On the benefits fringe: legislation designed to help small businesses provide affordable health insurance has detractors who say it will cause more problems than it could solve.

For 43 years, small-construction contractors were able to purchase health insurance through Associated Builders and Contractors, a national trade association.

That ended in 2000, when the health insurer that provided coverage for the association said it no longer wanted to do business in all 50 states.

"We looked at 50 different companies to take over the plan, and no one was interested in doing it because of the complexity and inconsistency of state regulation," said Joe Rossmann, vice president of fringe benefits for the trade association. "We looked at the possibility of making a self-insured program, but the complexity of all the filings you'd have to do with every state would cost more than it's worth in the long run."

So Associated Builders and Contractors shut down its health plan, and now acts as an agent to help its 23,000 members--mostly small contractors with 20 to 25 employees--find health insurance elsewhere. It's not an easy task. Small businesses tend to pay more for health insurance, and the number of insurers offering coverage for this segment shrinks every year, Rossmann said.

"From our membership perspective, they are doing their best to maintain health insurance, but we've seen a few eliminate coverage altogether because they couldn't afford to do it. Others have reduced their benefits to afford health insurance," Rossmann said.

But Rossmann is hopeful that legislation moving through Congress might bring relief to small businesses by making it easier for association health plans to function across state lines. Passage is not assured. The legislation faces tremendous opposition.

"On the surface, it looks pretty good. But when you look at it more closely, you realize that these association health plans will probably provide little, if any, benefit, and in many cases, they'll hurt more than they will help," said John Parker, director of public affairs for the Blue Cross Blue Shield Association.

Those who support the legislation, the Small Business Health Fairness Act of 2005, say it will lower premiums for small businesses and reduce the number of uninsureds by allowing trade associations to otter health coverage to their member businesses without having to comply with all state regulations.

Those who oppose the proposal say it will do the opposite, actually increasing premiums for most small businesses and increasing the number of uninsureds, while also eliminating vital consumer protections and potentially increasing fraud.

Endangered Species 

Association health plans are run by professional or trade associations to provide health insurance to their small-business members. By pooling many small businesses into a single large pool, the association health plans historically have been able to obtain better premium rates for their members. But as states have acted to mandate specific health-care benefits, more insurers have lost the taste to provide coverage for association health plans that cover many states.

"The fact is that one state's got 42 mandates and another state has 16, and there's only four that overlap. It's not just that they are accumulating, it's that they are different," said Tom Haynes, executive director of the Coca-Cola Bottlers' Association, which represents 77 bottlers.

For instance, Haynes said he's aware of at least nine different state definitions of when dependent coverage stops. "The combination of all that burden makes it not worthwhile for a carrier to write associations that have a lot of small businesses," Haynes said.

The variations in regulations can be difficult to administrate, but the mandates themselves are costly, said Katie Strong, director of congressional and public affairs for the U.S. Chamber of Commerce, which supports the measure. "Each mandate can increase costs from 1% to 3% of premiums," she said.

The Small Business Health Fairness Act has been around for 10 years in various forms, and has been passed by the House of Representatives seven times, but has never made it to a vote in the Senate. However, two Senate committees recently held hearings on the bill, a sign that it might come up for a vote for the first time in a decade.

Association Health Plans would qualify under the act if:

* The association has existed for three years and was established for a purpose other than providing insurance to members;

* It is certified by the Department of Labor;

* It has an indemnified back-up plan in order to prevent unpaid claims in the event of plan termination;

* It undergoes independent actuarial certification for financial soundness on a quarterly basis;

* It maintains surplus reserves of $2 million in addition to normal claims reserves.

As the debate heats up, lobbying and publicity efforts are growing. Both sides admit small businesses have a problem finding affordable health care, and acknowledge that's contributing to the rising number of uninsured Americans. But they divide on whether this legislation will help or hurt small businesses.

Those who favor the legislation said it merely extends an existing exemption granted to large corporations and labor unions that have a self-funded insurance program. About 131 million workers and retirees are currently covered by ERISA plans, or plans that are regulated by the federal government.

