June 16, 1999

AHP/MEWA Study: Association Health Plan Legislation Would Reduce Insurance Coverage

Performed by: Len Nichols, Ph.D., of the Urban Institute

Although association health plans are touted as a "solution" for the uninsured, preliminary results of an Urban Institute study indicate that AHP legislation would actually reduce overall health insurance coverage. The results of this study, which were outlined in testimony by Len Nichols, Ph.D. before the House Commerce Health Subcommittee, reaffirm concerns raised by numerous groups regarding the potential for this legislation to undermine state reforms and make coverage more expensive for firms and individuals with greater health care needs.

Key findings:

• AHPs will be most attractive to healthy individuals: According to Nichols, "…our research simulations suggest that by far the most important factor determining the attractiveness of various health insurance options is the pool with whom the firm's workers will be joined for premium rating purposes. AHPs and Health Marts…will be more attractive to the good risks and less attractive to high risks in search of more heterogeneous pools."
  
  
• AHPs would undermine pooling in the insurance market: AHPs will appeal to good risks since they can practice more segmented premium rating practices than the commercial insurance industry….This segmentation increases the chances that firms will be pooled only with firms with similar cost structures.." In other words, AHPs will fragment the insurance market into smaller and smaller pools, rather than increasing pooling as proponents claim.
  
  
• AHPs will pull people from existing insurance arrangements, rather than attract the uninsured into the market. Nichols found that "…extremely few new firms are enticed to offer health insurance which did not offer [coverage] before the reform options were made available. The net effect would be a lot of churning of insurance policies, but few uninsured would gain coverage and some firms with insurance would drop coverage.
  
  
• AHPs will result in more uninsured Americans. Nichols said his projections indicate that "net coverage is reduced because the commercial and [existing] MEWA pools lose some of their best risks to the AHPs, and thus their pools deteriorate. Because of this risk pool deterioration, some firms drop coverage rather than pay the new higher prices that go with this deteriorating risk pool. These firms do not join the AHPs...because that risk pool is too segmented for their taste and risk profiles."

These preliminary results are part of a growing body of literature that refutes claims that AHP legislation would reduce costs for small firms or help the uninsured. BCBSA believes that AHP/MEWA legislation would raise costs for many small firms without making any progress toward solving the uninsured problem.