In his State of the Union address, President Bush pushed for federal legislation to spur the use of association health plans to make health insurance more affordable for small businesses. The president and other proponents believe that granting these plans special status under federal law would lower premiums, expand coverage to the uninsured and give small businesses more bargaining leverage with insurers.
Legislation being considered in Congress, however, does little to address the underlying, systemic reasons that health insurance premiums have been rising so rapidly. And much of the savings achieved by these plans would result from attracting more favorable risks and stripping away consumer protections.
The legislation-passed again by the House last year and now being considered by the Senate-would authorize business associations ranging from local chambers of commerce to national lobbying organizations to sell both fully insured and self-insured coverage to member employers (of all sizes) and individuals. The bills would authorize the U.S. Labor Department to license association health plans, or AHPs, and would pre-empt states' ability to apply their insurance standards and consumer protection laws to these plans.
Some cost savings of AHPs would come from exempting them from state insurance laws, including those that ensure that insurance companies are financially stable enough to pay claims, provide access to care for people with medical conditions and guarantee minimum benefits. Yes, such requirements add costs to coverage, but imagine an insurance plan that lacks access to emergency services, well-baby care, care for handicapped adults and children, cancer screening and an independent review of benefit denial decisions.
Another cost savings would come from AHPs' ability to cherry-pick the market by designing and pricing coverage to attract businesses with young and healthy people. A recent report we wrote for the California HealthCare Foundation concludes that in addition to a loss of consumer protections, this legislation would significantly disrupt state-regulated small-group insurance markets, in which small businesses that need comprehensive coverage would be more likely to remain. When healthy people leave the state pool, coverage will become more expensive for everyone left. An Urban Institute study, also for the California HealthCare Foundation, estimates that prices would increase by approximately 5% in the rest of the state's small-group market as a result of AHPs (that's in addition to premium increases from rising healthcare costs). The study also concludes that a federal AHP law would not have any effect on the level of the uninsured.
Another impact of cheaper AHP coverage for some might be fewer options for many. Because for-profit insurance companies cannot stay in business insuring only the sick, there may be fewer choices for small businesses and people in the selection of companies and products. In our study we conclude that managed-care companies and products, subject to extensive state standards, would have an especially hard time competing against bare-bones AHP products.
Under the federal legislation, many consumers would face greater financial exposure if an AHP goes bankrupt. Over the past three years, many AHPs have done just that. In four documented cases, AHP insolvencies have left more than 66,000 workers and their families and thousands of participating employers on the hook for $48 million in medical bills that should have been covered.
The federal legislation would make things worse by replacing state solvency standards with less stringent federal standards and regulation. Another cause for concern is that the federal Labor Department, which would regulate AHPs, has no experience in regulating the solvency of health plans. In the long run, if many more AHPs became insolvent-and they have a long history of financial instability-American taxpayers might be saddled with a large-scale financial cleanup similar to the savings-and-loan debacle of the 1980s.
Finally, the AHP legislation could increase the likelihood of health insurance scams, which are already on the rise. The legislation broadly pre-empts state authority, replacing it with oversight by the Labor Department. In a recent Commonwealth Fund study looking at four phony health plans primarily sold through associations, researchers estimated that approximately 100,000 people were left with $85 million in uncovered medical bills from 2000 to 2003.
Recognizing this as a national problem, several senators have asked the General Accounting Office to gather state-by-state data on the recent nationwide scams. In a previous report documenting scams from 1988 to 1991, the GAO found that approximately 400,000 people were left with $123 million in unpaid medical bills. What's needed from Washington is additional resources to find and shut down operators that defraud thousands of employers and American workers, not to pre-empt state efforts at policing these activities.
Despite its salutary objectives, it is highly unlikely that AHP legislation would be able to increase the overall number of insured, stem runaway healthcare cost inflation, and help all small businesses-including those that happen to have less-than-healthy employees-find affordable and stable sources of coverage. Although it is clear that small businesses face special problems in finding affordable health insurance, AHP legislation does not provide long-term solutions to those problems.
Many small employers and their employees simply lack the financial resources to buy coverage. In order to expand coverage it is likely that policymakers will have to do more than merely rearrange the regulatory "deck chairs" on what appears to be the slowly sinking ship of small-group insurance coverage. Instead, policymakers arguably might have to provide some employers and employees, especially those with low incomes, with financial assistance and access to an affordable product that would provide a reasonable level of coverage if a person actually got sick. The AHP legislation would do neither.
Mila Kofman is an assistant research professor at Georgetown University's Health Policy Institute and Karl Polzer is an independent health policy analyst and researcher based in Washington.