tennessee's Farm Bureau Health Plans, operating for more than 75 years, serves over 200,000 members. The model has demonstrated sustainability over time, providing a proof of concept for geographic and affinity-based pooling.

Early analysis of association health plans launched under the 2018 rule found 34 new plans offering coverage. A study of these plans revealed their central value proposition: improved savings through increased scale of plan participants, which provides better negotiation leverage with insurers and healthcare providers. Some associations adopted a philanthropic orientation or mission to promote specific communities, combining social purpose with lower-cost health insurance.

The regulatory landscape has been contested. The Biden administration rescinded key provisions of the 2018 rule in 2024, citing concerns about market fragmentation and consumer protection. However, with the return of President Trump's administration in January 2025 and Republican control of both houses of Congress, restoration of expanded access to association health plans appears likely. A House committee passed a resolution in September 2024 disapproving the rescission, criticizing it for reducing AHP access and flexibility.

The Strongest Arguments for Association-Based Insurance

Proponents of association health plans make several compelling arguments that deserve serious consideration:

Leveraging Collective Bargaining Power

The fundamental economic advantage of association plans is straightforward: numbers create leverage. When hundreds or thousands of individuals or small businesses pool together, they can negotiate as equals with large hospital systems and insurance carriers. A geographic association representing workers in Baton Rouge, Louisiana, could contract directly with local hospitals for agreed-upon fee schedules, eliminating surprise billing and ensuring price transparency. The association's size gives it credibility and staying power in negotiations.

This isn't theoretical. Large employer groups have long enjoyed these advantages. The question is why this benefit should be restricted to those who happen to work for large companies. Voluntary associations can achieve the same scale without requiring employment relationships.

Administrative Simplification and Cost Reduction

The current multi-payer system creates enormous administrative waste. Providers must navigate different credentialing requirements, prior authorization processes, billing systems, and payment rules for dozens or hundreds of different plans. Each layer of complexity adds cost without adding value to patient care.

Association plans, particularly those operating in defined geographic areas, can standardize these processes. A single set of credentialing requirements, one prior authorization system, and uniform billing procedures would dramatically reduce the time and cost physicians spend on administrative tasks. One analysis found that conducting prior authorization manually costs $13.40 per transaction, while a fully electronic system could reduce this to under $7.19, with potential annual savings of $417 million industry-wide.

When 69 percent of initially denied claims are ultimately overturned, at a cost of $40 to $50 per claim, the system is clearly broken. Association plans with direct provider relationships and agreed-upon coverage criteria could largely eliminate this waste.

Flexibility and Consumer Choice

The ACA's one-size-fits-all approach to benefit mandates makes coverage more expensive than many people need or want. Association plans operating as large group plans have more flexibility to design benefits around the actual needs of their members. A writers' association might prioritize coverage for carpal tunnel syndrome and vision care. A construction workers' association might emphasize orthopedic and rehabilitation services.

This flexibility doesn't mean inadequate coverage. It means coverage tailored to the predictable health needs of specific populations. When an association's members share occupational risks or demographic characteristics, customized benefit design becomes more efficient and cost-effective.

Local Accountability and Community Connection

Geographic associations reconnect insurance with community in ways that large commercial insurers cannot replicate. When your insurance pool consists of your neighbors, there's social accountability for costs and outcomes. A Baton Rouge residents' health plan would have every incentive to support local public health initiatives, promote preventive care, and address the specific health challenges facing the community.

This local connection also facilitates better care coordination. Providers, patients, and the association all operate within the same community, making it easier to track outcomes, identify problems, and implement solutions. The social capital inherent in community relationships can reduce fraud, encourage healthy behaviors, and create informal support networks that improve health outcomes independent of formal medical care.

Proven Sustainability

Unlike speculative healthcare reforms, association health plans have a track record. Farm Bureau plans have operated successfully for decades. More than 80 fraternal benefit societies continue to function today. These aren't failed experiments; they're enduring institutions that have weathered multiple healthcare policy shifts.

Tennessee's Farm Bureau Health Plans, operating since 1947, demonstrate that the model can achieve long-term financial stability while serving a vulnerable population. The organization has survived and adapted through the introduction of Medicare, Medicaid, ERISA, and the ACA. This resilience suggests fundamental economic viability.

The Serious Challenges That Cannot Be Ignored

Intellectual honesty requires acknowledging that association health plans face real problems. Critics raise legitimate concerns that proponents must address if this model is to succeed at scale.

