Association Health Plan Primer
The Senate Health, Education, Labor and Pensions Committee on Wednesday voted along party lines to approve an association health plan (AHP) bill. President Bush pointed to AHP’s in his state of the union address as one of many reforms to help individuals attain health insurance. But AHP’s expose individuals to another frontier of risk, where their health benefits are paltry, uncertain, and expensive.
The key complaint driving the creation of AHP’s is that state regulation bars insurers from offering affordable health plans. If insurers could offer plans on a national market, bypassing any state regulations, more plans would be offered and more individuals would become insured. Unfortunately, this type of thinking isn’t supported by reality.
Bare-bones plans have been offered for years, and people don’t want them. But more than that, Ezra Klein takes a look at why we have state regulations in the first place:
The reason states mandate that insurers cover certain procedures is so insurers can't price folks who are likely to need those treatments out of the market. Insuring young women, if you didn't need to cover anything related to pregnancy, would be relatively cheap. Pricing the pregnancy package through the roof would be relatively easy. And denying the claims of those who bought the base package and then got pregnant would be trivial -- and would save you a ton of money. So almost all states mandate that you cover maternal care. And this goes across the board, from procedures the old use but the young don't need to packages that target specific lifestyles. If you allow the insurance companies to subdivide the market by treatment needs, what you'll have is bargain-basement pricing for the young and healthy coupled with unbelievable premiums for their less-lucky friends.
But this statement from Committee Chair Mike Enzi (R-WY) on the purpose of AHPs is the most revealing:
Let us put the power in the hands of small employers and family-owned businesses, rather than in the hands of insurance companies or the government. Let the consumers band together to drive the change that we want to see happen
Enzi is completely wrong about where the power in this situation is going. It’s funneled directly to the insurers! They’ll be offering bare-bones plans to these small businesses, who will have no ability to negotiate higher benefits. Why? Because there’s nothing barring them from trying to negotiate plans with insurers now. Insurers simply aren’t interesting in offering an affordable but comprehensive product to small businesses.
But why trust history? Enzi wants consumers to band together and force doctors/hospitals/insurers/employers to provide them with cheaper health care. Because they surely haven’t had enough time to do so the last forty years.
The bill has already passed committee. If it passes the Senate, it will only continue to weaken health insurance as we know it. The way to solve our health insurance problems isn't by cutting benefits, it's by fixing our fragmented system that costs twice as much as our more generous international counterparts.
Oy. And don't forget the possibility for regulatory capture, with whatever federal folks end up overseeing this headed by the kind of hacks we've come to expect. (And any suits arising from breach of even the lousy insurance contracts to be heard by an increasingly consumer-hostile federal judiciary.)
March 20, 2006 11:16 AM | Reply | Permalink
Unfortunately, Association Health Plans have had a sordid history of fraud. By self-insuring these plans bypass state regulation already using the ERISA exemption. During the past decade literally hundreds of these plans have either gone bankrupt through mismanagement or fraud. This leaves the insureds with sky high medical bills and no recourse.
I spent 32 years in the Group Health business as a senior executive and Association health Plans do NOT save a material amount of money vs a small company purchasing the Group coverage on their own. There is simply no expense savings when you have to market and bill and service thousands of small companies individually.even though they are part of a big association plan. The reason big companies get discounts is because there are genuine expense savings in the premium rates - one bill, one sales commission etc. The ONLY savings for Associations would be a 1% or 2% reduction in profit margin, if that.
Now there are possiblitlites to save money in avoiding state mandated benefits. The maternity coverage is one example but primarily the costs are mandated coverage for things like chiropractors, dieticians, social workers, marriage counselors, holisitc medical practictioners etc etc etc. The laundrey list in any given state is usually in response to special interest lobbying by either practictioners or some sad tale of woe.
