Working around small businesses at the U.S. Small Business Administration over a four-state area, one cannot ignore that one of the major health care problems we face is that more than 41 million Americans do not have health insurance. Also, a vast majority (85 percent) of the working uninsured are small-business owners, members of their families and their employees, according to U.S. Census estimates.
If you’re a small-business owner, you have probably heard the term “AHP.” But if not, AHP is the acronym for Association Health Plans, and they are the subject of congressional legislation introduced last year. The legislation would allow AHPs to be formed so that small businesses could band together to buy health insurance across state lines. It is estimated this move would reduce insurance rates for small business owners and their employees by 15 percent to 30 percent.
President Bush called for the advancement of AHP legislation in his Feb. 2 State of the Union address as one solution to the health care crisis that so many small-business owners face. The theory behind AHPs is that they will reduce health care policy costs if small businesses can use their power in numbers to negotiate with health insurance companies.
Legislation has been introduced in the U.S. Senate (S. 545) and the House of Representatives has passed a bill (HR 660) that would allow small businesses to pool their resources into AHPs. These entities would be exempted from all state standards but would be federally regulated by the U.S. Department of Labor. DOL has firsthand experience in regulating group health plans, as well as combating insurance fraud.
DOL administers Employee Retirement Income Security Act protections covering almost 2.5 million private, job-based health plans and 131 million workers, retirees and their families. Of that number, 275,000 are self-insured and subject to exclusive DOL oversight. Additionally, DOL exclusively oversees self-insured multi-employer plans (established and operated jointly by a union and two or more employees).
The proposed legislation would exempt qualified AHPs from almost all state regulation, allowing them to design their own benefits and have broad discretion in the
setting of premiums and premium variation.
There are AHPs that exist today, but those are subject to individual state rules that can hamper their ability to enter the markets in states where regulations are stringent and thus reduce the numbers of enrollees needed to strike a true bargain. In addition, it costs an insurance company money to file in every state and vary policies according to each state’s individual rules, driving up the price of a policy even more. The exemption from state insurance laws is a sticking point for many governors and insurance commissioners. Their power would be reduced. It should be noted, however, that among the 52 sets of laws governing insurance, there is wide, wide variance.
Currently, the rates that can be charged in the small group market are regulated by the states. Most states have “rate bands” of varying degrees that define the window in which rates can fluctuate and on what basis they can fluctuate. Other states have a form of community rating in which rates are essentially the same for all participants.
Fully insured AHPs would only be subject to the rate bands in their state of domicile and would use those rules in all other states in which they operate (some states have very liberal rating rules; Michigan, for instance, essentially has no rating rules).
Still, under the AHP proposal, associations would be required to accept all members and abide by the Health Insurance Portability and Accountability Act of 1996. Further, fully insured plans would be required to abide by the rating rules in their state of domicile, and self-insured plans would be precluded from setting rates based on health-related factors.
These are solid protections, but there is also a concern about risk selection. Today, if an AHP were to sell into a community-rated state while using a broader rate band from another state, the consumer choices would be stark.
The fear is that younger, healthier groups of people would band together, leaving less healthy groups of people out in the cold – that is, to pay much higher insurance rates. Younger groups may depart of state-regulated pools and further drive up the cost of health insurance rates that taxpayers subsidize.
It would seem, however, that a consensus could be reached to prevent some of this shift through amendments to the bills presented and that a working AHP bill could be produced.
President Bush has asked for just that – for members of Congress to put their heads together to figure out a way AHPs might be more acceptable to the states so that many who are uninsured now can be insured in the future. The goal is not the issue. As AHP legislation is debated, we will seek a consensus on the path to the common goal.
Sam Jones is Region VII SBA administrator.
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