The Adverse Selection Problem

Adverse selection occurs when people with greater health needs disproportionately enroll in certain plans, driving up costs and potentially creating a "death spiral" of rising premiums and declining healthy enrollment. This is not a theoretical concern. It has destroyed insurance markets in practice.

The challenge for association plans is stark: if they attract healthier populations through lower premiums made possible by more limited benefits or medical underwriting, they fragment the insurance market. Sicker, more expensive patients concentrate in ACA-compliant plans, driving up premiums in those plans and forcing more healthy people to seek alternatives. The cycle accelerates until the compliant market becomes unaffordable or collapses entirely.

Research on adverse selection in ACA markets found that each $1 increase in monthly premiums causes a $0.85 to $0.95 increase in annual medical expenditures of the insured population, as healthier individuals drop coverage. Moral hazard accounts for roughly 53 percent of spending differences between generous and less generous plans, with adverse selection accounting for the remaining 47 percent. Both phenomena are real and significant.

Farm Bureau plans, which can use medical underwriting and reject applicants with certain pre-existing conditions, face this critique directly. If these plans skim off healthy farmers while pushing those with chronic conditions toward ACA markets, they aren't solving the affordability problem—they're exporting it.

The actuarial profession has warned about this dynamic. If association plans operate under different rules than other small group and individual market plans, market fragmentation becomes inevitable. Lower-cost groups migrate to associations, higher-cost groups remain in traditional plans, and adverse selection drives up premiums in the latter. State-based markets could face viability challenges as a result.

Catastrophic Risk and Insolvency

Self-funded association plans assume direct responsibility for paying medical claims. This creates insolvency risk, particularly if the association fails to maintain adequate cash reserves or purchase sufficient stop-loss insurance to cover catastrophic expenses. The history of Multiple Employer Welfare Arrangements offers a cautionary tale. Self-funded MEWAs initially appeared exempt from state regulatory oversight under ERISA. Multiple MEWA bankruptcies resulted, leaving participants without coverage and limited recourse. Eventually, federal clarification confirmed that states do have regulatory authority over MEWAs, but the damage had been done.

Association plans could suffer the same fate if regulatory authority is unclear or if associations underestimate their liability. A single high-cost case—a premature birth requiring extended neonatal intensive care, a major trauma, or a catastrophic cancer diagnosis—can cost hundreds of thousands to millions of dollars. If an association lacks the financial reserves or reinsurance to cover such events, it fails, and members lose coverage precisely when they need it most.

Critics point out that self-funded plans eliminate the buffer that insurance companies provide. While this removes insurance company profit from the equation, it also removes the financial stability that comes from large, diversified risk pools and regulatory capital requirements. Any self-funded association would need substantial surplus requirements, similar to the minimum health risk-based capital standards developed by the National Association of Insurance Commissioners.

The "Junk Insurance" Critique

Opponents of association plans argue that any coverage less comprehensive than ACA-compliant plans amounts to "junk insurance" that will leave people vulnerable to medical bankruptcy. The critique focuses particularly on aspects like waiting periods for pre-existing conditions, lifetime or annual benefit caps, and the ability to deny coverage based on health status.

Farm Bureau plans have been specifically targeted with this criticism. A Government Accountability Office report examining these plans found that one plan had waiting periods before members could receive benefits for maternity care and pre-existing conditions, while another had per-incident, annual, or lifetime benefit maximums. Both plans used individual underwriting, meaning they could reject people with certain pre-existing conditions and charge varying premiums based on health and demographic information. These practices are all prohibited in ACA-compliant plans.

Consumer advocates like Sarah Lueck of the Center on Budget and Policy Priorities describe farm bureau plans as going back in time to when consumers had far fewer protections, with more opportunities for things to go wrong. The criticism isn't entirely unfair. Pre-ACA individual insurance markets did leave people with chronic conditions unable to obtain affordable coverage, and medical bankruptcy was a significant problem.

However, the counter-argument deserves consideration: nearly 100 million Americans receive coverage through large group plans that have more flexibility than ACA individual market plans, and these plans aren't typically characterized as junk insurance.

The question is whether flexibility in benefit design is inherently bad, or whether it depends on how that flexibility is used and what protections remain in place.

Regulatory Complexity and Unclear Authority

The governance of association health plans remains unsettled. Should they be regulated primarily by state insurance departments, the Department of Labor under ERISA, or some combination? What happens when an association operates across multiple states? If an association can establish itself in a state with minimal requirements and then offer coverage in more heavily regulated states, does this create a race to the bottom?

