RI LEGISLATIVE - AHP (Associated Health Plans)

PLAs (Project Labor Agreements)     -     AHPs (Associated Health Plans)

Myths vs. Facts Regarding AHPs

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Some ABC Statements on Associated Health Plans. Offering answers to many questions involving Associated Health Plans.

Isn’t it true that AHP’s will just offer insurance to the healthy members of a company? Don’t Association Health Plans (AHPs) allow organizations to "cherry pick" only the healthiest individuals, leaving the states’ small group markets to care for the sickest individuals?

FACT: AHPs are prohibited from being able to "cherry pick."

• The language clearly states that the bona fide association must provide all interested employers (regardless of age, health status, etc.) with information regarding all coverage options available under the plan.
• Under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), an individual or employer cannot deny coverage based on health status or claims experience. AHPs would be subject to all the preexisting condition, portability, nondiscrimination, special enrollment and renewability provisions under HIPAA. Thus, it will not be possible for AHPs to "cherry pick" because sick or high-risk groups or individuals cannot be denied coverage.
• The language clearly prohibits discrimination based on health status by stipulating any member of an association who is eligible for membership benefits be furnished with information regarding all coverage options available under the plan and may not be excluded from enrolling in the plan because of health status.
• The bill requires that the contribution rates for any particular employer must be nondiscriminatory. This means that contribution rates for employers cannot vary on the basis of any health status-related factor with respect to employees of particular employers or on the type of business or industry in which the employer is engaged – unless the state where that small employer is located would specifically allow such a variation, and then, only to the extent that the state would allow.
• State insurance rating laws DO apply to fully insured health products offered by AHPs. The legislation does not preempt state laws that govern the rating of insurance products offered by associations. The legislation does not supercede or impair the law of any state with respect to issuers or health insurance coverage – insurance carriers of fully insured AHPs would continue to be required to maintain the state requirements and laws such as prompt pay laws, solvency requirements, and external review laws.

How can my Senator support AHPs when they will preempt all state benefit mandates and regulations?

FACT: The preemption of state mandates is an integral aspect of ERISA. But, those almost 44 million Americans without insurance desperately need some time of health insurance.

• All labor unions and large corporations are preempted from state benefit mandates and most regulations, allowing them to operate across state boundaries in a uniform manner. Rather than use the preemption of state benefit mandates to offer inferior health coverage to workers, union and self-insured large employers offer extremely rich benefit packages to their workers. As cited in a 1996 GAO study, a KPMG study found that self-funded plans are more likely to offer the benefits and services that are most commonly mandated by states than fully insured plans. AHPs would do the same for small businesses.
• Uniformity provides for lower administrative costs. Administrative costs make up only 5 to 12 percent of health care costs for large employers, compared to administrative costs for smaller employers of 33 to 37 percent.
• The solvency standards, plan requirements, oversight, and patient protections included in the AHP legislation are more stringent than those now required by some states.
• AHPs would be subject to federal health insurance requirements that provide consumer protections, such as COBRA continuation coverage; ERISA’s claims procedures for benefit denials and appeals; HIPAA’s guaranteed portability and renewability of health coverage for those with preexisting conditions; the Mental Health Parity Act; the Women’s Health and Cancer Rights Act; and the Newborns’ and Mothers’ Health Protection Act.
• This legislation only preempts state benefit mandates for INSURED health plans. These types of plans must continue to meet other consumer protections, such as third-party external reviews, as well as solvency requirements set forth by the state. Because it operates in the interest of its members, AHPs will readily cover benefits demonstrated to be cost-effective, such as childhood immunization, prenatal care, and cancer screenings. The bottom line is that, while wellintentioned, expensive coverage mandates for infertility treatment, alternative health services, substance abuse treatment, or for services not backed by sound science, drive up the cost of health coverage and leave small businesses unable to afford coverage at all.
• If the AHP is SELF-INSURED, the AHP will fall under the same rules and requirements as other self-insured plans (currently over 275,000 plans covering 72 million lives). All self-insured plans are exempt from most state rules and regulations, and instead are governed by federal law and regulations with DOL oversight. Already, there is a tremendous amount of litigation regarding ERISA’s preemption of certain state health plan requirements. To the extent that federal courts rule ERISA does not preempt certain state laws, self-insured AHPs would also be required to comply with such state requirements.

Aren’t Association Health Plans are just another name for Multiple Employer Welfare Arrangements (MEWAs)?

FACT: Association Health Plans are fundamentally different from MEWAs.