Some critics say state regulators oppose the legislation because they don't want to lose any power or authority.

Cherry Picking 

Association Healthcare Coalition, which supports the proposal, says that AHPs provide small businesses with cheaper premiums. "It would give small employers lower costs by grouping them together, giving them economies of scale and greater bargaining power," said Duane L. Musser, the coalition's executive director.

Opponents say few small businesses--those with the youngest and healthiest workers--would see that discount. "AHPs will siphon off the healthiest groups, resulting in adverse selection," John Morrison, insurance commissioner of Montana, said.

But Association Health Plans wouldn't be able to cherry pick, said Strong, of the U.S. Chamber of Commerce.

"We would be required to offer the health coverage to all comers, all members of the association. We would be prohibited from discriminating based on health status under [the Health Insurance Portability and Accountability Act]," Strong said. "Cherry picking is what insurance companies are doing now to small businesses. A small business today that has several large claims will find it difficult to get their insurance renewed, and if it is renewed, often the rates are so high you can't afford it. AHPs would spread the risk through many more lives."

Kris Haltmeyer, director of policy analysis for the Blue Cross Blue Shield Association, said ERISA and HIPAA were never designed to regulate health plans for thousands of small employers. "We have significant concerns about whether the federal government is prepared to regulate the health insurance marketplace. We will have to completely retool the federal oversight structure, and I'm not sure we as an industry want to go there," Haltmeyer said.

Loss of Consumer Protections

Without state benefit mandates, Association Health Plans would eliminate the more expensive mandated benefits, which would reduce their operating costs while depriving members of benefits, critics said. Members who specifically seek those mandated benefits--for example, coverage for diabetes--would be forced to look for insurance elsewhere.

"There's a reason states mandate screening for breast cancer and cervical cancer, and coverage of diabetes supplies and education," said Jane Loewenson, director of health policy for the National Partnership for Women & Families. "They passed these laws because insurers weren't covering them."

Rossmann of Associated Builders and Contractors said association members wouldn't be required to join the association health plan. "AHPs would want to provide quality benefits to gain the business of their members. You aren't going to see bare-bones plans, because members are not going to buy if it's not good quality coverage. Remember, it's not just for their employees, it's for their own families," Rossmann said.

Also, members of those plans would lose key state consumer protections, such as internal and external reviews and appeals of claims. "Consumers won't be able to rely on state insurance departments to help them when claims are denied," Morrison said. "Here in Montana, we respond to over 40,000 consumer calls per year [concerning all insurance lines]. In many cases, a consumer calls ill with a problem with an ERISA plan, [and] we cannot help them. Commonly, consumers are unable to find anyone at the Department of Labor to help them with the claim. They simply don't have the resources to address the millions of insurance complaints from across the country. The AHP bill would place the responsibility of consumer protection with the same Department of Labor without giving them any new resources."

Proponents note that the AHP legislation would require the labor department to consult with the states in order to ensure effective and efficient regulation of AHPs. Also, Rossmann noted that premium rates of fully insured AHPs would still be subject to state regulation.

Solvency and Fraud

One of the opponents' biggest concerns is that AHPs will have less state oversight, which will lead to more insolvency and fraud issues.

"The bill does not include adequate capital and solvency requirements," said Morrison. "The maximum required surplus is $2 million. For a large association, that's nothing. AHPs will be vulnerable to failure, and consumers and providers will be vulnerable to a loss of coverage and unpaid claims."

Strong, of the U.S. Chamber of Commerce, disagreed. "We've written into the bill very strict solvency protection," she said. (See "What's an Association Health Plan?" page 64).

Yet, opponents tear the legislation will bring back similar problems seen in the 1980s and 1990s with Multiple Employer Welfare Arrangement plans. Many such plans were actually fake health insurance plans posing as a federally regulated plan to fool consumers, Morrison said. "AHPs will be a breeding ground for fraud," Morrison said. "Insurance departments will have no record of them. AHPs will provide another opportunity for these scams."

