Not All See Association Health Plans As Cure for Small Business

February 23, 2004

When small business owners talk about insurance, they usually complain about health insurance costs.

In his State of the Union address, President Bush gave some hope to small business owners struggling with the cost of health insurance. Bush called on Congress to approve creation of association health plans, or AHPs, which allow small companies to band together and buy insurance at cheaper rates than they are currently able to get on their own.

Small business advocates have been lobbying for years for AHPs; last year, the House approved an AHP bill but the measure died in the Senate. Small business lobbyists are hopeful that with Bush’s endorsement, AHPs will make it through Congress this year despite the opposition of some within the health insurance industry and even some in the small business lobby.

One of the most vocal pro-AHP groups is the Associated Builders and Contractors, which represents 23,000 construction firms, most of them small.

“The nature of the construction industry pretty much requires it (health insurance) to be provided,” said Katie Strong, the Washington-based group’s director of legislative affairs. But, she said of small construction firms, “for them to be out there in the current health care market, they’re getting killed.”

The problem is that small companies, unable to achieve the same economies of scale as businesses with thousands of employees, are being hit by double-digit premium increases. According to the National Federation of Independent Business, which is lobbying for the creation of AHPs, 60 percent of the more than 40 million uninsured Americans work for small businesses.

But AHPs are controversial in some quarters. The proposal permitting the nationwide formation of AHPs would allow insurers to bypass state coverage requirements and offer one policy across the country. Currently, a health insurance policy must provide whatever coverage is mandated in the state where the insurance is sold. Different states have different coverage requirements, so a company in New York, for example, might not be able to buy a policy written in New Hampshire. With those state barriers removed, more companies could buy into the same policy, lowering the costs for all.

That same point is part of the reason not all business advocates believe AHPs are the solution. Todd McCracken, president of the Washington-based National Small Business Association, worries that AHPs may do more harm than good. “They (the AHPs) may choose not to include some more expensive coverage,” McCracken said, adding that sicker or older workers could be forced to look elsewhere for coverage. Or a company wanting to help its workers would be forced to buy more expensive coverage from a different provider, defeating the purpose of the AHPs.

The Blue Cross Blue Shield Association is among the forces aligned against AHPs. “Waiving basic consumer protection rules for these types of insurers would be a disaster and would result in higher premiums for groups with older workers, uncontrolled and frequent premium increases for groups with sicker workers, and fraud,” warned BCBSA President and CEO Scott P. Serota following the State of the Union telecast.

The American Association of Health Plans also thinks AHPs are unfair to existing health plans that play by the rules. According to AAHP President Karen Ignagni, “overlapping and duplicative state regulations are a major barrier to affordable health coverage and steps must be taken to apply more uniformity to the rules for entities offering health care coverage. But we strongly disagree with an approach that would leave this maze of regulations in place for health plans and the consumers who depend on them, while applying special rules for a particular segment of the market.”

Contractors points to its own experience operating state-by-state AHPs as proof that they help small businesses save on health costs. Joe Rossmann, the group’s vice president, said his organization ran AHPs for 40 years, until 2000. He said that of each dollar contractors and builders spent on insurance from the plans, between 13.5 and 16 cents went to administrative fees and profits. For small companies buying directly from insurance carriers, those costs came to 35 cents. The group ended the plans because it was too costly to operate in so many different states.

Strong, the group’s vice president, predicted that small businesses would get good deals from AHPs because the market will become more competitive. “You’re going to get associations competing against each other,” she said. “Members of local chambers of commerce or the NFIB or electrical contractors—they’re all going to be shopping to see which association is going to provide them the best package.”

Associated Press reports were included in this story.

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