DOL Pushes Health Insurance Alternative for Small Biz

“By banding together to leverage their purchasing power, Association Health Plans will enable small companies to obtain health insurance on terms similar to those now enjoyed by large firms, establishing an important new way to lower costs and expand coverage,” Secretary of Labor Elaine L. Chao said Friday.

Banding Druthers

Citing a Congressional Budget Office analysis of the pending legislation (H.R. 1774/S. 858) Chao noted that small businesses could expect to reap savings averaging 9% to 25% of the cost of their health insurance premiums.  Those savings greatly increase the likelihood that small firms would be able to offer health insurance to workers and their families.  The CBO study estimated that 330,000, and potentially as many as 2 million, persons now without health insurance could become covered if the legislation were enacted.

In a press conference Friday Senator Kit Bond, Ranking Member of the Senate Committee on Small Business and Entrepreneurship, said, “The arguments opposing AHPs are largely without merit.  Governors and insurance commissioners must be willing to recognize that state mandates do not help more people get quality medical care. The bottom line is that providing national AHPs will mean more choice, more competition, with continued reliability and solvency for millions of uninsured Americans in Missouri and elsewhere.”  Both versions of the legislation are currently pending in committee.

A report issued by the DOL on Friday ( Association Health Plans: Improving Access to Affordable Quality Health Care for Small Businesses ) notes that AHP’s would provide small businesses the opportunity to band together through trade and professional associations – giving them greater bargaining power, economies of scale, and administrative efficiencies.
 
Certification Requirements

According to the report, under the proposed legislation AHPs would be certified by the Labor Department and would have to meet certification standards developed by the DOL. Only bona fide trade or industry associations that have been in operation for three years or more could sponsor AHPs, helping to ensure that AHPs would not be formed solely to market insurance.  Additionally, AHP’s would have to meet strict requirements designed to protect participants and maintain solvency.

AHP’s could purchase coverage from insurance companies, or if they cover enough participants, they could self-insure and pay claims from their own funds, the report said. Self-insured AHPs would be subject to solvency requirements designed to ensure they maintained adequate funds to pay claims.

As an added protection for participants, a fund would be set up under the department’s direction to ensure that outstanding claims were paid if an AHP became insolvent, the report said.

The legislation makes clear that AHPs must comply with the Health Insurance Portability and Accountability Act, prohibiting group health plans from excluding high-risk individuals or employers with high claims experience.  In addition, the pending legislation limits AHPs ability to vary the premiums of lower and higher-cost employers, and would bar AHPs and participating employers from selectively directing higher-cost employees to the individual insurance market.

State Boundaries

The report issued by the DOL noted the following:

• Small employers, especially those that employ low-wage workers, have difficulty providing health benefits.
• Cost is the biggest issue for small employers in deciding to offer health insurance.  For comparable coverage, insurers typically charge small businesses more per employee than large firms.
• In some states, insurance for some small firms is available only through a state-operated risk pool or from one insurance carrier.
• Small firms are often ill equipped to negotiate favorable terms with insurers because an individual firm does not represent a large enough block of business to merit insurers’ individual attention.

Finally, the DOL notes that states typically require group health insurance policies to cover certain specified benefits, medical procedures, and treatments provided by specified health professionals, which also add to the cost of coverage.

Multiple Issues

The DOL report notes that some small businesses now provide health coverage through programs sponsored by trade and professional associations. However, under current federal law, such programs are considered multiple employer welfare arrangements (MEWAs) and are subject to state insurance laws and regulations. 

Those programs are hampered, according to the report, by the administrative burdens and high cost of having to comply with the requirements of up to 50 state insurance regulators, including state-mandated benefit requirements.

Noting that “unscrupulous” promoters have used some MEWAs, the proposed legislation would offer employers and workers additional protections, according to the DOL report.  Under current structures, some MEWAs have been sold based on the promise of inexpensive health insurance, but by individuals that intentionally default on their obligations – leaving employers and their workforce with unpaid claims and no coverage.  In contrast, AHPs will be subject to rigorous and nationally uniform financial solvency standards, as well as DOL’s certification and oversight, according to the DOL.