Educational Tool – Myth/Fact – Small Business Health Fairness Act (H.R. 525/S. 406)

The Bush Administration, the Majority Leader, and other members of Congress support legislation that is being considered in the U.S. Congress (H.R. 525 and S. 406, the “Small Business Health Fairness Act of 2005”) to expand the availability of health coverage for employees of America’s small businesses. The bill would allow employers to join together through bona fide associations to buy health coverage under an Association Health Plan (AHP). As a result, small employers will enjoy greater bargaining power, economies of scale, and administrative efficiencies. AHPs level the playing field of employer health coverage by giving participating small employers the advantages of federal law currently enjoyed by larger employers and unions

Myth: AHPs would harm most small-business employees - especially groups with greater health care needs. While AHPs could benefit some healthy groups, they would make health coverage less affordable for groups that are older and sicker. The Congressional Budget Office (CBO) has concluded that AHP legislation would leave most workers in a worse position after enactment: premiums would increase for the vast majority of employees in small firms. (January 2000)

Fact: Under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), an individual or employer cannot deny coverage based on health status or claims experience. AHPs would be subject to all the preexisting condition, portability, nondiscrimination, special enrollment and renewability provisions under HIPAA. Thus, it will not be possible for AHPs to “cherry pick” because sick or high risk groups or individuals cannot be denied coverage.

Myth: AHPs would do little to reduce the number of uninsured Americans. The vast majority of individuals who would be covered by AHPs would already have health insurance. According to CBO, AHPs would only generate a small net reduction in the number of uninsured Americans (330,000 people - less than 1 percent of the current uninsured population). This small reduction would come at a significant cost: higher premiums for groups with higher health care costs, which would cause about 10,000 individuals to lose their health insurance.

Fact: CBO estimates that once the effects of the legislation have been fully integrated into the marketplace, about 600,000 formerly uninsured people (including employees and their dependents) would have health coverage. About 7.5 million people would obtain health insurance through association health plans. The 100,000 figure of sickest workers who would lose coverage cited by opponents is from a set of CBO assumptions that ALSO results in 2.1 million formerly uninsured people obtaining health coverage through an AHP, for a net gain of 2 million newly insured people. In addition, according to CBO, fewer people would be covered by Medicaid, and Medicaid spending would decline. There are other studies, which indicate that AHPs, by conservative estimates, could reduce the number of uninsured by 8.5 million people (CONSAD).

Myth: AHP legislation would take away important consumer protections. States currently regulate the small group health insurance market. Over the years, they have implemented regulations to assure the adequacy, stability, and reliability of health coverage. But the AHP amendment would either mostly or entirely exempt AHPs from state regulation.

Fact: This legislation requires that an AHP be offered by a bona fide association under a Trust with Trustees who are fiduciaries responsible for both the financial and operational integrity of the plan. This continued oversight of the association on behalf of its members is a key factor in assuring and maintain the solvency and credibility of AHPs in the long-term. The solvency standards, plan requirements, oversight, and patient protections included in the AHP legislation are more stringent than those now required by some states.

It is also important to realize that this legislation only preempts state benefit mandates for INSURED health plans. These types of plans must continue to meet other consumer protections, such as third-party external reviews, as well as solvency requirements set forth by the state. Because it operates in the interest of its members, an AHP will readily cover benefits demonstrated to be cost-effective, such as childhood immunization, prenatal care, and cancer screenings. The bottom line is that, while well-intentioned, excessive coverage mandates for alternative health services, substance abuse treatment or for services not backed by sound science drive up the cost of health coverage and often leave small businesses unable to afford any coverage at all.

Myth: AHPs would be able to "cherry pick" the healthy. Exempting AHPs from state requirements would create an unlevel playing field that would enable AHPs to attract healthy groups and avoid groups with greater health care needs. As healthy groups join AHPs, premiums would increase for groups that remain in the state-regulated market - primarily those with greater health care needs. While supporters of AHPs argue that these plans will increase the purchasing power of small businesses, the CBO found that savings from AHPs would come primarily from their ability to attract healthy groups that are cheaper to cover. (January 2000)

Fact: The legislation clearly states that the bona fide association must provide all interested employers (regardless of age, health status, etc.) with information regarding all coverage options available under the plan. The language clearly prohibits discrimination based on health status by stipulating that any member of an association who is eligible for membership benefits be furnished with information regarding all coverage options available under the plan and may not be excluded from enrolling in the plan because of health status.

Myth: AHPs would not receive adequate federal oversight to prevent fraud and insolvency. Under the proposed legislation, state solvency standards would be replaced with weaker federal requirements, and the responsibility for protecting consumers from insolvency and fraud by AHPs would be shifted to an unprepared federal government. The U.S. Department of Labor (DOL) would have to replicate the functions of the 50 state insurance commissioners but without the necessary resources and enforcement tools. The need for oversight and enforcement was highlighted in a recent GAO report, which found that the number of health insurance scams has increased sharply.

Fact: The legislation contains extensive requirements for solvency.

· Health insurance issuers that offer FULLY INSURED coverage to AHPs will continue to be subject to state laws regarding solvency. In addition, the U.S. Department of Labor (DOL) would condition its class certification of fully insured AHPs on the issuer’s satisfaction of state solvency and other insurance regulations.

· With respect to SELF-INSURED AHPs, the legislation sets forth explicit solvency requirements that are much stronger than current law for employers or unions who self-insure, as ERISA contains no solvency standards for these entities.

Claims Reserves: The AHP must establish and maintain reserves in amounts recommended by a qualified actuary who is certified by the American Academy of Actuaries.

Stop-loss: The AHP must secure specific excess stop-loss coverage and aggregate excess stop-loss coverage to protect against unexpectedly large claims. Both of these insurance products will be fully regulated by the state, and the Secretary of Labor is able to modify or increase these requirements by regulation.

Indemnification: The AHP must secure indemnification insurance to cover any claims left outstanding as the result of a plan termination.

Surplus Requirements: In addition to claims reserves, plans must establish and maintain a surplus in an amount at least equal to $500,000 but not greater than $2,000,000 as may be set forth in regulations. A cap on surplus requirements guards against an AHP charging excessive premiums for the benefit of the association, rather than the benefit of plan participants.

The Coalition Supporting Access & Choice Through Association Health Plans (AHP Coalition) is comprised of more than 185 associations representing over 12 million employers and 80 million employees. More information is available online at www.AHPsNOW.com.