The actuarial community has emphasized that a key to sustainability of health insurance markets is that health plans competing to enroll the same participants must operate under the same rules. When different rules apply to associations versus traditional insurers, market distortions inevitably follow. Without clear, uniform regulatory authority, associations could face the same regulatory confusion that plagued MEWAs, with federal and state agencies each claiming or disclaiming jurisdiction while participants remain unprotected.

Limited Scope and Accessibility

Not all Americans fit neatly into associations. Rural residents might not have enough neighbors to form a viable pool. Urban workers in diverse occupations might lack a natural association to join. The self-employed and gig economy workers, while theoretically ideal candidates for association coverage, might struggle to find or form appropriate groups.

Geographic associations sound appealing, but what defines "geographic"? Is Baton Rouge too small? Is Louisiana too large? Finding the right scale that balances community connection with risk pool adequacy is genuinely difficult. Too small, and the pool lacks actuarial credibility. Too large, and it loses the community accountability that makes the model attractive.

Moreover, if associations become vehicles primarily for the healthy and employed to obtain cheaper coverage, they do nothing to help those most in need: the chronically ill, the elderly (before Medicare eligibility), and those with complex medical conditions. The poorest Americans might be unable to afford even reduced premiums, and those with pre-existing conditions might be rejected entirely.

Design Principles for Success

If association-based health insurance is to succeed as more than a niche alternative, it must be structured thoughtfully to maximize benefits while mitigating risks. Several design principles emerge from examining both the promise and the problems:

Universal Participation Within Geographic Pools

Geographic associations should be open to all residents of the defined area, regardless of health status, during annual open enrollment periods. This approach maintains the risk pool diversity necessary to prevent adverse selection while still capturing the community connection and local leverage advantages. Medical underwriting, if used at all, should be limited and transparent, with clear disclosures about coverage limitations.

Special enrollment periods should be carefully regulated to prevent gaming the system, but legitimate qualifying life events must allow mid-year entry. The goal is to balance accessibility with actuarial soundness.

Mandatory Stop-Loss Insurance and Reserve Requirements

Self-funded associations must be required to maintain both adequate cash reserves and comprehensive stop-loss insurance. The specific amounts should be determined actuarially based on the size and demographic composition of the association, but regulators must enforce these requirements strictly. The temptation to underfund reserves to keep premiums low must be resisted.

Furthermore, associations should be required to secure reinsurance for catastrophic claims above a certain threshold. This protects both the association and its members from insolvency due to unexpectedly high-cost cases.

Standardized Core Benefits with Limited Flexibility

Associations should be required to cover a standardized core set of benefits that includes hospitalization, physician services, emergency care, preventive services, and prescription drugs. Within this framework, flexibility can be allowed for supplemental benefits, cost-sharing structures, and provider network configurations.

This approach prevents a race to the bottom in benefit design while still allowing associations to tailor coverage to their members' specific needs. A construction workers' association could add enhanced orthopedic coverage. A writers' association could emphasize mental health and vision services. But the core protections remain universal.

Clear and Harmonized Regulatory Authority

Federal legislation should clarify that association health plans are subject to both state insurance department oversight and federal ERISA requirements, with clear delineation of which body regulates what aspects. States should retain authority over solvency, market conduct, and consumer protection. Federal oversight should focus on preventing fraud, ensuring interstate consistency, and protecting plan participants' rights under ERISA.

Associations operating across multiple states should be subject to the most stringent requirements of any state in which they operate, preventing regulatory arbitrage. This prevents a race to the bottom while still allowing interstate operations.

Transparent Pricing and Simplified Administration

Associations should be required to publish standardized fee schedules negotiated with providers. Members should know in advance what services cost and what they'll pay out of pocket. Surprise billing should be prohibited entirely within association networks.

Administrative processes—credentialing, prior authorization, claims submission—should be standardized and largely automated. The goal should be to reduce physician administrative time by at least 50 percent compared to current multi-payer systems, freeing clinicians to focus on patient care.

Integration with Public Programs

Association plans should not exist in isolation from Medicare, Medicaid, and ACA subsidies. Individuals eligible for Medicaid should be enrolled in Medicaid, not association plans. Those eligible for premium tax credits should be able to use those credits toward association plan premiums, ensuring that associations compete on equal footing with ACA marketplace plans.

Medicare beneficiaries should be able to join geographic associations for supplemental coverage, with Medicare as the primary payer. This integration prevents associations from cherry-picking the healthiest populations while leaving public programs with the sickest and most expensive patients.

Mandatory Risk Adjustment Across All Markets

A sophisticated risk adjustment mechanism must operate across all insurance markets in a state or region, including association plans, ACA-compliant plans, and any remaining off-exchange individual coverage. Plans that enroll healthier-than-average populations should pay into the risk adjustment pool. Plans with sicker populations should receive payments.