• MEWAs are often "front" organizations for insurance companies or insurance agencies to sell insurance. Unscrupulous individuals or corporate entities can start them for the sole purpose of providing health insurance - leading to adverse selection and fraud. Often there is no certification process before MEWAs can begin providing health benefits to workers. There are no federal solvency standards for MEWAs, which has often led to fraud and abuse.
• In contrast, the sponsor of an AHP must be a bona fide professional or trade association organized and maintained in good faith, with a constitution and bylaws specifically stating its purpose and providing annual meetings, and must be in existence for a minimum of 3 years for purposes other than that of obtaining or providing health coverage.
• Associations must set up a separate trust with Trustees who become fiduciaries under the plan and are subject to the same ERISA fiduciary responsibilities as fiduciaries of corporate and union health plans. The trustees must set up a financial and operational plan for the trust and plan. This assures the active and ongoing involvement of the trustees in the plan’s operation. The Trust must file for certification with the Department of Labor.
• The continued oversight of the association on behalf of its members is a key factor in assuring and maintaining the solvency and credibility of AHPs in the long term. In order to be successful and retain participation in the plan, associations that offer AHPs will have to offer benefits equal to or superior to traditionally regulated insurance products to attract employers and their employees.

What kind of oversight will AHPs have? I understand there will be little, if any oversight, by state or federal regulators, which will hurt small employers and employees.

FACT: Just like other self-insured plans governed under ERISA, self-insured AHPs will be regulated by the Department of Labor.

• DOL will only grant certification if all of the requirements set forth in the ERISA AHP statute and implementing regulations are met.
• Fully insured association health plans will be dually regulated by both DOL and the state insurance commissioners, the same as large employers now offering fully insured health plan options under ERISA. The state insurance commissioner will continue to have oversight of the fully insured plans, as they will continue to require insurance companies that offer the AHPs to meet all state regulations and requirements, such as prompt-pay laws, external review, solvency standards, etc. The DOL will consult with state insurance commissioners to ensure that issuers offering products to AHPs meet the appropriate state standards.
• Enrollees in AHPs will have more oversight than people in large corporation and union plans. Moreover, they will have the association to go to bat for them should they encounter problems with the plan because the association has an enormous incentive to keep their members who are enrolled in the AHP satisfied.
• In addition, this legislation requires that an AHP be offered by a bona fide association under a Trust with Trustees who are fiduciaries responsible for both the financial and operational integrity of the plan. This continued oversight of the association on behalf of its members is a key factor in assuring and maintain the solvency and credibility of AHPs in the long-term.

How can the Department of Labor (DOL) capably regulate AHPs?

FACT: The U.S. Department of Labor has effectively regulated tens of thousands of self-funded employers for almost 30 years. Secretary of Labor Chao thinks her department can handle this project.

• The Department of Labor currently administers ERISA protections covering approximately 2.5 million private, job-based health plans and 131 million workers, retirees and their families. Of these, 275,000 plans covering 67 million individuals are self-insured, and therefore subject exclusively to DOL oversight. In addition, 5 million people are covered by self-insured multi-employer plans (established and operated jointly by a union and two or more employers) are overseen exclusively by DOL under the Taft-Hartley Act. These self-insured and union plans cover more than 72 million participants. The Department has testified that it stands prepared to allocate the resources necessary to ensure proper AHP certification and stringent oversight.
• The Department of Labor has firsthand experience dealing with group health plan regulation, as well as combating insurance fraud. In fact, DOL benefit advisors assisted 114,000 individual workers, retirees and their families with their inquiries about their health benefits in FY02.
• DOL has a strong record of enforcement, protecting workers, retirees and their families in health plans. In FY02, DOL recovered $140 million in assets restored to health and welfare plans.

Isn’t ABC just backing this because your Associations would receive significant benefits and revenues from offering health plans?

FACT: Under AHPs, small business owners and their co-workers reap the benefits.

• AHPs must meet all of ERISA’s fiduciary rules requiring that the assets of an employee benefit plan be held in trust for the exclusive benefit of plan participants and their beneficiaries, and for defraying reasonable expenses of administering the plan. In short, fiduciaries under ERISA are to act solely in the interest of participants and beneficiaries, and in both self-funded and fully insured AHPs, all profits/savings must go to the plan participants.
• In contrast, health insurance companies in the commercial small group market retain a significant percentage of premiums for administrative costs, marketing, and commissions, and in the case of publicly held companies, profit and investor return.