But one major difference between MEWAs, which could be established by anyone, and AHPs is that only qualified trade associations would be able to offer association health plans, said Musser of the Association Healthcare Coalition.

"We're not going to have some fly-by-night organizations offering these plans. Employers will know the entity sponsoring the health plans. There's still a need for regulation. We believe this legislation will help reduce this fraud," Musser said.

Looking Ahead

Whether or not the Small Business Health Fairness Act of 2005 is passed, the issue of getting affordable health insurance coverage to small businesses isn't likely to go away soon.

"We recognize the affordability issue, but we don't think this is the right solution," said Brooke Taylor, regional vice president for corporate communication for Wellpoint/Anthem, which includes the Blue Cross plan in California and the Blue Cross and Blue Shield Plans in 12 other states. "This shifts the costs around, but doesn't take the costs out of the system."

Some said the insurance industry is missing an opportunity by opposing this legislation.

"We've always welcomed input from the insurance industry, and we're disappointed that the industry hasn't been willing to come forward with any specific suggestions to improve the legislation. They just say state regulation is the only way. We don't think that's the case," Musser said.

Morrison said he asked Congress to consider Montana's solution: small businesses receive tax credits to help defray the costs of offering health insurance to employees, and can join a purchasing pool with a state-appointed board that negotiates for private carriers for health insurance. Also, Montana's Department of Public Health petitioned the federal Health and Human Services for a Medicaid waiver, so lower income workers earning less than $7 an hour can get Medicaid matching funds.

"The mere banding together by itself doesn't save anyone money," Morrison said. "You still have the same claims you have to cover. The NAIC has been making significant progress in making uniformity or near uniformity in regulation affecting health plans, and we'll continue to progress in that direction."

Key Points

* About two-thirds of the uninsured in the United States were employed in 2003.

* Half of those working without insurance worked for small businesses with fewer than 24 employees.

* 81% of the working uninsured are employed by companies that do not offer health insurance, or they are not eligible for it.

What's an Association Health Plan?

Association Health Plans can be either self-funded or fully insured health plans sponsored by professional or trade associations, often representing small businesses.

The Controversy

Legislation to create the Small Business Health Fairness Act is moving through Congress. The act eases the burden of state regulation on association health plans. Proponents say it will lower premiums for small businesses. Opponents argue the act will remove vital consumer protection and increase the number of uninsured.

Who Supports It:

The National Federation of Independent Business Web site: ahpsnow.com Members are 178 trade and association groups representing 12 million small businesses, including The Association Healthcare Coalition, the National Association of Mutual Insurance Cos. and the U.S. Chamber of Commerce

Who's Against It:

Protect Your Healthcare Web site: protectyourhealthcare.org Members include 1,300 organizations, such as state and city organizations, unions and local chambers of commerce, including the National Association of Insurance Commissioners and 41 state attorneys general.

Source: Protect Your Healthcare: The National Federation of Independent Business

Working Without Insurance

About 60% of the 44.7 million Americans without health insurance in 2003 were employed. About half of the 26.6 million of those working without health insurance are employees at small companies that have fewer than 24 employees.

The Working Uninsured (in Millions)

Self-employed
(nearly all work for small firms)   3.5

Work for firms with
25-29 employees                     3.5

Work for firms with
10-24 employees                     3.7

Work for firms with fewer
than 10 employees                   6.0

Work for firms with 100
or more employees                   9.9

Source: Employee Benefit Research Institute

Joe Rossmann, Vice President of Fringe Benefits for Associated Builders and Contractors

"States have mandated different requirements, which may be well intentioned, but the end result is rates keep going up and up. [The act] won't solve all the problems, but it's a step in the right direction, and, something that small today."

John Morrison, Montana Insurance Commissioner

"The legislation is bad for consumers and bad for the health insurance market. If you remove state regulation, you remove consumer protection. Consumers wouldn't be able to rely on the state insurance department to help them when claims are denied."

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