The Senate Committee on Small Business and Entrepreneurship (SBC) and the Senate Committee on Health, Education, Labor, and Pensions (HELP) each held hearings last week regarding Association Health Plans (AHPs) and the small business health care crisis. AHPs would enable small businesses to band together across state lines through bona fide trade and professional associations to purchase affordable health packages for themselves and their employees.
On Wednesday, April 20, Sen. Olympia Snowe (R-ME), chair of SBC, convened a hearing on "Solving the Small Business Health Care Crisis: Alternatives for Lowering Costs and Covering the Uninsured." The next day, HELP, which is chaired by Sen. Michael Enzi (R-WY), held a similar hearing, "Small Businesses and Health Insurance: Easing Costs and Expanding Access."
"I strongly believe [AHPs] can play a major role in addressing this country's health care crisis," Snowe said in a prepared statement at Wednesday's hearing. "Touted by President Bush and supported by over 80 million Americans, AHPs will bring necessary reform to insurance markets that have long trapped small businesses and their employees in a vicious cycle of escalating premium costs and fewer coverage options. AHPs are crucial to solving the small business health care crisis because they represent a fair, fiscally sound, and tested approach to reducing the ranks of the uninsured in this country at nominal cost to the federal government."
Snowe reported that studies by both the GAO and the Small Business Administration's Office of Advocacy concluded that small businesses currently absorb a greater portion of their plans' administrative costs, paying as much as 20 to 30 percent more in total premiums than larger health plans. As a result, small businesses receive less generous benefits than larger employers, while they pay the same level of premiums. This means "small businesses and their employees lose," said Snowe.
In late February 2005, Snowe introduced "The Small Business Health Fairness Act of 2005" (S.406), which seeks to "help small businesses access greater health insurance options and lower premiums" by allowing for the creation of AHPs. The bill is co-sponsored by a bipartisan group of 12 senators, including Senators Robert C. Byrd (D-WV) and John McCain (R-AZ). Following its introduction into the Senate, S. 406 was referred to the Committee on Health, Education, Labor, and Pensions.
Under Snowe's bill, small businesses would be able to band together on a national level through trade associations and either purchase their health insurance from a provider or self-insure in the same way that large employers and unions currently do. The legislation also includes protections to "safeguard national AHPs from the current epidemic of fraud and abuse that is occurring through sham trade associations that take money from unsuspecting small businesses and then are either unable or unwilling to pay claims filed by subscribers."
While the creation of national AHPs by professional or trade associations isn't prohibited by law, it is currently so cost- and administrative-prohibitive as to make it nearly impossible for associations to offer them to their members.
Among the witnesses at the SBC hearing was Labor Secretary Elaine L. Chao and Small Business Administration Administrator Hector V. Barreto. In Chao's testimony before the committee, she expressed strong support for Snowe's legislation. "Small business employers want to provide quality affordable health care coverage for their workers but are stymied by prohibitive costs and regulatory burdens," Chao said. "That is why this administration strongly supports legislation that would increase access to health care for workers by making available to small business employers the benefits of AHPs, which include greater bargaining power and administrative efficiency."
At the April 21 HELP hearing, Enzi noted, "We have had almost five full years of devastating double-digit growth in health insurance premiums, and we have seen increases of more than five times the rate of inflation. Since 2000, premiums for family coverage have grown nearly 60 percent, compared to an inflation rate of 9.7 percent over the same period." He added "the big worry is how much longer the system can sustain double digit cost growth before it begins to seriously unravel."
Enzi stated that while AHP advocates make a "strong and persuasive case that small businesses should be able to pool their purchasing power" and that he finds "much merit in these ideas," he is "mindful that critics have raised some very serious concerns that going this route could trigger dangerous adverse selection and fracture an already fragmented market." He stressed that the insurance market must remain stable.
Testifying at the HELP hearing was a mix of proponents and opponents of AHPs.
Among those speaking against AHPs was Sandy Praeger, insurance commissioner of the state of Kansas, who appeared on behalf of the National Association of Insurance Commissioners (NAIC), in Topeka. She argued that AHPs would lead to increased plan failures and fraud due to inadequate oversight. "Proponents of AHP legislation claim that the Department of Labor has sufficient resources to oversee the new plans and insolvencies and fraud will be prevented. This simply is not the case.... The AHP bill provides no new resources for regulating these plans." She noted "all of us recognize that it is very important to make health insurance available to small employers. The states have begun to address this problem.... However, the problem is complex and does not lend itself to easy solutions."
AHP legislation has been passed in the House five times in the past several years, only to stall in the Senate. On March 16, the House Education and Workforce Committee approved Rep. Sam Johnson's (R-TX) Small Business Health Fairness Act (H.R. 525) by a vote of 25-22, according to the National Retail Federation's Washington Retail Insight. At present, Johnson's legislation has 135 co-sponsors.
To make it easy for small business owners to urge their Congressional representatives to support AHP legislation, the National Federation of Independent Businesses has set up an easy-to-use Web form. Additional information is also available at AHPsNow! --David Grogan