Senate Small Business Hearing
On April 20, the Senate Small Business and Entrepreneurship Committee held a hearing to examine the small business health care crisis. Stating that the hearing would focus on Association Health Plans (AHPs), Chair Olympia Snowe (R-ME) said, “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…The time has come for action, not words, to deliver small business owners relief from this crisis. AHPs do this, with a common sense approach that allows small employers to join together through bona fide associations to buy health coverage.”
Ranking Member John Kerry (D-MA) said, “We can all agree that health insurance premiums are skyrocketing and squeezing our economy and squeezing individuals…Of the 45 million uninsured, 60 percent are small business owners, their employees, and their families, and that should be unacceptable.” He expressed his support for allowing individuals to buy into the Federal Employees Health Benefits Program, saying that it would give people affordable options and protections at the same time. Denouncing AHPs, Sen. Kerry said, “There is strong evidence that AHPs don’t live up to their ability. We have research that shows that premiums might rise…It might even raise the rolls of the uninsured…and leave consumers at risk…If you truly want to solve the small business health care crisis, let’s not make this a one topic discussion and a one plan possibility.”
Secretary of Labor Elaine Chao testified in support of expanding AHPs to small businesses. Noting that only 46 percent of small businesses with fewer than 100 employees offer health insurance, Secretary Chao said, “Small company premiums are 20 to 30 percent higher than those of large self-insured companies with similar claims per covered employee.” Secretary Chao said that AHPs would reduce small business barriers to health coverage by creating bargaining power and economies of scale, streamlining regulations, pooling risk, and broadening the choice of coverage. Citing the Congressional Budget Office (CBO), she added that the “average savings would be 13 percent, and could be as much as 25 percent per employer…According to CBO, as many as 2 million American workers and their families who are currently uninsured could obtain health benefits through AHPs.”
Administrator of the Small Business Association (SBA) Hector Barreto also expressed his support for AHPs saying that they “will level the playing field for small businesses. They will enable small businesses to pool their resources together across state lines to access the same discounts from higher-volume purchasing and the same flexibility to design coverage options that large firms and labor unions currently enjoy.”
Opposing the expansion of AHPs, John Morrison of the National Association of Insurance Commissioners said that the proposed legislation would violate the association’s seven basic principles by undermining state reforms, increasing plan failures and fraud due to inadequate oversight, eliminating important consumer protections, and cutting funding for state high-risk pools and guaranty funds. “Although the proponents claim AHPs are a vehicle for allowing small businesses to pool together, they would actually reduce the amount of pooling in the small group market. In fact, it is not pooling but ‘cherry picking’ that would enable AHPs to offer lower-cost coverage in some cases.”
In discussing alternatives, Mr. Morrison said, “States have been the laboratories for innovative ideas in this arena for some time. In Montana the legislature is considering a proposal in which tax credits will be offered to small businesses that are currently providing health insurance to their employees and premium incentive/assistance payments will be available to small businesses currently without coverage.” He added, “Other states have experimented with reinsurance, tax credits, subsidies, basic health plans for small businesses, public program expansion, and programs to promote healthier lifestyles and manage diseases.”
Senate HELP Hearing
On April 21, the Senate Health, Education, Labor and Pensions Committee held a hearing on a bill (S. 406) aimed at making health care more affordable for small businesses. Sponsored by Sen. Snowe, the Small Business Health Fairness Act would allow small businesses to form association health plans (AHPs) for the purpose of purchasing health insurance at more affordable group rates. The House Education and the Workforce Committee approved a similar measure (H.R. 525) on March 16 (see The Source, 3/18/05).
In his opening remarks, Chair Michael Enzi (R-WY) stated, “I know that passions run high on the…volatile question of association health plans. On the one hand, advocates of AHPs make a strong and persuasive case that small businesses should be able to pool their purchasing power, and thereby reap some of the advantages currently enjoyed by large employers. Such advantages, many argue, would include greater bargaining power, economies of scale, and administrative efficiencies. I find much merit in these ideas.” He added, “Nevertheless, I am also mindful that critics have raised some very serious concerns that going this route could trigger dangerous adverse selection and fracture an already fragmented market. Whatever we do, we need to ensure that the insurance market is stable, and that consumers are protected.”
Ranking Member Ted Kennedy (D-MA) expressed his opposition to AHPs, stating, “States across the country have enacted significant protections for consumers in health insurance plans but association health plans would sweep those protections aside. Gone would be requirements to cover needed benefits like maternity care, child immunizations and cancer screenings. Study after study shows that the way such plans save money is by avoiding state consumer laws and state rating rules, putting patients at risk.” He also noted that the proposal “will do virtually nothing to reduce the number of the uninsured, and will actually cause premiums to rise for over 20 million employees and their families, according to the Congressional Budget Office. Small businesses with young and healthy workers may be attractive customers for such plans, but those with older employees or employees with serious health conditions will be left behind. A ‘solution’ that offers no help to those most in need is no solution at all.”
Testifying on behalf of the Association Health Plan Coalition, Joseph Rossman said that the Small Business Health Fairness Act “is the only proposal before Congress which will put small business workers on a level playing field with employees in large corporations or union health plans,” adding, “Right now, small business workers are second-class citizens when it comes to health benefits. On average, workers in firms with less than 10 employees pay 17 percent more for a given health benefit than workers employed in a large company. This is because small businesses don’t have access to the type of economies of scale, bargaining power and administrative savings that corporate and union plans now have. The AHP legislation will help rectify this inequity by leveling the playing field between workers in small and large businesses.” Stating that the bill could reduce health benefits for small business employees by 15 to 20 percent, Mr. Rossman explained that the AHP sponsored by the Associated Builders and Contractors “had total administrative expenses of 13 ? cents (13.5 percent) for every dollar of premium. These costs included all marketing, administration, insurance company risk, claim payment expenses and state premium taxes. Alternatively, small employers who purchase coverage directly from an insurance company can experience total expenses of 25 to 35 cents (25-35 percent) for every dollar of premium. Moreover, any profit generated by an AHP in a given year does not go to the stockholders of the insurance company, but rather stays in the plan and inures to the benefit of participants by keeping costs lower in the future.”
Kansas Insurance Commissioner Sandy Praeger stated her opposition to AHPs on behalf of the National Association of Insurance Commissioners (NAIC). She disputed claims that AHPs would encourage small businesses to pool together, stating that they “would actually reduce the amount of pooling in the small group market. In fact, it is not pooling but ‘cherry picking’ that would enable AHPs to offer lower-cost coverage in some cases. Such savings would come at the expense of all others in the small group market who are not part of AHPs…While the AHP legislation in Congress does make some effort to reduce ‘cherry picking’ the NAIC believe the provisions will be ineffective in stopping risk selection.” In addition, Ms. Praeger expressed her concern that the bill would preempt state-mandated benefit and patient protection laws. She also noted that the Department of Labor “has neither the resources nor the expertise” to oversee the new AHPs. Highlighting efforts on behalf of the states to reduce health care costs, Ms. Praeger said that “in Kansas, the Governor announced a $50 million Healthy Kansas initiative to expand coverage for 40,000 children and 30,000 working parents; find ways to control costs through more risk sharing among small businesses; improve [the] availability of generic drugs for low-income individuals; and increase awareness of obesity and other preventable chronic conditions.”
