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A Flawed Approach to Helping the Uninsured

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Today, about 60 percent of the more than 43 million uninsured Americans work for or own small businesses. President Bush and Congressional Republican leaders have offered association health plans (AHPs) as a solution to this problem. Proponents are so convinced of AHPs’ effectiveness that this week they are urging House members to pass their AHP bill for the second time this session to commemorate “Cover the Uninsured Week.” Far from being a panacea for small businesses’ health insurance ills, AHPs fail to fulfill their promise to the uninsured and could actually deliver a poison pill for our health care system.

In theory, AHPs are intended to implement a laudable goal: allow small employers to pool their risk nationally so they can get the same economies of scale and negotiating power as large employers. In practice, the AHP proposals now pending in Congress (H.R. 660/H.R. 4218/S. 545) go far beyond these simple concepts with potentially disastrous results. They would allow trade associations to offer health insurance plans that would be largely exempt from state regulation and without meaningful federal oversight.

A number of studies suggest AHPs will do little to help the uninsured, and could do more harm than good. There are four key areas of concern:

1. No Help for the Uninsured: Studies analyzing AHPs have consistently found that AHPs would not likely help the uninsured. Encouraging uninsured small employers to take up coverage requires either a significant decrease in the cost of coverage or a sizeable subsidy. AHPs attempt to achieve lower costs through pooling, but merely pooling small employers into a larger group does little to address the underlying cost-drivers that make coverage so expensive – administrative costs remain high because small groups are still enrolling separately and less healthy employees, even within a larger group, still have an impact on group costs. The most recent Congressional Budget Office (CBO) analysis bears this out, finding the majority of those covered by AHPs would already have been insured: AHPs would provide new coverage for only 600,000 of the nearly 44 million uninsured Americans. A recent California Health Care Foundation analysis of AHPs’ impact in California is less optimistic, finding that AHPs would provide no net gains in coverage, and would instead merely churn the market. A third study by Mercer Risk, Finance, and Insurance Consulting suggests that AHPs could actually increase the number of uninsured by as much as 1,000,000 individuals. At a minimum, any proposal to help uninsured small businesses must make substantial inroads on this problem, not make the situation worse.

2. Increased Cost of Coverage: Most small businesses and others now covered in the state-regulated insurance market would likely see their health insurance costs rise with AHPs. CBO estimates that 4 out of 5 small businesses and their workers would see their premiums increase. CBO based this estimate on its assumption that AHPs could save money and encourage small businesses to join only by avoiding current state benefit mandates and by selecting out healthier groups and individuals. Those left behind in the state-regulated market would be less healthy and more in need of comprehensive coverage, creating an adverse selection risk spiral that would drive up the cost of coverage. Mercer also estimates that premiums would rise dramatically, by as much as 23 percent for small businesses left in the state regulated market. At a time when employer-sponsored coverage is already experiencing double-digit increases, these additional costs could price health insurance out of reach for many small employers who presently provide it.

3. Loss of Consumer Protections: Current state regulation and oversight provides critical consumer protections that would be lost with AHPs. States now require fair rating of insurance policies and require insurers to offer and renew policies for all small businesses that apply. By contrast, AHPs could cherry pick healthier individuals by pricing policies based on claims experience, discouraging less healthy individuals to enroll through benefit design, and offering different policies by geographic region. Consumers would also lose access to state mandated benefits and services from which AHPs would be largely exempt, including maternity services, cancer screenings, mental health services, well-child care, diabetes supplies and education, and participation in clinical trials. Consumers would lose the right to independent review of claims denials now guaranteed in 43 states and would lose access to one of their most valuable resources: local, accountable state regulators who can help them. Without state oversight, consumers could find themselves paying more for far less health coverage.

4. Risk of Fraud and Insolvencies: As proposed, AHPs are not unlike our nation’s failed experiment with multiple employer welfare arrangements (MEWAs). In the 1970s, Congress briefly exempted MEWAs from state oversight with tragic results – 400,000 individuals were left with more than $123 million in unpaid medical bills. Even with current joint regulation of MEWAs and other association health plans, the risk of fraud and insolvency in this area remains high. A recent GAO report documented that association health plans now operating under close scrutiny by state and federal agencies have provided fertile ground for scam operators to defraud millions of health care consumers. From 2000 to 2002, at least 144 unauthorized or fraudulent health benefits operators across the nation left $252 million in unpaid medical claims affecting 200,000 individuals. AHPs would undermine stringent state financial oversight and solvency standards now in place and replace them with minimal and inadequate federal oversight, leaving consumers at even greater risk for fraud and unpaid medical claims.

There would be clear winners and losers with AHPs. Healthy individuals and employer groups would win more affordable, but perhaps less adequate, health insurance coverage. Less healthy and older individuals, lower income individuals facing higher out-of-pocket costs, and individuals who remain in state-regulated plans would lose. Women especially are at risk, because they are greater users of health care services and need access to many of the benefits states now require health plans to cover. African Americans, Latinos, and other racial and ethnic minorities, many of which are at higher risk for chronic and life-threatening conditions like diabetes, cancer, and heart disease, would also find themselves facing even greater barriers to quality, affordable health coverage because of AHPs. Because all of us are only one accident, illness, or genetic predisposition away from being labeled a bad health risk, we all have much to lose from AHPs. That is why more than 1,000 national, state and local organizations, representing consumers, patients, health professionals, labor unions, state government officials, and small businesses oppose this AHP proposal.

There are other ways of helping uninsured small businesses that would not put our health care system at risk. Small employer tax credits that encourage small employers to offer coverage, especially for low-income workers who are the most likely to be uninsured, are a smart, efficient way of getting at this problem. Creating a national pool like the Federal Employees Health Benefit Plan for small businesses that would enable small employers to get a better-priced, higher quality health insurance policy that would still ensure consumer protections is another. Expanding public coverage under Medicaid and SCHIP for low-income parents and childless adults would also have a significant impact on this population. Any and all of these approaches could be pursued without fear of adverse effects. Proposals to help the uninsured must make a difference in providing access to comprehensive, affordable coverage to those most in need without undermining consumer protection or eroding coverage. AHPs fail to meet this standard.

Judith L. Lichtman and Alice M. Weiss are the president and director of health policy, respectively, of the National Partnership for Women & Families. For more information about AHPs and the National Partnership for Women & Families, click here.

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