Bill to establish small business association health plans clears the House

On March 22, the House gave the green light to the Small Business Health Fairness Act of 2017, which would amend ERISA to provide for the establishment and governance of association health plans (AHPs)—group health plans sponsored by business associations. The 236-175 vote fell mostly along party lines, with four Democratic lawmakers joining Republican colleagues to vote in favor of the bill. Considerable controversy surrounds the proposal, which some say will level the health insurance playing field for small businesses, while others warn that it will shift costs to workers and undermine important protections.

“Providing more health care options for small businesses is essential to expanding affordable coverage for America’s workers,” said Rep. Tim Walberg (R-Mich.), chairman of the Education and the Workforce Subcommittee on Health, Employment, Labor, and Pensions. “When it comes to accessing high-quality health care coverage, small businesses should not be treated any differently than large corporations and unions. This bill will level the playing field for small businesses, and it’s one step toward achieving a competitive health care marketplace that stretches across state lines. These are exactly the types of positive reforms that we’ve promised—reforms that will deliver more choices and lower health care costs for working families.”

What does the bill do? In addition to establishing AHPs, H.R. 1101 would establish requirements relating to certification, sponsors and boards of trustees, participation and coverage, nondiscrimination, contribution rates, and voluntary termination.

Under the Small Business Health Fairness Act, AHPs offering benefits that are not health insurance would be required to:

• Establish and maintain sufficient reserves and stop-loss insurance to cover those benefits.
• Make annual payments to a fund to be used to pay for stop-loss insurance for those AHPs for which there is a reasonable expectation that claims would not be satisfied without the insurance.
• AHPs that do not meet these requirements may be terminated.

The bill would permit states to tax contributions to AHPs, with certain conditions. The legislation would also preempt state laws that preclude health insurers from offering health insurance in connection with a certified AHP, or offering health insurance of the same policy type to other employers in the state that are eligible for coverage under AHPs.

Giving small businesses greater bargaining power. Those who champion the proposal compare large and small businesses to explain the benefits of H.R. 1101. Because of their size and economies of scale, large businesses and labor organizations are able to negotiate on behalf of employees for high-quality health care at more affordable costs. By offering a qualified group health plan under ERISA, these large employers and labor organizations are also exempt from myriad state rules and regulations on health insurance, according to the bill’s proponents.

Small businesses, on the other hand, do not have the same bargaining power as larger businesses. Small businesses are also unable to band together to increase their bargaining power in the health insurance marketplace, proponents note. By permitting small businesses to join together through AHPs, small businesses will have greater ability to negotiate for lower health care costs for their employees.

Shifting costs and taking away protections. As the House voted revealed, there is considerable opposition to the Small Business Health Fairness Act. According to a fact sheet issued by Committee Democrats, H.R. 1101 would expand the ability of small employer groups and individuals to band together to obtain health insurance through an unregulated AHP. In 2003, the Academy of Actuaries characterized the AHP legislation as “flawed” because it is neither actuarially sound, nor does it protect consumers. Democratic lawmakers have warned that H.R. 1101 would undermine state-level consumer protection laws, exacerbate adverse selection and shift costs to working people, and expose both employers and employees to financial ruin.

Another fact sheet by Democrats on the House Committee on Education and the Workforce highlights what several experts have to say about the Small Business Health Fairness Act. Among other things, the fact sheet points to a letter written by the National Association of Insurance Commissioners, which stated: “… the legislation as written would eliminate all state consumer protections and solvency standards that ensure consumers receive the coverage for which they pay their monthly premium. These protections are the very core of a state regulatory system that has protected consumers for nearly 150 years … history has demonstrated that AHP-type entities have done more harm than good to small businesses.”

“H.R. 1101 would undermine the progress made under the Patient Protection and Affordable Care Act (ACA), weaken state-level consumer protections, and shift costs onto working people,” Ranking Education and Workforce Committee Member Bobby Scott (R-Va.) said in a statement. “This association health plan idea has been studied for years, and it has been concluded that it’s a bad idea. Under the ACA, essentially everybody pays average. If you change that, then arithmetic matters. If one group gets to pay less than average, then everybody else is going to pay more. And the association health plans, quite frankly, will always work for only a few people. If associations can draw out their own group, they will always pay less than the ones they left behind, because if the group turns out to have higher than average costs, the association will dissolve and everyone will go back to the regular insurance pool. Higher-cost groups will be left behind and lower-cost groups will segment out—until someone gets sick. Then the rates go above average, and then the group will jump back into the insurance pool where they can enjoy average rates.”

On March 21, in a statement of administration policy, the Trump Administration endorsed the Small Business Health Fairness Act.

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