Are Association Health Plans The Cure?

More than 41 million Americans are living without health insurance, many of whom are employed by small businesses. One hotly contested piece of legislation looks to address this concern with the creation of Association Health Plans (AHPs).

AHPs would allow small businesses to band together and, through trade and professional associations, purchase affordable benefits, essentially acquiring them at bulk rate. The Congressional Budget Office has estimated that by purchasing benefits through an AHP, businesses will see premium reductions that range between 13% and 25%, or $450 to $1,250 per employee.

Small businesses have found it increasingly difficult to purchase healthcare insurance. In fact, in a study conducted last year by the National Association for the Self-Employed, two-thirds of small business owners said they are unable to provide health insurance for themselves and their employees because of the high cost.

“Obviously two key aspects are access and affordability, which are major problems for small businesses,” says Hector Barreto, administrator of the U.S. Small Business Administration. While most people try to have some form of life insurance, the rising costs of healthcare often make it prohibitive for small companies. Barreto also believes that a small business’ inability to provide adequate benefits puts it at a distinct competitive disadvantage.

Other plans designed to reduce health insurance costs for small businesses include medical savings accounts, which allow people to put away pre-tax dollars to pay for their own health benefits, and the recently introduced Self-Employed Health Care Affordability Act, which offers 100% tax deductibility of health insurance costs for the self-employed. However, both can be costly.

The Senate and House of Representatives have been working on Association Health Plan legislation. Rep. Nydia Velázquez (D-NY), ranking member on the House Small Business Committee, says she will only support such legislation if it includes certain safeguards. “We have to make sure that any Association Health Plan bill will include protections that prohibit group health plans from excluding high-risk employers or individuals with high claims experience. We [should also ensure that] the labor department will monitor AHP implementation and operation and provide the department with the resources … need[ed] to monitor them,” says Velázquez. “And legislation must include provisions to ensure that proper safeguards exist so that claims are paid in the case of insolvency, and it must also be effective in [offering provider] choice, which is apparently very limited.”

Sandy Praeger, speaking at the Senate hearing on behalf of the National Association of Insurance Commissioners, opposed AHP legislation, claiming it will undermine state reforms, lead to increased plan failures and fraud, and eliminate important patient protections. “The whole concept of an AHP relies on the notion that you’re going to pool this group of association members and get cheaper insurance than you could in the regular market.”

But if AHPs are such a bad idea, why are they getting so much support? “What this has done is say to everyone involved, from the regulators to the consumers to the insurance companies, that the system is not working. We’ve got to look at