Legislative Relief on Health Insurance Costs

Given rapidly accelerating premiums, finishers and other small business owners are severely challenged to provide health coverage for their employees. Thirty-nine million Americans are currently uninsured, and about 60% of those represent families headed by employees of small businesses. On the metal finishing front, while a significant percentage of companies currently provide coverage for workers, many simply cannot afford it.

In 2001, the cost of insurance for all companies grew by 11% from the preceding year, and the premiums of small companies in particular grew by 16.5%. Many metal finishing firms have experienced even greater increases in health care premiums for their employees since 2001. With these rising costs, job shops face an overwhelming financial burden in providing health insurance for their employees.

Some in Congress have tried to solve the looming crisis by promoting legislation to allow industry trade associations to set up group plans for member companies. Legislation is moving this session in both the U.S. House of Representatives (H.R. 660) and the U.S. Senate (S. 545) that would create "Association Health Plans" or AHP's. The House just passed the "Small Business Health Fairness Act of 2003" in June that included AHP provisions. A bill with language identical to the House version was introduced in the Senate and has been referred to the Committee on Health, Education, Labor and Pensions.

While AHP is not the silver bullet to solve all small business health coverage issues, it's the best shot industry has this year to address the problem.

So what would an AHP look like?

Requirements for Association Health Plans

An AHP is a group health plan that features three items:

Fully-insured and/or self-insured medical benefits
Has been certified by the Department of Labor
Is operated by a board of trustees with complete fiscal control and responsibility. The objective of AHPs is to provide affordable health insurance options to small businesses.

For small companies that look to AHPs for relief, the legislation requires that numerous safeguards be met before an association can offer health insurance to its members by means of an AHP. Associations must first be categorized as bona fide associations, meaning that they must meet specific criteria:

Have been in existence for at least three years
Exist for reasons other than providing health insurance
Operate by a constitution and by-laws
Hold annual meetings
Collect dues from those members
Represent a broad cross-section of trades or represent one trade with average or above health insurance risks
Use a state-licensed health insurance agent to distribute health insurance coverage
Use state-licensed health insurance agents to distribute self-insured benefits, if the AHP also
Provides health insurance coverage.

AHPs must also meet the U.S. Department of Labor certification standards, which require self-insured AHPs to meet the following:

Have at least 1,000 participants and beneficiaries
Have reserves sufficient for unearned contribution, benefit liabilities, administrative costs, and
other obligations if the AHP offers benefit options that are not fully insured
Obtain aggregate and specific stop-loss insurance as well as indemnification insurance
Make annual payments to an AHP Fund
Maintain surplus reserves of $500,000 to $2,000,000.

Advantages of AHPs

Given these provisions, as well as the financial savings to small employers, AHPs are widely supported. The Bush Administration, through the Department of Labor, has been very vocal in its support of AHPs and the Small Business Health Fairness Act. In addition, nearly 150 trade organizations, including the National Association of Manufacturers, the National Federation of Independent Business, and the U.S. Chamber of Commerce support the passage of the proposed AHP legislation. These groups cite several significant advantages to AHPs:

Savings for Employers. The Congressional Budget Office has estimated that AHPs will provide premium reductions ranging from 9-25%, a substantial annual savings for the typical small businesses ranging from $500 - $1,250 per employee.

Reduce Administrative Costs. A great disparity exists between large corporations and small employers in their ability to provide health insurance. Administrative costs for small firms can be between 20% and 25% of the premium, whereas large companies pay closer to 10%. Participating in an established AHP significantly reduces costs associated with providing health insurance benefits.

Greater Flexibility. Associations serving as insurers would be able to provide a greater variety of health insurance plans tailored to meet the needs of a cross-section of employees, giving workers the ability to choose plans to meet their needs. Currently, only a few insurers control an overwhelming majority of the insurance market for small companies, placing immense constraints upon employers to offer options for workers.

Criticism of AHPs. Not everyone supports the AHP legislation. Opponents of AHPs such as Blue Cross/Blue Shield and other insurance providers, the National Association of Attorneys General, and the State Insurance Commissioners are actively working against passage of small business relief. They argue that associations will only offer insurance to the healthiest of its members in order to minimize premiums and claims payments. They warn that AHPs may also lead to insurance fraud and abuse. Finally, they claim employees and their families will be covered by insurance plans that are not regulated by state mandated benefits, thereby receiving severely reduced benefits through the AHP.

Proponents of AHPs are countering these concerns by noting that the legislation is written specifically to prevent these situations. Associations and the insurance they provide will be regulated by the Department of Labor and meet the strict eligibility rules described above. Moreover, the Health Insurance Portability and Accountability Act of 1996 requires insurance to be offered to all employees of an association.

The metal finishing industry and other small business sectors need relief NOW, and Government Relations will soon be providing a grassroots "sample letter" to finishing companies to send to Capitol Hill urging passage of the AHP provisions. By making an attempt to get more comprehensive health insurance available to workers employed by small businesses through AHPs, more hard-working Americans will have the best health care for themselves and their families. Individual companies can secure these benefits if they are members of a trade association that establishes an AHP. This can only happen if the proposed AHP legislation is passed.