Proponents of legislation snaking through Congress say the Small Business Health Fairness Act of 2005 would open up competition in the small group market, making healthcare insurance more affordable.
The House version (HR 525) was introduced February 2, and the Senate version (SB 406) was introduced February 17, to provide for the establishment and governance of association health plans (AHPs). In 2003, the House passed a similar bill, but the Senate didn’t vote on it. In 2004, a similar bill stalled in the Senate. If both chambers pass either active bill, President George W. Bush has vowed to approve it.
“It’s time small business owners, their families and employees are given an equal opportunity to band together across state lines and pool their purchasing power,” said Ron Aldridge, state director of the National Federation of Independent Business (NFIB). “If passed, this federal legislation would finally level the playing field and give small businesses the same advantages currently enjoyed by the Fortune 500 companies, unions and government employees.”
According to the Employee Benefits Research Institute, small firms with fewer than 100 employees employ 63% of the 27 million uninsured working people. Primarily because of the high premium costs, only 41% of small businesses with fewer than 10 employees offer health benefits, compared with 99% of large firms. CONSAD Research Corporation has estimated that as many as 8.5 million uninsured employees would receive coverage if Small Business Health Plans were available.
“Realty firms are the prototypical small business that could benefit from the creation of a new source of insurance coverage,” said Scott Brunner, CEO of the 5,500-member Mississippi Association of Realtors, the state’s largest trade association. “Over 28% of all realtors nationwide are uninsured and an additional 4% will soon lose what coverage they have.”
AHP legislation, supported by nearly 200 organizations representing more than 12 million employers and 80 million workers, would allow small business owners to cross state lines through their trade or professional association membership to purchase health coverage for their employees and families.
Now, AHPs are regulated by individual states. Corporate and union groups that purchase health insurance at discount rates are not. Because the Employee Retirement Income Security Act of 1974 (ERISA) pre-empted state regulations for the latter groups, they have prospered.
“I’ve never heard one person complain about a union plan,” said NFIB spokesperson Amanda Austin. “In fact, I’ve heard some say they love it so much they won’t leave their job because of the healthcare plan. Unions offer it because their members want it.”
Because AHPs were forced to adhere to varied state regulations, administrative work greatly increased. The Small Business Administration reported in 2003 that administrative costs for insurers of small health plans accounted for up to 37% of the cost of claims, compared to only 5% to 11% for large company self-insured plans. Partly as a result, AHPs have dwindled in number from more than 1,000 in 1990 to fewer than 200.
Point of contention
Organizations that monopolize the small group market oppose the legislation, primarily because it would increase competition. Duane O’Neill, president of the MetroJackson Chamber of Commerce, which opposes the legislation, insisted that the chamber’s aversion to the bill has nothing to do with its Chamber Plus program, which offers health insurance and other benefits to small business in the metropolitan area.
“It’s not competition to us because an existing program like ours could be a designated AHP, and it would probably be good business if we expanded it regionally,” he said, “but I don’t believe we’d cover as many lives in the long run if we stay with rules and regulations necessary to make the program stable.”
The MetroJackson Chamber’s opposition has created friction with the U.S. Chamber of Commerce, which supports the legislation.
“It causes a little tension, of course, because we’re a member of the U.S. Chamber, but it’s totally separate from local chambers,” said O’Neill.
O’Neill also expressed concern about the legislation’s “lack of solvency requirements for AHPs. I’ve got to be convinced that’s in there.”
Austin called the solvency issue “a bogus argument.”
“There are tough new solvency standards written into AHP legislation to protect consumers’ rights and to make sure benefits are paid,” she said. “AHPs must have an indemnified back-up plan to prevent unpaid claims, undergo quarterly independent actuarial certification for financial soundness and maintain surplus reserves of $2 million in addition to normal claims reserves.”
Concerns about AHPs “cherry-picking” low-risk groups or individuals are unfounded because they must abide by all HIPAA rules and cannot exclude high-risk groups or individuals, added Austin.
According to the NFIB, AHPs could save small businesses up to 30%, and help them attract and retain qualified employees. The Kaiser Family Foundation reported that the average annual family healthcare policy cost $9,950 per employee in 2004.
“This concept is not new,” said Aldridge. “Small retail appliance dealers (such as Con Maloney and Electric City) have banded together for several years for purchasing power to compete with the huge mega-chains.”
The National Association of Insurance Commissioners has endorsed strengthening the current law to discourage insurance fraud, saying that AHP legislation would not hinder the efforts of state insurance commissioners to dissuade insurance fraud. Instead, it would enhance states’ rights by calling for new criminal penalties, higher solvency standards and more stringent enforcement of regulations.
“If anything can help small business afford healthcare, I’m for it, provided there is some protection down the road for its members,” said state insurance commissioner George Dale.
The question of governance has been a sticking point, Dale pointed out.
“When ERISA plans were placed under the governance of the U.S. Department of Labor, it didn’t work well,” he said. “For a long time, consumers would call the state insurance departments because they couldn’t get the same person on the line twice with the DOL. It was mass confusion.”
O’Neill added, “The ability to handle this awesome task has not even been addressed. There’s got to be a compromise in the middle for more people to be covered in a systematic way to make sure the whole program doesn’t go bonkers.”
Contact MBJ contributing writer Lynne W. Jeter at firstname.lastname@example.org.