Association health care plan diagnosis: what associations need to know about offering health insurance to members.

If long-awaited legislation passes, making it more feasible for associations to offer health insurance to their members, your offices could be flooded with calls from members wanting to know where they sign up. Before that happens, it's wise to evaluate whether offering health insurance to members is a viable business option for your organization.

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According to Employee Benefits Research Institute, Washington, D.C., between 40 and 50 million Americans are uninsured. EBRI estimates that almost two thirds of the uninsured are self-employed or employed by businesses with fewer than 10 employees. It is next to impossible for these individuals to get affordable health insurance. They cannot take advantage of group rates because their pools of insured individuals are too small. If they get insurance and just one participant has an expensive illness, rates soar, making the cost prohibitive and leaving the group uninsured again.

Associations may be able to offer solutions to such individuals if Congress passes legislation for association health plans (AHPs). The House of Representatives has passed some form of small business or association health insurance legislation seven times in the past eight years, but similar proposals have repeatedly failed in the Senate. Proponents of AHPs think they may have a better chance of enactment in 2005 than ever before. President Bush has pledged his support, and there is hope that new bipartisan backing may come during the 109th Congress. While ASAE is working on behalf of its members to move the legislation forward, the association community is divided on this issue. To stay up to date on the progress of the legislation, visit info.asaenet.org/pdf/AssociationlssuesUpdate.pdf or www.ahpsnow.com. Here's a look at the pros and cons of association health plans from several perspectives.

SUPPORT FOR AHPS

If passed, AHPs will assist associations in offering group health insurance to their members by allowing ERISA exemptions across state lines. ERISA (the Employee Retirement Income Security Act of 1974) already grants exemptions from state regulations to unions and large corporations, giving them the flexibility to operate across state lines without complying with various regulations in different states.

Associations with members who are small-business owners are eager to see AHP legislation pass. From their perspective, it would offer a valuable member benefit that would help attract and retain members. Associations could purchase insurance for participating members, creating larger groups that could secure the advantages of volume rates and administrative efficiencies.

One of the organizations that supports AHPs is the National Association of Women Business Owners, McLean, Virginia. Erin M. Fuller, CAE, executive director of NAWBO, says 7-8 million of the uninsured in the United States are employed by women-owned businesses. The average number of employees for NAWBO members is 19. "Health care [insurance] costs are increasing about 15 percent annually, making it more difficult for small businesses to offer health coverage to their employees. The number of NAWBO members providing health insurance to their employees fell from 57 percent to 50 percent from 2002 to 2004 because of cost considerations alone," Fuller says.

She hopes AHP legislation will allow coalitions of smaller associations to form larger group pools to offer affordable alternatives to members and their employees. "We don't want to be in the insurance business," Fuller says, "but we would hope to partner with compatible groups and offer a cost-effective way for small businesses to have health insurance access."

John S. Swinburn, CAE, president of Challenge Management, Inc., a Dallas-based association management company, is himself a small business owner and manages small associations that have a particular need for AHPs. "Most members of small trade associations are not in the position to offer insurance to employees or may not be able to afford insurance for themselves because of pre-existing conditions. They will look to their associations or professional societies for solutions. AHPs would allow associations to play by the same rules as large companies and develop aggregates for better risk levels," he says.

Amanda Austin, Washington, D.C.-based manager of legislative affairs in the Senate for the National Federation of Independent Business, Nashville, notes that only 48 percent of NFIB members offer health insurance to their employees. Defining NFIB's scope to businesses with 200 or fewer employees, Austin says 72 percent of NFIB members have fewer than 10 employees. "While passage of AHP legislation may not be the be-all and end-all solution for our country's health insurance crisis, it will be good for the backbone of America," Austin says. "The best chance for its passage is in the next two or three years, so we're excited about the fight to get it done."

CONCERNS ABOUT AHPS

Others are not so optimistic about the chances of the legislation passing or the advantages of AHPs. "I don't think it's a given," says Jane Robinson McLaughlin, president of Robinson McLaughlin Associates, an insurance brokerage in Pensacola, Florida. "Insurance companies and state governments tend to be against AHPs. The insurers don't want competition, and the states fear losing tax revenues and control," McLaughlin says.

She says that offering health insurance could be a great member retention tool for associations. But she warns that the risk of failure is great. "You can take a survey and members say they want an insurance program in theory; but then you spend time, effort, and money to market it and enough people may not sign up."

In addition, constant marketing is needed to increase the pool and ensure a rising number of younger and healthier participants to balance aging or less healthy participants, McLaughlin says. "It's not as simple as it looks," she cautions. "Suppose you offer a rate of $300 a month and get 200 participants. Horrible experience [catastrophic or chronic illness of a few of the participants] might cause the rates to increase substantially upon renewal. Then the healthier participants can find other coverage for less than the new, higher rate, so they drop out, making your pool an even higher risk and raising rates even more. You have to consistently market over time to keep building your pool of healthier, younger participants and ensure reasonable rates."

