NBCH Policy Position: Association Health Plans (AHPs)

The National Business Coalition on Health supports federal legislation that expands, standardizes and streamlines the availability of health coverage for employees of America's small employers by allowing employers to join together to buy health coverage through a variety of state and national models, including health care purchasing cooperatives and federalized Association Health Plans (AHPs). Given the unique needs of the coalitions' members, and of the individual employers that make up each coalition's own membership, NBCH does not claim that each of its member coalitions, or their own employer-members, endorses AHPs.

This purchasing model provides a practical way for small employers to enjoy more bargaining power, greater choice, economies of scale, and administrative efficiencies. In this way, AHPs could level the playing field and give participating small employers the advantages currently enjoyed by larger employers and unions. These benefits include:

• Small businesses have little purchasing power and few affordable options. The lack of competition is contributing to double-digit rate increases for many small businesses and resulting in the rise in the number of small business employees who are uninsured. AHPs may make health insurance more affordable for small business through reduced premiums. The Congressional Budget Office (CBO) has estimated that small businesses obtaining insurance through AHPs will experience premium reductions of 13% on average and up to 25% (CBO, January 2000).

• AHPs will provide more choice in the health insurance market place. In addition to self-funded plans, which will be required to comply with stringent solvency and stop-loss requirements, legislation federalizing AHPs will provide fully-insured plan options under a uniform set of federal rules and exemption from state-based mandates.

• Employer groups exercise a degree of leverage in purchasing health coverage, depending on the size of the group. As a result, groups pay significantly less per capita for coverage of similar benefits than do individuals. Small businesses themselves are a weak bargaining unit. Through AHPs, the smallest firms stand to save the most from AHPs because their administrative costs, which account for a significant percentage of their expenses, will decrease. A January 2003 Small Business Administration (SBA) actuarial report shows that administrative expenses for insurers of small health plans comprise 33-37 percent of claims. This compares with about 5-11 percent of claims for large companies' self-insured plans.

• Uniform federal regulation of AHPs will help small businesses lower their administrative costs because, by operating under federal law, AHPs can avoid the costs of complying with 50 different sets of state benefit mandates. In addition, AHPs that are operating on a national level will be able to receive more favorable treatment from insurers.

Despite the positive attributes of AHPs, this model must be carefully considered as current legislation has fundamental shortcomings. These concerns must be addressed to ensure that AHPs function in a manner that has a complete and positive impact on the small employer market. Here are major concerns and proposed solutions:

• Stringent state insurance rating rules do no apply to AHPs as currently written. This allows insurance rates to be set based on the claims experience generated by each association pool rather than as part of the regular small-group rating structures required by state laws. Additionally, with broad federal oversight provided for in current AHP legislation, AHPs could simply be set up in states with the most lenient insurance laws and make it easier for insurers or companies to discriminate against higher-risk patients otherwise known as "cherry-picking." This could result in premiums set so high that high-risk patients essentially would not have access to insurance.

  One solution is to standardize or federalize state underwriting practices or community health insurance rating laws. Alternatively, and perhaps a simpler short-term solution would be to eliminate current bill language that gives insurers a wide berth in setting rates for different groups. Another option is to restructure the purchase of insurance and reinsurance. Reinsurance allows insurers to offer coverage to high-cost individuals who otherwise would drive up premiums for individuals who are low or medium risks and may be a fair and equitable way to financially assist insurers with high-cost cases.

• Another concern with federalizing AHPs is that insurers would have no incentive to cover preventative measures or some expensive procedures if it is not included in the law. This creates an unlevel playing field for state-based health care purchasing cooperatives and collaboratives, in which several NBCH member coalitions participate, since these groups must abide by state coverage mandates. By allowing AHPs to exist without having to abide by state mandates, there will be a variety of plan designs setup that have extremely low levels of benefits. This may help keep the overall premium expenditure low for these plans and be advantageous and attractive to employers with young and healthy employees, but would disadvantage employers with older, sicker populations by forcing them to remain in the state-based plans to ensure that their employees have access to the necessary benefits. Consequently, AHPs, in their current form, could have the ability to dominate the good risk from the current community-rated pool and result in higher utilization by state governed plans, causing their premiums to increase. There is a need to maintain a certain threshold of state mandates for coverage of specific treatments, supplies, and preventative care. This would help level the playing field for all health care insurance providers.

• AHPs are granted self-insured coverage status, which is subject to reduced solvency protections and requirements compared to requirements of state-based health plan requirements. Though solvency standards still are in place, they are much more flexible in that the current language allows stop loss coverage or reinsurance instead of a minimum cash reserve requirement. Since AHP's would not be governed by state law, there is concern as to whether these plans will be properly monitored and regulated means there would be no protections against arbitrary increases, i.e.— for re-insurance, copayments, or out of pocket expenses.

• With federal government oversight of AHPs comes a responsibility to the taxpayers to ensure qualified AHPs provide not only access to health care benefits, but that they bring value to both employers and consumers by obtaining the highest quality care at the most reasonable cost, i.e.— Value-Based Purchasing; by measuring the comparative quality and efficiency of hospitals, physicians, and health plans in the community to identify the best value; and by creating incentives to provide higher-value care through integrated delivery systems and continuous quality improvement.

Finally, many employers practice "value-based" purchasing, in which not only price but quality of care is weighed in the purchasing decision. Despite the advent of consumer-driven health care options, recent studies indicate that individuals often lack access to the tools and resources they need to make decision about their health care and to shop for quality when purchasing coverage.

NBCH's nearly 80 member employer coalitions are in a unique and strategic position to conduct value-based purchasing in their communities through AHP sponsorship, provided that AHPs are legislated to address well-founded concerns with the current language. Our member coalitions have set a rich precedent nationally and in their communities in organizing collaboration among health care and employer stakeholders, and in working toward the common goal of expanded affordable health care coverage, with improved administrative efficiency, quality, and patient safety.