Don’t AHPs lack adequate solvency protections? AHP’s are going to go bankrupt as soon as they start getting medical claims?

FACT: The legislation contains extensive requirements for solvency. And folks that have no insurance today, need some kind of insurance which is provided by AHPs.

• Health insurance issuers that offer FULLY INSURED coverage to AHPs will continue to be subject to state laws regarding solvency. In addition, the U.S. Department of Labor (DOL) would condition its class certification of fully insured AHPs on the issuer’s satisfaction of state solvency and other insurance regulations.
• With respect to SELF-INSURED AHPs, the legislation sets forth explicit solvency requirements that are much stronger than current law for employers or unions who self-insure, as ERISA contains no solvency standards for these entities.
          Claims Reserves: The AHP must establish and maintain reserves in
          amounts recommended by a qualified actuary who is certified by the
          American Academy of Actuaries.
          Stop-loss: The AHP must secure specific excess stop-loss coverage
          and aggregate excess stop-loss coverage to protect against
          unexpectedly large claims. Both of these insurance products will be
          fully regulated by the state, and the Secretary of Labor is able to
          modify or increase these requirements by regulation.
          Indemnification: The AHP must secure indemnification insurance to
          cover any claims left outstanding as the result of a plan termination.
          Surplus Requirements: In addition to claims reserves, plans must
          establish and maintain a surplus in an amount at least equal to
          $500,000 but not greater than $2,000,000 as may be set forth in
          regulations. A cap on surplus requirements guards against an AHP
          charging excessive premiums for the benefit of the association at
          the expense of plan participants.
          Consultation with Actuaries and Insurance Commissioners: The
          legislation authorizes additional reserve requirements and excess
          stop-loss insurance as may be deemed appropriate by the
          Secretary, taking into account the recommendations of the Solvency
          Standards Working Group established by regulation. The Working
          Group will consist of members from the NAIC, the American
          Academy of Actuaries, state government officials, and other involved
          parties.

I heard that some studies by Congressional Budget Office (CBO) and Mercer, AHPs would result in as many as 100,000 workers losing their coverage, increase insurance premiums for 80% of small business workers, and cause as many as one million people to lose their coverage as a result of higher premiums.

FACT: These studies make a number of flawed assumptions and opponents take these numbers out of context. The Mercer consultant study was prepared at the request of an organization opposed to the legislation.

• The CBO Mercer studies make a series of flawed assumptions.
          1. The studies incorrectly assume AHPs will be able to "cherry-pick"
          the market despite strong protections in the legislation to prevent
          doing so.
          2. The studies assume AHPs cannot provide administrative cost
          savings compared to the cost of a small firm buying coverage from
          an insurance company despite real experience showing that AHPs
          do achieve administrative savings.
          3. The studies assume small firms will offer only "bare bones"
          benefit packages, when the reality is that small businesses
          must compete against large businesses for employees and
          therefore mustoffer competitive benefit packages.
          4. The studies do not account for the merits of increased health
          plan competition because of the entry of AHPs into the market, as
          well as the benefit of bringing young, healthy individuals who are
          now uninsured into the health plan marketplace.
• Despite using questionable assumptions in its methodology, the non-partisan CBO states that AHPs can enhance the purchasing power of small businesses through "more negotiating power with health insurers" and "lower administrative costs" as fixed costs are shared among a larger number of employees.
• In addition, CBO estimates that once the effects of the legislation have been fully integrated into the marketplace, about 600,000 formerly uninsured people (including employees and their dependents) would have health coverage. About 7.5 million people would obtain health insurance through association health plans.
• The statement by opponents that "100,000 of the sickest workers who would lose coverage" is from a set of CBO assumptions that ALSO concludes 2.1 million formerly uninsured people will obtain health coverage through an AHP, for a net gain of 2 million newly insured people. In addition, according to CBO, fewer people would be covered by Medicaid, and Medicaid spending would decline.
• Opponents’ statement that AHPs will increase insurance premiums for 80% of workers is deduced from a CBO projection that about 20 percent of small firms (affecting 4.3 million people) would switch to an AHP, saving 13 percent on their premium costs in the process. Those remaining in the traditional market could experience increases of 2 percent.
• The Mercer study statement that "as many as one million people will lose their coverage" as a result of higher premiums does not directly link AHPs as the cause. Rather the study notes that as costs increase, small businesses are losing coverage and experiencing difficulty accessing the small group market. The fact is, small businesses continue to lose coverage – even without AHPs – as costs rise. With AHPs, millions of people who work for a small business (or their dependents) will retain health coverage they otherwise could not afford, and more will gain coverage at no cost to the federal government.
• Another study, by CONSAD Research Corporation, estimated the number of uninsured workers who would gain coverage from this legislation at between 2.1 and 8.5 million. In addition, the CONSAD study indicated that small businesses encounter obstacles to purchasing health insurance beyond the question of price. These include lack of trust in insurance brokers, incomplete access to information about the health plans and benefits, and lack of resources to understand and manage the terms of available health plans. AHPs are expected to resolve these problems by providing small businesses with a reliable, familiar source for their insurance information and management of their plans.

