Trade groups and small business owners say the results of a recent federal study are alarming enough to substantiate their plea for the creation of association health plans (AHP).
Information contained in the U.S. General Accounting Office’s (GAO) review of the small group health insurance market has given trade associations more ammunition in their fight to convince Congress to pass legislation that supports AHPs. The study, titled “Private Health Insurance: Number and Market Share of Carriers in the Small Group Health Insurance Market,” shows that large carriers possess a dominant share of the business.
“’The GAO report confirms that the small employer health insurance market is burdened with a lack of free market competition,” said Joseph Rossmann, vice president of insurance for the Associated Builders and Contractors (ABC). “It also is interesting to note that the most adamant opponents of AHPs and the increased competition that they could bring to the market are the same carriers that have the largest market share and are opposed to any increase in competition.”
To complete its study, the GAO sent an electronic survey to the offices responsible for regulating insurance and health plans in each state. The results were based on data, gathered in February and March, from 43 of the respondents that provided sufficient information.
Kathryn G. Allen, director of health care, Medicaid and private health insurance issues for the GAO, noted that only 37 of the states had information about the largest carrier and only 34 provided market share data. Thirty-three of the participating states defined a small group as one that has two to 50 employees.
The GAO’s summary of its findings was of particular interest to associations such as ABC and many others. The results revealed the following:
• Twenty-five of the 37 states supplying information about the largest carrier identified the Blue Cross and Blue Shield Association (BCBSA) as the largest provider of health insurance in the small group market. In all but one of the 12 remaining states, a BCBSA carrier was among the five largest.
• The median market share of all the BCBSA carriers in the 34 states providing this type of information was approximately 34 percent with a range from about 3 percent in Vermont to about 89 percent in North Dakota. BCBSA carriers combined for half or more of the market in nine of these states.
• The five largest carriers, when combined, represented three-fourths or more of the market in 19 of the 34 states supplying information and they represented more than 90 percent in seven of these states.
• The median number of licensed carriers in the small group market per state was 28 with a range of four in Hawaii to 77 in Indiana.
“Domination of small business health insurance by a few big insurance companies is clearly driving premiums higher,” said Craig Brightup, vice president of government relations for the National Roofing Contractors Association (NRCA). “Imagine what a new roof would cost if only two or three roofing contractors effectively controlled more than 90 percent of the work in any given state.”
Brightup said 90 percent of roofing contractors are considered small businesses and most of them are family-owned and operated. He said the creation of AHPs would give trade associations the ability to establish health insurance purchasing and distribution pools across state lines for their small business members.
“Currently, labor unions and Fortune 500 companies have the ability to offer health benefits to members and employees under the Employee Retirement Income Security Act [ERISA] of 1974,” said Brightup. “This saves them from the cumbersome, costly task of complying with different rules, regulations and benefit mandates that exist in each state. Unfortunately, small businesses are effectively excluded from this opportunity.”
The ABC and NRCA are among the groups now working to convince members of the Senate to approve the Small Business Health Fairness Act (S. 858). The measure was approved by the House of Representatives in August 2001 as a provision of the Bipartisan Patient Protection Act (H.R. 2563). The Senate’s version of the Patients’ Bill of Rights does not include a provision for creating the AHPs.
Brightup said the pending legislation would amend ERISA to allow professional associations to offer health insurance.
“AHPs have the potential to substantially reduce the ranks of the uninsured because 60 percent reside in families employed by small businesses,” added Brightup. “This private-sector solution has no direct cost to the U.S. Treasury and would help small businesses receive desperate relief from skyrocketing premiums in a system that is bereft of competition in many states.”
BCBSA officials have offered support for tax credits to help employers offer health insurance. However, they continue to maintain that AHPs would not be properly regulated and, therefore, could put small employers and their workers at risk of financial despair if the plan is fraudulent or goes bankrupt.
The BCBSA equates the proposed AHPs to small employer health plans known as Multiple Employer Welfare Arrangements (MEWAs). According to the BCBSA, the failed MEWA plans resulted in $30 million in unpaid medical bills for workers and their families; forced 65,000 participants to scramble for alternative health-care coverage; and left 15,000 doctors, hospitals and other health-care providers with unpaid claims.
However, trade groups in the construction industry believe the BCBSA is purposely blurring the important distinction between AHPs and discredited MEWAs which, unlike AHPs, can be created by anyone and have been linked to insurance scams.
“It’s sad that Blue Cross and Blue Shield continues to devote so much time to misrepresenting AHPs even as NRCA members and other small businesses are getting socked with outrageous premium hikes,” said Brightup. “AHPs would be subject to strict sponsor-eligibility requirements, including financial and other reporting criteria for the protection of consumers. In addition, AHPs could not discriminate against an employer member based on the health status of employees, previous claims or risks associated with the employer’s business.”
The AHP provision passed by the House last year gives the Department of Labor criminal and civil enforcement powers to combat health insurance fraud.
The NRCA lists several key components of the proposed AHP provision, including:
• Small businesses, through bona fide trade and professional associations, would be able to negotiate better, more affordable agreements with providers.
• Small businesses would have the flexibility to choose the coverage they want, including uniform benefits across state lines.
• AHPs would be registered as ERISA plans with the U.S. Department of Labor and be subject to state oversight. However, costly state-mandated benefits would be superceded, enabling small businesses to save an estimated 30 percent in overhead costs. Opponents, such as the BCBSA, contend it would be difficult to hold AHPs accountable to enrollees because the plans could not be efficiently regulated by individual states.
“The House-passed legislation allows AHPs to operate under one set of governing rules instead of complying with many different state mandates that have historically discouraged AHP participation,” said Chris Vest, manager of media relations for the American Society of Association Executives (ASAE). “Through AHPs, employees of small businesses would benefit from the same economies of scale and purchasing clout currently enjoyed by large employers thanks to the passage of ERISA back in the 1970s.”
Vest said ASAE has been working for approximately five years with a coalition of associations who are determined to gain passage of the AHP legislation, which is supported by President Bush. He noted a recent survey conducted by the National Association for the Self-Employed (NASE) showing that 78 percent of small business owners would be very likely or somewhat likely to buy coverage through association health plans.
“AHPs are going to help any small business that is currently struggling to provide their employees with affordable health-care options strictly because they provide the same kind of pooling or purchasing power enjoyed by larger employers,” said Vest.
“The NASE survey also shows that more than 70 percent of businesses with fewer than six employees do not provide health insurance, primarily because it’s cost-prohibitive.”
Dirk Van Dongen, president of the National Association of Wholesaler-Distributors (NAW), said the rising cost of health insurance is having a significant impact on employers and their workers. In fact, a recent study by NAW revealed that insurance premiums for wholesalers-distributors with less than 500 employees increased an average of 20 percent over the past year.
“Ninety-five percent of the companies participating in the NAW study said that if the current premium trend continues, they plan to implement cost-cutting options that will increase employees’ out-of-pocket medical costs,” said Van Dongen. “Nearly 40 percent of our member employers experienced premium increases of 20 percent or greater and approximately one-quarter were hit with increases of 25 percent or more during the past year.”
