Association-based health insurance could have a lot of appeal for restaurants and other businesses with younger, healthier workers.
Tetra Images/Getty Images/
Tetra Images/Getty Images/
Tetra Images/Getty Images/
Some small-business owners burdened with high health care costs would get a break via an obscure provision in the health bill proposed by the GOP Senate. The provision would offer less regulation, more bargaining power and better prices.
But those benefits could come at a cost to others.
The clause, included in the proposal advanced by Senate Majority Leader Mitch McConnell, R-Ky., last month, would exempt insurance policies sold through “associations” from most Affordable Care Act mandates and state regulations. To be able to offer these plans to their employees, small businesses join an association, which may be loosely based on certain types of professional, trade or interest groups that offers insurance to members.
The exemption in McConnell’s bill would mean these association plans could offer lower-cost coverage that does not include a broad range of medical services. The exemption would also let these health plans set rates based on the health of the businesses’ employees.
Some associations say the loosening of regulation of their plans would be a great idea.
“Our members are clamoring for more control and more affordable options,” says Kevin Kuhlman, director of government relations for the National Federation of Independent Business, which has long opposed the ACA and supports association plans. The idea also has the backing of the National Restaurant Association.
But critics counter that the provision creates two markets — a lightly regulated one with skimpier and less expensive coverage that would attract businesses with younger or healthier workers, and a second market that would be left with mainly older, sicker consumers and insurance policies that have rapidly rising premiums.
The Senate plan — along with other GOP proposals that would loosen ACA requirements for some policies — could damage both the small-group and individual markets if it leads to cheaper plans that siphon off the healthiest consumers.
State insurance commissioners warned in a letter Wednesday that the Senate proposal would strip regulators’ authority “to preserve important consumer protections, effectively oversee the plans or ensure a level playing field.” While encouraging the idea of more insurance options, the National Association of Insurance Commissioners said the proposal as written “would lead to significant disruptions in the small group marketplace, and higher premiums and fewer coverage choices for many small businesses.”
The Senate bill’s language is similar to legislation adopted in March by the House. Similar legislation passed the House in 2003 but never won approval in the Senate.
Association health plans have been around for decades, but some had solvency problems and went bankrupt, leaving consumers on the hook with unpaid medical bills. In several states, regulators investigated whether the plans were advertising that they had comprehensive coverage when, in fact, they provided little or no coverage for such things as chemotherapy or doctor office visits.
The ACA, passed in 2010, still allows associations to offer health plans, but requires them to follow state rules for small-group coverage. That has cemented authority in the states to oversee association plans.
The Senate proposal was drafted by a longtime proponent of these plans, Sen. Mike Enzi, R-Wyo. It would classify association plans as large-group plans, just like the plans major employers offer to their workers. The large-group plans face far fewer ACA rules and are generally overseen by the federal government.
Large-group plans don’t have to offer the ACA’s 10 “essential health benefits,” and insurers can base their premiums on the health of those covered by that policy, although the employer must charge both sick and healthy workers the same amounts. As it happens, most traditional large-employer plans tend to be more generous than the ACA requires. Association plans, by contrast, are not generally as comprehensive as large-employer coverage.
Despite the Senate’s previous rejection of similar legislative language, the idea may catch hold this time. After all, some GOP lawmakers appear to be embracing a similar proposal by Sen. Ted Cruz, R-Texas. Cruz’s proposal aims to allow insurers to sell individual policies that don’t meet all the requirements of the ACA, so long as they sell at least one type of policy that does.
Support for either Cruz’s plan or the Senate’s proposal on association plans will run up against opposition from state regulators, actuaries and some small-business owners.
Insurers, these critics say, would be able to provide minimal benefits, or charge small businesses based on the relative health of their workers, or both. That could be a boon for some companies, including some restaurants or other franchise operations that employ mainly younger, healthier workers. Self-employed individuals who are healthy might also be able to join associations and qualify for the cheaper policies. But as those consumers are siphoned off, insurers would raise rates on their other plans, which must follow more stringent consumer protection rules, including those left standing from the ACA.
“Some small businesses might be able to move into these plans and save money, but that will cause rates to go up for others [with older or sicker workers],” says David Chase, vice president of national outreach for the Small Business Majority, which supports the ACA.
“The small-group market will go into a death spiral if only employers with sicker and older workers participate,” says Mila Kofman, the former Maine insurance commissioner who now heads the D.C. Health Benefit Exchange Authority.
Insurance commissioners and actuaries have made similar dire predictions about the effects of splitting the market.
Supporters of association health plans say those concerns are overblown. “The existing marketplace [premium costs] may go up a percentage point or two,” says Kuhlman, “but other [small businesses] would have a more affordable plan.”