Employee Benefits Bulletin, November 2002
Association Health Plans
What Are The Issues?
Political Background
Republicans recaptured control of the U.S. Senate in the mid-term elections on November 5th and increased their majority in the House. The shift could have a major impact on many health issues, including potential legislative solutions to decrease number (more than 40 million) of Americans without health insurance. Among the initiatives for reducing the number of uninsured the new Congress is likely to consider are association health plans (“AHPs”). AHPs would allow small businesses to band together in insurance buying pools in an attempt to utilize economies of scale to make health insurance more affordable. The House has passed bills to create AHPs several times in recent years (most recently in the Small Business Health Fairness Act of 2001— H.R. 1774—and in an amendment to the House version of the Patients’ Bill of Rights—H.R. 2315), but the Senate has never followed suit. However, due to the combination of the shift of power in the Senate, the fact that two new senators (Elizabeth Dole (R—N.C.) and James Talent (R—Mo.)) campaigned on the creation of AHPs, and the push of the Bush administration (which has been advocating AHPs in recent months), the new 108th Congress may well analyze the AHP situation again. In anticipation of AHPs soon becoming a hot topic, this Employee Benefits Bulletin article is intended to serve as a short introduction to AHPs and the complicated and controversial issues surrounding them.
AHP Issues
As mentioned previously, AHPs are designed to help reduce the number of uninsured Americans by facilitating better health insurance access through small employers. Statistics show that employees of small businesses are most likely to be uninsured. Only 31% of businesses with fewer than 25 employees offered health insurance to their employees in 2001. AHPs are designed to provide small businesses the opportunity to band together through trade and professional associations to purchase affordable health benefits.
Many smaller businesses have difficulty affording health coverage because they do not have enough employees to create the diverse risk pool that helps larger companies or labor unions cut costs. By joining together, small employers could enjoy greater bargaining power, economies of scale, and administrative efficiencies. Sounds simple enough. However, to fully understand the issues surrounding potential AHP legislation, one must briefly step into the complicated world of state insurance regulation.
There are hundreds of state insurance regulations in each state, and each state designs its own regulations. Thus, although general premises are similar or the same in most states, 50 conflicting sets of state insurance mandates exist. Obviously, it would be difficult to concurrently abide by the rules of more than one state. Yet, this is what an association offering health insurance to its members in different states must do. Supporters of AHPs claim these groups cannot maximize their impact on assisting small businesses with health care unless they are exempted from the state regulations and subject only to uniform federal control.
The current House-passed legislation (although not likely to become law, this legislation will probably serve as the basis for future AHP legislation to be addressed by the next Congress) would exempt AHPs from state regulation and appoint the Department of Labor (“DOL”) to oversee the plans instead. AHPs would also be allowed to self-insure health coverage, subjecting them only to federal regulation (through ERISA). It is this change in oversight from state to federal that makes AHPs so controversial.
Critics of AHPs (including a recent Wall Street Journal article) say the special rules for AHPs could actually increase the cost of health coverage for many small businesses. If AHP coverage offers minimal benefits in an attempt to lure healthier groups and maintain lower costs, older and sicker groups will tend to filter out of the association (or never join it) in order to remain in the state-regulated insurance market which mandates certain levels and methods of coverage. This potential separation could eventually lead to a sicker risk pool in the non-AHP small group market, thereby raising health insurance rates even higher for these businesses. Critics also claim that the Department of Labor is not equipped to regulate the small groups and rampant insurance fraud will result. (Businesses joining together for health insurance purposes is not a new thing—organizations called Multiple Employer Welfare Arrangements (“MEWAs”), which do just that, have existed for quite some ti me. Originally, ERISA exempted MEWAs from state insurance regulation. However, widespread problems in the early 1980’s caused Congress to reallocate oversight of MEWAs back to the states in 1982.)
Supporters of AHPs point out that existing legislation provides for a $5,000 AHP filing fee that would help fund more extensive DOL enforcement. Those in favor of AHPs also argue that legislation could include stringent anti-fraud measures to prevent fraud. For example, the House-passed legislation limits eligible AHP sponsors to bona fide trade or industry associations that have been in operation for three years or more for purposes other than marketing insurance. It remains to be seen whether these types of provisions are sufficient to prevent the circumstances that the AHP critics fear. However, one thing is certain—next year’s Congressional session promises lively debate on this and other health care fronts that have been stalled in the current 107th Congress due to this year’s elections.
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