Paul Andres, director of new business development for Forest T. Jones & Company, Kansas City, Missouri, which administers group health plans, points out that during the past several years some of the players in the industry have dropped out of the market and high-profile losses put other insurers out of business in plans similar to those proposed in AHP legislation. Andres also notes opposition to AHPs from physicians, who he says fear not only reduced fees but lower standards of care under such plans. On the other hand, Andres says, "If AHP legislation allows plan structures common 8-10 years ago, there's tremendous opportunity for nondues revenue that large volume can produce. But more likely to benefit associations is the strong affinity, recruitment, and retention factors that will result in more dues revenues."

One of the most outspoken opponents of AHPs is the National Small Business Association, Washington, D.C. NSBA defines small businesses as those with 500 or fewer employees--a misnomer by some accounts, since more than 90 percent of all businesses in the United States would qualify as small under that definition. NSBA supports tax credits for employers of 15 or fewer people based on premiums paid for insurance for employees. However, a white paper posted on www.nsbaadvocate.com warns that the lower premiums of AHPs would drain current state-regulated insurance pools, effectively driving up rates for that segment.

"I believe it would be possible, under the right legislative structure, to enable associations to establish AHPs that overcome the obstacles NSBA describes," Swinburn, of Challenge Management, says. "The real opposition to a legislative structure that would overcome the obstacles is apt to come from the insurance industry, which may not want associations to be able to construct alliances that would, collectively, offer a more attractive age pool."

A PLAN FOR THE FUTURE

If AHP legislation manages to pass in the upcoming congressional session, what is the next move for associations whose members are looking for the opportunity to buy insurance under such plans? NFIB's Austin says associations will have plenty of hoops to jump through before they can offer insurance plans. For one thing, associations cannot be formed solely for the purpose of offering insurance, she says. Current legislation proposes that organizations be in existence three years before they can offer insurance plans, that they file plans and paperwork aimed at reducing fraud and abuse, and that they be certified in advance. Solvency standards in AHP legislation are aimed at preventing failure. AHPs would undergo quarterly actuarial certification for financial soundness and would be required to maintain $2 million in surplus reserves in addition to normal claims reserves.

"Even if AHP legislation passes in 2005, there will be time for comments on regulations and all the other things that go with enactment. It would be at least a year, more likely two years, before an existing association could be in a position to present an AHP to its membership," Austin says. "Multi-association plans are not now in the law," Austin cautions, "and associations cannot make money by offering health insurance. Money must go back into reserves or to the beneficiaries."

McLaughlin advises associations to talk to a knowledgeable broker about a good fit for their members. "It doesn't cost anything to talk with a professional," she says, predicting that most AHPs will be put together by underwriters and brokers who can design the right kind of customized plan for an organization.

Eric Sanner, vice president and health and welfare practice leader for AON Association Services, Baltimore, says that AON would be ready to work with associations on feasibility studies should AHP legislation pass. But he points out, "It's more a matter of whether insurance companies would be ready to consider AHPs. At issue is whether it will be a meaningful, long-term benefit or if it will result in adverse selection over time [because of the age and poor health of participants in the plan]."

An alternative, should insurance companies be reluctant to work with associations on developing AHPs, is to create a captive, an entity owned by an association and functioning as an insurance company. But forming a captive is not cheap, says Tim Trainor, vice president of organization development for the National Associations Health Plan Company, a Sparks, Nevada-based corporation. NAHPC's business model proposes to provide and operate health care captives for associations. "Big premium and commission savings to association members are possible, but depending on state requirements, starting reserves may run from $100,000 to $500,000 or more. The normal benchmark is to have $1 in the bank for every $20 in premiums," he says, "but, at least in Nevada, captives are being held to a higher standard, and NAHPC will be required to have $1 in the bank for every $5 of premium." Trainor notes that Washington, D.C., and 20 states now have captive laws, and there are some instances of reciprocity among other states. NAHPC is in the capital formation stage and can advise associations about creating or managing captives for insurance. While captives may offer broader benefits and access to reinsurance markets, similar to other insurance companies, they are still subject to catastrophic losses and can become unstable or go out of business. (For more information on setting up a captive insurance company, see "Implications and Opportunities in the Hard Insurance Market," beginning on page 49 of the October 2003 issue of ASSOCIATION MANAGEMENT.)

THE FINAL DECISION

Even if AHP legislation makes it possible, each association will have to decide whether offering a health insurance plan for its members is feasible. Strategic planning for marketing and administration will be ongoing issues to balance against opportunities for increasing membership recruitment, retention, and services.

Linda C. Chandler is a freelance writer and editor based in Tyler, Texas. E-mail: [e-mail].

ILLUSTRATION BY DAN W. AUSTELL III