A Prescription for Coverage: Association Health Plans
With great fanfare last June, the Senate passed a Patients' Bill of Rights package. Unfortunately, it offers no help to the millions of employed but uninsured individuals who earn their living through a small business — like the St. Charles, Mo. travel agent who recently contacted me, worried about the cost, quality, and availability of health insurance.
His premiums are now running almost $1,000 a month for his family policy. Only three years ago, he was paying about $500 a month and was getting more extensive coverage. That amounts to a 100 percent increase. Even more troubling is the fact that he has been advised to expect up to a 25 percent increase next year.
My office has been flooded with similar calls that illustrate the dire need of small firms to obtain health insurance that is competitively priced and of comparable quality to the plans big businesses routinely offer their employees. Without a doubt, there is a need to bring Fortune 500 health benefits to the nation's Main Street small businesses and their employees.
Ironically, as many as 24 million individuals, or 60 percent of the 40 million uninsured Americans, are employed. That figure is shocking. Moreover, many of these employed but uninsured individuals work for small businesses that would like to provide health insurance. Some in this group used to provide coverage but have been forced to eliminate health benefits in recent years due to skyrocketing costs.
Unfortunately, the Missouri travel agent's dilemma is far from unique. The General Accounting Office recently reported that while small and large employers pay similar premiums, small employers receive less value for their money for several reasons. Small employers generally purchase coverage with higher cost-sharing requirements for their employees compared to large employers. Also, small employers tended to receive slightly fewer covered benefits for the same premiums paid by large employers.
When small businesses go out to buy health insurance alone, they are at a clear disadvantage. Why? Because they have insufficient buying power to negotiate affordable rates and generous benefit packages. The bottom line: It simply costs more to insure small businesses since they have fewer employees who can subsidize the costs incurred by the policyholders. Insurers understand that small firms represent the worst ratio of risk to revenue and limit the policy options available as a consequence. Ultimately, small firms hoping to provide health benefits are at the mercy of insurance companies.
The only solution is to help the employed but uninsured by allowing small businesses across the country to pool together and access health insurance through their membership with a bona fide trade or professional organization. In this way, employees of small businesses can enjoy the same opportunities as other large insurance purchasers. Such Association Health Plans (AHPs) would provide greater economies of scale to spread costs and risk, increase group bargaining power with large insurance companies and reduce administrative costs for all members. However, a change in federal law is needed to allow these plans to operate on a nationwide basis.
At the Department of Labor's "Women Entrepreneurship in the 21st Century Conference" in March 2002, I asked over 1,200 women business owners: If the government could enhance their bargaining power, boost administrative efficiencies, expand choice, and reduce costs in the health insurance market - would these changes affect their decisions about offering health benefits to employees and their families? A resounding 96 percent said it would.
When President George Bush later spoke at the conference, he made clear his strong support for AHPs, saying: "It makes no sense in America to isolate small businesses as little health care islands unto themselves. We must have association health plans. [These] will allow association groups to write health care plans across jurisdictional boundaries to the benefit not only of the small business owner, but to the benefit of those who work for small businesses."
Although AHPs provide the best hope for injecting competition into the insurance market, there are some who oppose this approach. For example, large insurance companies have a virtual monopoly on health care in most states. They also have a vested interest in preventing AHPs from bringing new competition into the marketplace.
State insurance commissions, which currently regulate insurance providers, are hesitant to give regulatory control to the federal government. As a former governor, I can appreciate their reluctance. However, it is now clear to me that the current system is failing those most in need, and we must do right by small businesses and their employees.
Legislation creating national AHPs, the "Small Business Health Fairness Act" (S. 858), was introduced in the Senate and I am proud to be a co-sponsor. The House included identical provisions in H.R. 2563, the "Bipartisan Patient Protection Act." Both bills require associations offering insurance plans to meet specific solvency requirements modeled after those already in place in many states. Furthermore, both bills would prohibit insurers from denying coverage to any member of an association because of an employee's health status or past claims. This safeguard is essential in order to prevent insurance companies from cherry picking — or offering coverage to association members with healthy employees while rejecting those with employees having preexisting health problems — a patently illegal practice.
Leaving behind 24 million employed but uninsured Americans is tragic, shameful, and inexcusable. Small employers who are willing to provide health insurance for their employees can be an integral part of the cure for this plague. But first, Congress must end the virtual monopoly some insurance providers enjoy, which leaves employees of small businesses caught between a rock and a hard place — no health coverage at all or second-class coverage at rates beyond their reach.
The burden is squarely on the Senate to pass legislation creating AHPs so that it can be merged with the bill that has already been approved by the House and that lays the necessary groundwork.
With AHPs, a potential 24 million employees and their families stand to gain better health benefits at better costs. AHPs offer a radically-simple solution to the problems of the employed but uninsured, which will give single mothers, first-generation Americans and two-worker families access to high-quality, affordable health plans.
This is a reasonable, common sense plan that can make health insurance household words for working families. It is time we do right by the nation's employed but uninsured by making AHPs a reality for small business on a national scale. I am committed to bringing Fortune 500 health benefits to America's Main Street small businesses and their employees.
About the Author
Senator Christopher Bond, a Republican, is the senior U.S. Senator from Missouri and Ranking Member of the Senate Committee on Small Business and Entrepreneurship.