California HealthCare Foundation Studies: AHP Legislation Would Threaten Affordability and Stability of Coverage for the Majority of Small Employers

Two studies by the non-partisan California HealthCare Foundation conclude that proposed federal legislation (H.R. 660/S. 545) to exempt association health plans (AHPs) from state law would not address the health care challenges facing small employers. Indeed, the studies suggest that proposed AHP legislation would increase premiums for the majority of small employers, eliminate existing consumer protections, and increase the potential for insolvency and fraud. The net result of the AHP legislation would be to make it more difficult for small businesses and their employees – especially those with extensive health care needs – to have access to affordable coverage.

• Health insurance premiums would rise for the majority of small firms. While AHPs would be able to achieve premium discounts – primarily by attracting the best health risk – the majority of small firms would experience an increase in premiums. In fact, only one-third of small firms would see their premiums decline, while firms remaining in the traditional market would experience higher premiums. The study estimates that health insurance premiums for firms in the traditional market would increase by 5 percent. Such an increase would be on top of double-digit increases in health insurance premiums over the past several years.
  
  
  
• AHPs would achieve cost savings by cherry picking the young and the healthy – leaving comparatively older and sicker workers facing the prospect of ever-increasing premiums. AHP legislation would create "winners and losers among consumers, particularly those covered by the small-group market." Those who would face increased premiums or even loss of coverage would be those "employer groups with higher than average costs." Because of the increased risk-segmentation caused by AHPs, it may be "difficult or impossible for some small businesses and workers to obtain and afford coverage."
  
  
  
• AHPs are not a solution for the uninsured. The study's findings – based on a micro-simulation model of the health insurance market in California developed by the Urban Institute – reveal that the bill's impact on the number uninsured is negligible. The principal author of the quantitative study concludes that the debate over AHP legislation should not be "complicated by unrealistic claims that AHPs address the problem of the uninsured." Indeed, an earlier, nationwide analysis of the effects of AHP legislation by the Urban Institute – based upon similar econometric modeling – found that AHPs would actually increase the number of uninsured by 1 percent, or by 250,000 individuals and families.
  
  
  
• AHPs would result in the loss of state consumer protections. "Consumers enrolled in AHPs would lose state-based consumer protections… including most benefit mandates, coverage continuation requirements, solvency standards (for self-insured AHPs), and small-group market reforms, which include requirements for insurers to sell products to small groups regardless of their health status and limitations on surcharging groups with sicker employees."
  
  
  
• AHPs would increase the likelihood of plan insolvencies – placing consumers at risk for unpaid medical bills in the event of a plan failure. Consumers receiving coverage through AHPs "might be at increased financial risk due to the federal solvency standards that are less stringent than state standards." The weaker federal solvency standards coupled with inadequate resources and lack of expertise by the Department of Labor "may increase the risk of plan failures." Such failures could potentially leave "California small businesses and their employees with unpaid medical bills and without health insurance."
  
  
  
• AHPs increase risk of fraud and abuse by unscrupulous operators. While states have made progress in shutting down and halting the sale of unlicensed health insurance through associations, the AHP legislation preemption language would "severely limit states' ability to stop promoters from selling phony health plans to federally licensed AHPs." Since 2001, these type of insurance scams have left nearly 100,000 people with $85 million in unpaid medical bills.