Insurance plans target premiums
But critics say proposal cuts coverage

By Lorna Collier

Health insurance premiums are still spiraling for businesses of all sizes, but small ones are getting socked with higher-than-average increases.

Harvard-based farm implement dealer A. A. Anderson Inc.'s health insurance premiums jumped almost 40% last year — a whopping $4,000-per-month increase.

"Every year for the past five years, we've had rate hikes. We don't know what it's going to be this year yet," says office manager Diane Vierck, office manager of the Harvard-based farm implement dealer. "What we're paying now is almost unaffordable for the company."

Because some of its 23 employees have had significant health problems, the company can't find cheaper prices from other insurance carriers, Ms. Vierck says. "It's like we have no say — we are guaranteed to pay more every year."

Consultancies tracking the industry say the average hike last year was about 17% for small companies vs. 11% overall, and some small businesses reported increases as high as 70%. As a result, some companies are asking employees to pay more or are dropping coverage.

One solution, supported by many small business groups, is creating incentives to spur more "association health plans" — insurance policies offered by trade and professional groups to their members. Association health plans (AHPs) give small businesses more purchasing power by letting them form a larger group.

The Small Business Health Fairness Act of 2001, a legislative measure being considered by Congress, would exempt AHPs from state insurance mandates and regulations. Such mandates differ from state to state, requiring insurance carriers to vary specific benefits, which can drive up the cost of a plan if members live in different states. Exempting AHPs from these requirements would stabilize costs, allowing small businesses to find less-expensive health coverage, supporters say.

Yet the measure, favored by the Bush administration and approved by the House as part of the patients' bill of rights, is drawing criticism from consumer, labor and health groups, as well as the insurance industry. Opponents warn that the law would dismantle benefits such as mental health care; let associations cherry-pick members, providing coverage only to companies with young, healthy workers, and override state regulation of carriers, which could lead to more insurer fraud and insolvency.

"If I wanted to make a mess of the Illinois health insurance marketplace, this is the program that I would adopt," says Michael Kerley, executive vice-president of the Assn. of Health Insurance Advisers, based in Falls Church, Va.

Mr. Kerley says he doesn't oppose AHPs per se, but he dislikes this legislation because it overrides state law, "particularly laws that protect the solvency of insurance plans." Such plans would be regulated by the U.S. Department of Labor rather than state insurance departments, and Mr. Kerley fears they would be more subject to fraud and financial problems, resulting in unpaid claims and unprotected employees.

Also, he notes, the measure "would completely destroy the state mandate benefit laws," meaning that association plans could choose whether to cover benefits such as breast exams, obstetrical care and mental health services.

"By exempting AHPs from state benefit mandates and state regulation, it's likely to create skimpy benefits," agrees Gail Shearer, director of health policy analysis for Consumers Union in Washington, D.C., which opposes the legislation. "What this means is that healthy people might be more likely to have coverage, but it will be skimpy, and at the same time, those most in need — high-risks — end up paying higher premiums because the healthy are out of the risk pool."

Opponents add that a Congressional Budget Office study estimated that if the bill passed, 80% of small business members of associations would be more likely to have health premium increases, and such plans would cover only a fraction of the uninsured — less than 10% of the estimated 38 million uninsured people in the U.S.

The Congressional Budget Office believes AHPs would need to target a lot of young, healthy clients to make it work financially because of high administrative costs.

Proponents disagree, saying that analysis is flawed. They believe AHPs will achieve lower administrative costs, making the plans more competitive. And they insist the legislation is written to prevent cherry-picking.

Duane Musser, executive director of the Assn. Healthcare Coalition, estimates the AHPs could trim premiums 15% to 30%.

Another study, by Consad Research Corp., an economic and public policy analysis consulting firm based in Pittsburgh, estimates AHPs could make a bigger dent in the uninsured ranks, covering about 8.5 million uninsured people, Mr. Musser says.

Insolvency and fraud would not be problems, say supporters, because the bill would apply only to legitimate trade or business associations that have existed for at least three years and that aren't in the business of selling insurance.

Ray Hall, CEO of Electronic Representatives Assn. in Chicago, points out that association plans were common from the 1950s through the early 1990s, until "chaotic, idiotic and conflicting" state insurance mandates prevailed. At one time, he says, AHPs provided coverage at lower premiums than commercial carriers and represented about 70% of his association's members.

"This legislation is absolutely necessary to bring insurance to small businesses like our membe rs," says Craig Brightup, vice-president of government relations for the Rosemont-based National Roofing Contractors Assn.

Mr. Brightup — whose association represents about 5,000 roofing contractors nationwide, most of whom employ about 35 people each — points out that small businesses don't have enough employees to self-insure. Larger businesses with self-insured programs are exempt from state mandates, he says, adding that small businesses want the same option. "This is a fairness issue."

©2002 by Crain Communications Inc.