Legislative Relief
on Health Insurance Costs
Health care costs for small businesses, such as
finishing, are rising. Here is what has proposed as one alternative…
By
Jeffrey Hannapel
The Policy Group
Washington, D.C.
Given
rapidly accelerating premiums, finishers and other small business
owners are severely challenged to provide health coverage for their
employees. Thirty-nine million Americans are currently uninsured,
and about 60% of those represent families headed by employees of
small businesses. On the metal finishing front, while a significant
percentage of companies currently provide coverage for workers,
many simply cannot afford it.
In
2001, the cost of insurance for all companies grew by 11% from the
preceding year, and the premiums of small companies in particular
grew by 16.5%. Many metal finishing firms have experienced even
greater increases in health care premiums for their employees since
2001. With these rising costs, job shops face an overwhelming financial
burden in providing health insurance for their employees.
Some
in Congress have tried to solve the looming crisis by promoting
legislation to allow industry trade associations to set up group
plans for member companies. Legislation is moving this session in
both the U.S. House of Representatives (H.R. 660) and the U.S. Senate
(S. 545) that would create "Association Health Plans"
or AHP's. The House just passed the "Small Business Health
Fairness Act of 2003" in June that included AHP provisions.
A bill with language identical to the House version was introduced
in the Senate and has been referred to the Committee on Health,
Education, Labor and Pensions.
While
AHP is not the silver bullet to solve all small business health
coverage issues, it's the best shot industry has this year to address
the problem.
So
what would an AHP look like?
Requirements
for Association Health Plans
An AHP is a group health plan that features three items:
- Fully-insured
and/or self-insured medical benefits
- Has
been certified by the Department of Labor
- Is
operated by a board of trustees with complete fiscal control and
responsibility. The objective of AHPs is to provide affordable
health insurance options to small businesses.
For
small companies that look to AHPs for relief, the legislation requires
that numerous safeguards be met before an association can offer
health insurance to its members by means of an AHP. Associations
must first be categorized as bona fide associations, meaning that
they must meet specific criteria:
- Have
been in existence for at least three years
- Exist
for reasons other than providing health insurance
- Operate
by a constitution and by-laws
- Hold
annual meetings
- Collect
dues from those members
- Represent
a broad cross-section of trades or represent one trade with average
or above health insurance risks
- Use
a state-licensed health insurance agent to distribute health insurance
coverage
- Use
state-licensed health insurance agents to distribute self-insured
benefits, if the AHP also
- Provides
health insurance coverage.
AHPs
must also meet the U.S. Department of Labor certification standards,
which require self-insured AHPs to meet the following:
- Have
at least 1,000 participants and beneficiaries
- Have
reserves sufficient for unearned contribution, benefit liabilities,
administrative costs, and
other obligations if the AHP offers benefit options that are not
fully insured
- Obtain
aggregate and specific stop-loss insurance as well as indemnification
insurance
- Make
annual payments to an AHP Fund
- Maintain
surplus reserves of $500,000 to $2,000,000.
Advantages
of AHPs
Given these provisions, as well as the financial savings to
small employers, AHPs are widely supported. The Bush Administration,
through the Department of Labor, has been very vocal in its support
of AHPs and the Small Business Health Fairness Act. In addition,
nearly 150 trade organizations, including the National Association
of Manufacturers, the National Federation of Independent Business,
and the U.S. Chamber of Commerce support the passage of the proposed
AHP legislation. These groups cite several significant advantages
to AHPs:
Savings
for Employers. The Congressional Budget Office has estimated
that AHPs will provide premium reductions ranging from 9-25%,
a substantial annual savings for the typical small businesses
ranging from $500 - $1,250 per employee.
Reduce
Administrative Costs. A great disparity exists between large
corporations and small employers in their ability to provide health
insurance. Administrative costs for small firms can be between
20% and 25% of the premium, whereas large companies pay closer
to 10%. Participating in an established AHP significantly reduces
costs associated with providing health insurance benefits.
Greater
Flexibility. Associations serving as insurers would be able
to provide a greater variety of health insurance plans tailored
to meet the needs of a cross-section of employees, giving workers
the ability to choose plans to meet their needs. Currently, only
a few insurers control an overwhelming majority of the insurance
market for small companies, placing immense constraints upon employers
to offer options for workers.
Criticism
of AHPs. Not everyone supports the AHP legislation. Opponents
of AHPs such as Blue Cross/Blue Shield and other insurance providers,
the National Association of Attorneys General, and the State Insurance
Commissioners are actively working against passage of small business
relief. They argue that associations will only offer insurance
to the healthiest of its members in order to minimize premiums
and claims payments. They warn that AHPs may also lead to insurance
fraud and abuse. Finally, they claim employees and their families
will be covered by insurance plans that are not regulated by state
mandated benefits, thereby receiving severely reduced benefits
through the AHP.
Proponents
of AHPs are countering these concerns by noting that the legislation
is written specifically to prevent these situations. Associations
and the insurance they provide will be regulated by the Department
of Labor and meet the strict eligibility rules described above.
Moreover, the Health Insurance Portability and Accountability Act
of 1996 requires insurance to be offered to all employees of an
association.
The
metal finishing industry and other small business sectors need relief
NOW, and Government Relations will soon be providing a grassroots
"sample letter" to finishing companies to send to Capitol
Hill urging passage of the AHP provisions. By making an attempt
to get more comprehensive health insurance available to workers
employed by small businesses through AHPs, more hard-working Americans
will have the best health care for themselves and their families.
Individual companies can secure these benefits if they are members
of a trade association that establishes an AHP. This can only happen
if the proposed AHP legislation is passed.
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