While risk adjustment is imperfect and tends to over-predict costs for the healthy while under-predicting costs for the sick, it remains essential for market stability. The alternative—allowing plans to profit from favorable selection—guarantees market segmentation and eventual collapse of plans serving high-need populations.

Working Within Current Frameworks Versus Calling for Reform

Association health plans exist in a policy gray area. They can operate within current regulatory frameworks to some degree, particularly at the state level. But realizing their full potential likely requires federal legislative reform to clarify authority, harmonize regulations across states, and ensure market stability.

Within current frameworks, states can authorize association-type arrangements through legislation, as Tennessee, Iowa, Kansas, South Dakota, Texas, Indiana, and Missouri have done. These state-level initiatives provide valuable real-world data on what works and what doesn't. They allow for experimentation and iteration without requiring national policy consensus.

However, truly transformative change requires federal action. Congress should consider legislation that:

1. Clarifies that association health plans are legitimate alternatives to individual and small group coverage, subject to clear regulatory standards

2. Permits but does not require states to authorize geographic and affinity-based associations

3. Establishes baseline consumer protections that all associations must meet, including core benefits, open enrollment periods, and solvency requirements

4. Creates a federal risk adjustment mechanism that spans association plans and traditional markets

5. Allows premium tax credits to be used for association plan coverage

6. Provides technical assistance and planning grants to communities that want to establish geographic health associations

This approach combines federal standards with state flexibility, market competition with consumer protection, and innovation with stability. It acknowledges both the promise of association plans and the real dangers they pose if poorly designed or inadequately regulated.

The Path Forward

American healthcare financing stands at a crossroads. The status quo is unsustainable. Administrative costs continue to climb. Premiums remain unaffordable for those without subsidies or employer coverage. The complexity of the system frustrates patients and providers alike.

Community-based health insurance through voluntary associations offers a genuine alternative. It isn't a panacea, and it won't work for everyone. But for millions of Americans—small business owners, the self-employed, workers in industries without robust employer coverage, and residents of communities poorly served by current insurance markets—it could provide more affordable, more accountable, and more responsive coverage than they have today.

The model has historical precedent in fraternal societies that served millions of Americans effectively for decades. It has contemporary examples in Farm Bureau plans that have operated successfully for up to 75 years. It has theoretical support in the economic logic of collective bargaining and risk pooling.

But success requires honest acknowledgment of the challenges. Adverse selection is real and destructive. Insolvency risk is genuine. Without proper regulation and safeguards, association plans could fragment markets, leaving the sickest and most vulnerable with unaffordable or unavailable coverage.

The solution is not to reject the association model but to implement it thoughtfully, with robust protections against its potential pitfalls. Universal enrollment within geographic pools, mandatory reserves and reinsurance, standardized core benefits, clear regulatory authority, and comprehensive risk adjustment can mitigate the dangers while preserving the advantages.

Policymakers must resist both extremes. Neither blind enthusiasm for associations as a free-market solution nor reflexive opposition as a threat to the ACA serves the public interest. What's needed is pragmatic experimentation, careful evaluation, and willingness to adjust based on evidence.

States should be encouraged to authorize and regulate association plans, with federal oversight to prevent a race to the bottom. Federal premium tax credits should be available for qualifying association coverage, ensuring competition on equal terms. Risk adjustment mechanisms should span all markets to prevent segmentation.

Most importantly, the conversation about health insurance must shift from political point-scoring to practical problem-solving. Millions of Americans need affordable coverage that provides real protection against medical financial risk. Association health plans, properly structured and regulated, can be part of the solution.

The question isn't whether community-based insurance is perfect. It isn't. The question is whether it can work better than what we have now for a significant portion of the population. The evidence suggests it can, if we have the wisdom to learn from history and the courage to implement necessary safeguards.

American healthcare won't be fixed by any single policy or program. But voluntary associations, connecting neighbors and colleagues in shared risk pools with aligned incentives and local accountability, deserve a meaningful place in the ecosystem of coverage options. Done right, they could help millions of Americans access the affordable, quality healthcare they desperately need.

Lynn Matthews is a Louisiana-based writer and former general dentist who practiced for 20 years, with extensive experience treating HIV/AIDS patients and uninsured populations. She developed his healthcare reform proposals before the Affordable Care Act was enacted, drawing on firsthand knowledge of how insurance complexity and administrative burden affect both providers and patients. Her writing focuses on practical, evidence-based healthcare policy solutions.