Some Look to Associations for Insurance

📅 Mon July 16, 2007 - National Edition
Giles Lambertson



Contractor associations in the United States struggle in 2007 to offer medical insurance to their member companies. Part of the problem is federal resistance to a plan that would allow national associations to negotiate bulk health care coverage with insurance carriers. Yet some companies continue to look to associations for help in insuring employees.

The backdrop for the industry struggle is the larger health care crisis in this country, which hits small businesses especially hard. Consider these facts offered by the National Federation of Independent Businesses:

• More than half of the estimated 45 million Americans without major medical insurance are small business owners, workers and their dependents;

• The smallest business owners in the country, including small contractors, pay premiums approximately 18 percent higher on average than do the largest companies for the same coverage;

• Between 2005 and 2006, the costs to business owners of employer-sponsored health care rose twice as fast as the overall rate of inflation.

Proponents of reform argue that associations should be able to return to a regulatory situation that existed 15 or 20 years ago. At that time, various state legislatures began to tinker with rules regarding insurance providers. The legislators enacted provisions they believed would protect their constituents from large health insurance providers.

“The states were trying to impose state legislative requirements that would more or less rein in big insurance companies, but it made for a hodgepodge of insurance across state lines,” said Joe Rossmann, vice president of fringe benefits of Associated Builders and Contractors.

While the “good intentions” of the legislators in the various states are not questioned by Rossmann, the upshot was that insurance companies reacted to the myriad new regulations by pulling out of agreements with associations.

“They decided they no longer wanted to jump through all the hoops to provide insurance,” Rossmann said from his office in Arlington, Va. By 2000, “there really was no insurance company that wanted to deal with the inconsistencies.”

What the various associations lost was the leverage that comes from representing contractors all across the country. For example, ABC represents approximately 23,000 merit construction and construction-related companies in 79 chapters. The negotiating clout and purchasing power that comes from representing that many potential customers was significantly reduced when the industry decided to operate at state or regional levels.

“There are challenges now in putting together a nationwide program,” said Mike Kennedy, general counsel of Associated General Contractors. “So much of the regulation is at the state level that the health care industry is organized on a state-by-state basis. It is difficult to find — probably impossible to find — any one health insurance carrier that offers the best deal for every area.”

Associations React to Change

National associations responded to the fragmenting of the system in one of two ways: They continued to offer, under an association umbrella, what insurance help they could for major medical as well as ancillary health care coverage like disability, dental and vision, or they dropped coverage altogether in favor of state coverage through association chapters.

Associated General Contractors defers to state chapters for association insurance coverage. Kennedy acknowledged in a phone interview from his Washington office — where he is monitoring congressional initiatives besides health care that affect AGC members — that the association could cobble together a package of insurance offerings if it chose to do so.

“But we aren’t interested in doing that unless we have a program that is materially better than what the companies can get in the market. Some associations do it just to say they have something, but I question whether those programs are competitive. There is nothing in the structure of those programs that would lead to any long-term cost advantages.”

On the other hand, Kennedy said, “we always are considering it. It is a question under constant review.”

Associated Builders and Contractors was in the forefront of the industry when it formed an insurance trust in 1957 after some member contractors banded together over their frustration at finding an insurance company they could afford. From that initial merger, the association built a program that served its members increasingly well until the 1990s, when the legislators in various states began to fiddle with insurance regulations. By 2000, the association advantage largely was gone.

ABC still offers some health insurance coverage under the “ABC Merit Choice” banner, which is organized as a national insurance agency. It has access to approximately 60 regional and national insurance companies and culls the best deals from them for association members.

Dennis Weller is a former ABC Contractor of the Year and has served as an officer on ABC’s executive committee and its Insurance Trust. He is president and CEO of Structural Associates Inc. in Syracuse, N.Y. He has his company enrolled in some of the association’s health care programs “and probably would belong to the other programs if we could get these other bills through Congress.”

He said for a small company the bottom line difference between a nationally negotiated insurance agreement and a state-by-state regulated agreement is 20 to 25 percent. That is how much cheaper insurance premiums could be were the federal government to pass legislation that lets federal insurance law supersede state regulations.

“Our average membership in ABC is smaller contractors,” Weller said. “The associated health plan proposed in Congress would allow these smaller contractors to pull together to get the strength in numbers.”

Congress Balks

But such new law is not apt to be negotiated in the 110th Congress. In the last session, Rep. Sam Johnson (R-Texas) introduced the Small Business Health Fairness Act of 2005, which would have allowed national association health plans. It easily passed the House. However, in the U.S. Senate a companion bill was filibustered and tabled after it mustered just 54 of the needed 60 votes to shut off debate and bring the bill to a vote.

Johnson reintroduced his bill in the House in January, but prospects for its passage in the Democratic Congress are pretty dim.

“It is the damned political game,” Weller said about the situation. “We keep talking about the 45 million people who have no health care, but when there are avenues offered to fix it, obstacles are put in front of us.”