In short, for a potential savings of peanuts, we will be exposing a broad section of society to life threatening fraud. The states already do a lousy job regulating these association entities and the Bush Administration will do 10 times worse. Someone in the Democratic party should put together a list of the fraudulent association plans that have been out there the last 20-30 years
March 20, 2006 4:44 PM | Reply | Permalink
the 'history of fraud' argument is something of a non-starter. as i understand it, the legislation includes solvency requirements for self-insured AHPs that don't currently exist for exemptions under ERISA. plans would be required to maintain claims reserves, carry indemnification insurance to cover outstanding claims if a plan is 'terminated', secure specific excess and aggregate excess stop-loss coverages, and maintain a surplus of at least $500,000 (in addition to the claims reserves).
and while the bush administration's track record with regulatory oversight is a well-founded argument against the bush administration, it isn't actually a real argument against AHPs.
March 20, 2006 10:37 PM | Reply | Permalink
You are correct that these "safeguards" are part of the proposed legislation but, here are the BUTS.
1 - Claim reserves are notoriously subjective and can vary from 15% to 40% of annual premium. There is a lot of room to game the system.
2 - The typical indemnification agreements all are null and void if fraud occurs. Stop loss usually is purchased for claims in excess of $50,000 or $100,000 and 125% of expected claims. If you had a Association Plan with 10,000 members (easy to reach) the premiums would be $30 to $40 million/year. A 25% swing in claims easily swamps the $500,000 extra reserve. Besides, at least in the past such reserves could consist of IOU's or pledged "assets" from the principals - not necessarily reassuring.
I really believe this is a disaster in the making. Do you agree with me that such plans save little in the way of genuine premium savings? If so, why take the risk?
March 21, 2006 7:19 AM | Reply | Permalink
I agree that these plans will eviscerate a large number of protections that currently exist in GHP's. That being said, I think the law with a few tweaks could actually be beneficial.
There are some cost savings IMHO to be achieved here -- probably much larger than you maybe thinking, some points I found useful in my analysis:
* The bill, as adopted, essentially prohibits underwriting except for the association as a whole
* All employers are subject to the same premiums regardless of health status
* No member of the group maybe denied coverage
* The group may not have service providers to the group (with the exception of professional medical organizations) on the board of trustees overseeing the plan.
* The plan must be fully insured by a separate entity.
IMHO, many of the issues that allow UCIC & Mega to exist will eliminated.
However, patient protection will be poor:
* No COBRA protection (or mini-Cobra as adopted in most states)
* No continuation coverage credit for prior coverage
* No prompt pay requirements
* No appeal's for denial of coverage or Utilization Reviews
* No restrictions on Utilizaiton Reviews
* No gaurenteed provider access (OB/GYN's, etc)
* No required benefits (Mental Health, Addiction, Cancer, AIDS, etc).
* All of the above being said, DHS will essentially become a national insurance commissioner, and can require any/all of the coverage requirements currently existant, but its not written into law so I don't have much hope for Bush appointees.
I am willing to accept that my understanding of the legalize in the bill maybe poor -- if someone sees something I said as wrong, I'd be glad to hear it.
March 22, 2006 11:21 AM | Reply | Permalink
So what's your conclusion? I can't tell if you support the bill or not. It looks like a GOP giveaway to me.
March 22, 2006 3:58 PM | Reply | Permalink
Depending on how the Secretary writes the rules, it could be very good or very bad for the small business insurance market IMHO. In the best case scenerio, it could expand coverage availability for small businesses and reduce pricing.
That being said, the regulations are completely left in the hands of the Secretary, with no gaurentee's in the bill itself. This aspect I find more than a little troubling. The bill as written I would (if I could vote on it) probably oppose, due to the fact that I don't trust the Bush Administration to write resonable regulations. The same bill with Clinton at the helm I would probably support. Ideally, the bill should include significantly more protections.
March 22, 2006 10:41 PM | Reply | Permalink
I also find it very ironic that a good portion of Enzi's campaign contributions come from the insurance industry. Of course he is so eager to help them out. CLearly as pointed out by all of you, this bill is not in the best interest of the general public but the insurance companies.
http://www.opensecrets.org/politicians/allsector.asp?CID=N00006249
March 23, 2006 11:30 AM | Reply | Permalink