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House passes affordable health insurance legislation
Insurers, commissioner not sold on benefits
By Matthew French
Staff Writer
Congress took a step closer to making more affordable health care available to small businesses when the House of Representatives passed the Small Business Health Fairness Act of 2005 in late July.
The act will allow small businesses to band together across state lines for the purpose of buying health coverage for employees.
But some in the insurance industry say the legislation will end up hurting small businesses.
All eyes now turn to the Senate to see if a similar bill introduced in February passes that body. The bill has already received the support of Sens. Robert Byrd, D-W.V., and John McCain, R-Ariz.
The cost of health insurance is often the most difficult expense for business owners to cover; it is so difficult, in fact, that more than 40% of businesses with between one and nine employees don’t offer health care coverage.
The House bill includes abstruse sets of rules by which associations must abide to receive recognition. The rules governing the formation of association health plans include provisions that require businesses to be part of a trade or industry association, or a chamber of commerce or similar business association.
The law also calls for the plans to establish a complicated network of trustees, sponsors and plans of operation.
The act says an association must have “a constitution and bylaws specifically stating its purpose and providing for periodic meetings on at least an annual basis.”
Association health plans have long been opposed by most state insurance commissioners and insurance companies. AHPs would tear down the existing borders between states and allow businesses to band together. The issue is extraordinarily complex, given that each state has different requirements regarding insurance and insurance companies charge differently, even for the same policy, state-by-state.
Some national health insurers say removing the state borders that dictate rules by which insurers must comply will lead to a chaotic system where associations can accept member companies that will keep rates low while simultaneously pricing out those with older or less healthy employees.
“The AHPs on their face sound great when spoken about at the federal level: they don’t cost the federal government anything, and it gets insurance companies and employers out from under state rules and oversight,” says Alissa Fox, vice president of legislative and regulatory policy for the BlueCross BlueShield Association, which represents 40 different BlueCross BlueShield insurers nationwide.
“But there are two huge problems: it takes away the basic state-level protection, specifically how often and by how much premiums can be raised, and the AHPs won’t offer the same premiums to every company in the association. The premiums will be based on the health status and the age of the employees.”
The Palmetto State is in particularly good shape in that it has “a good number of health insurers and shows vibrant competition amongst health insurers,” Fox says.
“States like South Carolina put a cap on how often and by how much an insurance company can raise premiums,” she says. “The state puts all small businesses into one pool and regulates how premiums on that pool are adjusted. AHPs would remove those restrictions.”
The fact of the matter is every company, large and small, is experiencing higher health care premiums, and the reason it hits smaller companies harder is that they tend to have smaller profit margins. Because they tend to have less money to spend on insurance, small businesses don’t have the buying power that their larger brethren might.
Fox and others, including the National Association of Insurance Commissioners, say that AHPs would lead to a widespread practice known as “cherry picking.” Associations would theoretically not be able to exclude any company or individual, but it could also quote premiums so high as to virtually guarantee older and less healthy employees do not join the association.
Eleanor Kitzman, South Carolina’s director of the Department of Insurance, says the department and Gov. Mark Sanford oppose the formation of AHPs because they permit “risky selection” of benefits.
“AHPs will not be required to have solvency plans, and they will not have to comply with state consumer protection laws or benefits mandates,” Kitzman says.
“One of the biggest concerns we have is that once these AHPs start having problems, we (at the Insurance Department) will start getting the calls because the customers will think that we can do something. But the fact is we will have no oversight authority over the associations.”
The BlueCross BlueShield Association is calling on the Senate to not pass a similar version of the bill and instead “pursue thoughtful and practical policies that improve access to affordable health care for small employers and their workers.”
Matthew French covers governmental policy and legislation for the Business Journal. E-mail him at mfrench@charlestonbusiness.com.
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