Weller blames the stalemate on “the Blue Crosses of the world that have a lock on the market as well as some special interest groups that would really like to see us not get it.” In the latter category of obstacle, he specified “trade unions.”

Rossmann said the stalled congressional proposals would accomplish “three very simple” things:

• allow for small employers to be pooled across state lines to give them the same advantage as large employers,

• provide consistency in the grading mechanism to calculate insurance premiums, and

• give some uniformity in insurance benefits and mandates.

None of that legal relief will be forthcoming from Washington any time soon, however. Therefore, the partial measures offered by national associations and chapter programs are the only recourse for small contractors not wanting to work directly with an insurance agency.

The question is, is having someone else negotiate an insurance contract sufficient incentive to join an association program? The answer, apparently, is yes. Faced with all the other paperwork and mandates of running a business, many contractors find an insurance middleman an attractive option, said Colette Evers, who is group products manager of the Oregon-Columbia chapter of Associated General Contractors.

The chapter serves Oregon and southwest Washington and with 1,200 members is the third largest AGC chapter. Approximately a third of those members are enrolled in the chapter’s health program, most of them non-union companies. Fully two-thirds of non-union chapter members participate in the program.

One of the reasons they participate, said Evers, is they “don’t have to negotiate with an insurance carrier, and many small companies don’t want to do that.”

The chapter program has been around since 1971 and has been stable for years, despite the debates in Washington and changing regulations in states across the country.

“We have tried to stay out of the national issues,” Evers said. “We are pretty happy with what we have.”

The Oregon-Columbia chapter program offers a choice between two large providers of major medical insurance and 17 possible combinations of plans, “from bare bones to Cadillac, so an employer can pick a plan that works for him,” the programs manager said. Once a contractor is satisfied his fundamental insurance needs can be met through an association, it is the “value-added” benefits that really sell a program.

Value-Added Benefits

Depending upon the association, these extras can range from mental health counseling programs to simple goodwill to swift online service. The Oregon-Columbia chapter, for example, is up to speed with its online services, offering its members electronic fund transfers, online enrollment and payment, a 24-hour-a-day, 7-day-a-week central online administrator to facilitate changes in company accounts — “along with pretty competitive pricing,” Evers said.

This package of insurance services has proven appealing enough that it is a leading reason that companies become Oregon-Columbia association members, Evers said

“I would say our health plan is the second leading driver for membership,” the group products manager said, the top draw being a worker compensation program. “Health care is a good recruitment and retention tool for us.”

Gary Houston does business in Little Rock, Ark., as Gary Houston Electric Company (aka “Mr. Electric”). He has been an ABC member for more than 30 years and has been enrolled in at least some of the association insurance programs for a quarter century.

Why?

“Peace of mind is the thing I liked best,” he said, specifically referring to the association’s major medical plan. His company was enrolled in it for years until the state-by-state fragmentation began to occur. “It was a good program and they ran it well and they looked after the contractors who were in the program.”

Houston said the ABC program — operated then and now through its trust agency — was loyal to its members and that had practical consequences for people enrolled in it. Houston said he learned that personally from having two employees with cancer.

“They [the insurance program] stuck with me all the way through. If I had had two cancer patients with a private carrier, I speculate the carrier would have found some way to get them off the rolls. The association doesn’t terminate your policy as quickly,” he said. “Those in the association running it weren’t insurance people, they were contractors and they understood our problem and wanted to keep us insured. It wasn’t strictly all business.”

The real bottom line for contractors is the impact of insurance costs on their employees and on the work their employees do for them. The trick for a contractor seems to be to find the right balance between the overhead of insurance costs and the quality of work produced by satisfied employees.

“I can’t tell you off the top of my head the percentage of my overhead that is insurance costs, but it is a substantial number and it seems to be going up,” the New York state contractor, Dennis Weller, said. “To be competitive, you have to keep your overhead under control, but there is a Catch-22: You have to keep good, quality people, too, or you aren’t going to be successful in the long term.”

Gary Houston in Little Rock makes the same point.

“I have had health insurance ever since I can remember,” he said. “I am able to keep better employees because I have the insurance. When I have better quality workers, I do better quality work. My employees make my company.

“The cost of insurance has never been a deal-breaker,” he added, “but it does increase my overhead. Most of the people we bid against have health insurance, but I am sure I have lost some jobs because of the overhead. But my employees have done such good work that it has probably gotten me more jobs than it has cost me.”

Still, health insurance coverage remains a financial strain on companies. According to Joe Rossmann, the ABC vice president, a survey in 2005 showed 96 percent of ABC members offered their employees some kind of health insurance program, mostly not through the association. A year later, the percentage of companies offering health insurance had dropped to approximately 88 percent. Rossmann said the decline in company coverage seems to mirror what is happening generally in the country.

Some industry observers remain hopeful that more blocs of neighboring states will mesh their insurance regulations so that associations can join forces across state lines and negotiate with carriers on a regional scale, thus effecting some reductions for members. But the economies that accrue to national bidders for insurance probably are lost for now to contractor associations and other small business alliances until Congress decides to intervene on their behalf. CEG