Aren’t AHPs allowed to charge each small employer joining the AHP a different rate based upon the health status of its employees?

FACT: The bill requires that the contribution rates for any particular employer must be nondiscriminatory.

• The legislation specifically states (Section 805(a)(2)(A)): "The contribution rates for any participating small employer do not vary on the basis of any health status-related factor in relation to employees of such employer or their beneficiaries and do not vary on the basis of the type of business or industry in which such employer is engaged."
• This provision explicitly prohibits an AHP from charging one firm a higher rate than another based on health status factors – except to the extent already allowed by state law in the state in which the employer is located. This exception is provided to protect an AHP from having unhealthy risks dumped onto it by health insurance carriers, or having good risks "cherry picked" by the commercial market.

Would fully insured AHPs be subject to the rate bands in their state of domicile and would use those rules in all other states in which they operate?

FACT: AHPs can only generate a set of rates for all insured groups within the plan based upon the overall claims experience of the entire AHP.

• AHPs would utilize the standard insurance factors currently used by the insurance industry to calculate rates for the plan.
• AHPs cannot use one state’s rating bands for employers and employees that live in ANOTHER state. The plan can only vary rates for employer groups within the AHP and located in a given state to the same extent state law allows insurance companies in that state to do so.

JUST THE FACTS: ASSOCIATION HEALTH PLANS

Legislation is being considered in the U.S. Congress (H.R. 660 and S. 545, the "Small Business Health Fairness Act") to expand the availability of health coverage for employees of America’s small businesses. The bill would allow employers to join together through bona fide associations to buy health coverage under an Association Health Plan (AHP). As a result, small employers will enjoy greater bargaining power, economies of scale, and administrative efficiencies. AHPs level the playing field of employer health coverage by giving participating small employers the advantages of federal law currently enjoyed by larger employers and unions.

• Small businesses have little buying power and few affordable options – five or fewer insurers control at least three-quarters of the small group market in most states (GAO, 2002). This lack of competition is contributing to double-digit rate increases for many small businesses and a resulting rise in the number of small business employees who are uninsured.
• AHPs will provide more choice in the health insurance marketplace. In addition to self-funded plans, which will be required to comply with stringent solvency and stoploss requirements, legislation currently under consideration will allow AHPs to offer fully-insured plan options under a uniform set of rules across state lines. As a result, AHP legislation will actually expand opportunities for insurance companies to serve small businesses.
• The "Small Business Health Fairness Act" is the only health coverage proposal that establishes a NEW market-based option to reduce employer costs and expand coverage to the uninsured. It doesn’t contain expensive tax subsidies or involve the expansion of government programs. Alternatively, numerous candidates for office have proposed their own "solution": That all employers regardless of size must provide and subsidize health coverage for employees and dependents.
• Uniform federal regulation of AHPs will help small businesses lower their administrative costs because, by operating under federal law, AHPs can avoid the costs of complying with 50 different sets of state benefit mandates.
• AHPs should make health insurance more affordable for small business through reduced premiums. The Congressional Budget Office (CBO) has estimated that small businesses obtaining insurance through AHPs should experience premium reductions of 13% on average and up to 25% (CBO, January 2000). That’s just over $1,000 to more than $1,900 for the average family health plan offered by a small business.
• The smallest firms stand to save the most from AHPs because their administrative costs, which account for a significant percentage of their expenses, will decrease. A January 2003 Small Business Administration (SBA) actuarial report shows that administrative expenses for insurers of small health plans make up 33 to 37 percent of claims. This compares with about 5 to 11 percent of claims for large companies’ self-insured plans.

Because insurance would be more affordable, more small firms could provide it to their employees and families. According to the CONSAD Research Corporation, as many as 8.5 million previously uninsured workers would receive coverage if this legislation were enacted into law.