Republicans have embraced health association plans as a way to help self-employed people and small businesses maximize affordability of coverage by using their leverage as a large group to negotiate lower premiums.
The Republicans’ alternative health care plan amends the Employee Retirement Income Security Act of 1974 — the federal legislation that governs employer-sponsored self-insured health policies — to allow the federal government to certify and regulate the solvency and adequacy of association plans. Under their legislation, small businesses can come together, by industry or trade, and form health plan through which they can purchase coverage for their employees.
But while the plans goals are laudable, in reality, associations could avoid covering sicker businesses by excluding certain key conditions from coverage and designing policies that only attract healthier applicants. According to the Republican bill, the association would not be required to offer a minimum benefits package and could set “contribution rates based on claims experience of the plan,” crowding employers whose employees actually use their insurance, out of coverage.
The “whole bill is set up to build fly-by-night associations. I run it for a couple of years, I shut it down,” Georgetown professor Karen Pollitz explained in a conversation with the Wonk Room. “I cover these 100 people this year. Next year, I have a different 100 members.” Indeed, between 2001 and 2003, four long-standing self-insured association health care plans became insolvent, “leaving $48 million in medical claims unpaid and 66,000 people and small businesses without insurance.” Health experts argue that association health care plans are governed by “licensing requirements that are often less stringent than those imposed on traditional insurers” and are “at far greater risk of becoming insolvent when claims suddenly or unexpectedly exceed their ability to pay them.”
The Republican legislation establishes new solvency and reserve requirements but it outsources any enforcement of self-insured or national association plans to the federal Department of Labor, “which lacks the tools, resources, and culture to protect businesses against fraud.” One report concluded that the “history of scams involving associations demonstrates that when the federal government has had sole oversight authority, fraud flourished with unscrupulous individuals leaving businesses and their workers without health coverage and with millions of dollars in unpaid medical bills.”
The legislation requires association health care plans to contribute to an ‘Association Health Plan Fund’ that would pay out outstanding claims in cases of insolvency, but leaves the federal government on the hook if the money in the fund runs out. “[I]f the Secretary determines that there is a reasonable expectation that” claims would “would not be satisfied by reason of termination of such coverage. The Secretary shall, to the extent provided in advance in appropriation Acts, pay such amounts so determined to the insurer designated by the Secretary,” the bill states on page 73.