Nancy Turnbull, Associate Dean for Educational Programs at the Harvard School of Public Health says Association Health Plans would increase premiums for small employers and individuals:
Some bad ideas just won’t go away. We’re seeing an example right now as the legislature considers SB 446 and HB 3452, which would permit the reintroduction of Association Health Plans (AHPs) into the Massachusetts health insurance market. While the intention of the bills is good—to make health insurance more affordable for small businesses—they would actually have the opposite effect and increase premiums for most small employers. And, since the state’s 2006 health reform law merged the insurance markets for small employers and individuals, the creation of AHPs would also raise premium rates for people who purchase individual coverage. These premium increases for individuals and small employers would likely increase the number of people without health insurance in Massachusetts.
As envisioned by these bills, an AHP would be a health plan offered by a professional or trade association, chamber of commerce or other similar group. The association selling the health plan would need to have at least 100 members, have been in operation for over five years and have been established for a purpose other than providing health insurance. The association couldn’t deny membership or coverage to any individual due to a health condition, and it couldn’t charge higher rates to a member company than would otherwise be allowed under the existing small group law.
So, what’s wrong with this idea? The big problem is that AHPs would be allowed to operate outside of the requirements of the state’s health insurance law and so create two separate and very different markets for health insurance. One would be made up of AHPs, each of which would be rated on its own experience and operate outside the requirements and protections of the current small employer health insurance law. The second would consist of all other small businesses and individuals, whose experience would continue to be merged. The effect will be to pull lower cost and better risk employers into AHPs, leaving higher cost and higher risk groups and all individuals in the merged market, with higher premiums.
Why would this happen? In the current merged market, a health insurer must base premium rates for all small employers and individuals on the combined experience of all of its individual and small group members. This has the effect of creating large risk pools, which spread costs broadly and are stable and predictable. Insurers are not permitted to deny insurance coverage to any person, or to impose pre-existing condition restrictions or waiting period on individuals. While rates for an individual or small business can vary based on age, within strict limits, insurers can’t use most other factors, including gender, health status, claims experience, in setting premiums.
AHPs would be exempted from these rules. For example, AHPs would be permitted to base rates on health status and claims experience. This would work to the advantage of associations with favorable demographics. In fact, it would encourage the formation of AHPs by associations that have favorable demographics. AHPs would also be permitted to impose restrictions for pre-existing medical conditions and waiting periods on individual members. All of these differences would allow AHPs to operate in ways that would attract lower risk and lower cost employers into their health plans, leaving higher cost and higher risk employers and individuals in the merged market.
While the ability to get lower premiums would be an initially attractive feature of joining an AHP, this two-tiered regulatory structure would deprive members of AHPs of a range of protections under existing law, including the rating and underwriting limitations described above. While premiums for an AHP would likely be lower initially, many AHPs would be relatively small and therefore unstable from an insurance rating perspective. Their rates would be subject to significant rate increases if they had poor claims experience or added members with greater than average risk profiles. And, ironically, any AHP whose experience deteriorated in some way would be able–or even perhaps forced by an insurer—to rejoin the merged market whenever it could obtain lower premiums there than as a stand-alone AHP. This would increase rates in the merged market even more.
We must find ways to make health insurance more affordable, particularly for small employers and individuals. If we don’t, we’ll see a steady increase in the number of people without health insurance, eroding the progress we’ve made under the state’s health reform law. Small employers are right to be frustrated, impatient, and angry about our inability and unwillingness to take actions to deal effectively with rising costs. But AHPs are not a solution. Instead, we need to take actions that will contain costs, and not just re-allocate them in ways that are detrimental to most small employers and individuals. For me, these actions include payment reform, dealing with provider market domination, reducing insurer administrative expenses, rationalizing the use of medical technology, and encouraging healthier behavior. These changes are much harder to accomplish than letting some small employers go it alone in their search for more affordable coverage. But they are much more likely to be a longer-term solution for rising costs than destabilizing and fragmenting the entire market for small employers and individuals, as AHPs would do.
I read this and reread this and I don’t see this as a bad thing. Small biz(50 or less lives) are absolutely taking the brunt of health reform costs. Their rates are still escalating at 15-25% per year due to the individual market.
Individuals can only pay so much for coverage before their breaking point. Carriers routinely lose money on individuals but make up for it in the small group market. If a biz decides to implement wellness programs such as stop smoking or weight loss and these are successful, his biz receives no financial benefit from the insurance market for his reduced claims. Since the state has removed underwriting, especially the ridiculous no rate up for smokers, carriers and businesses have no incentive for wellness programs.
As long as costs and utilization from individuals continue to rise, small groups will continue to look for solutions like this to contain their health care costs
Nancy:
We couldn’t agree with you more on the problems with Association Health Plans and wanted to offer another problem with them. They do nothing to address rising health care costs.
A better approach is the proposal that Sen. Richard Moore and Rep. Harriett Stanley unveiled in mid-July and was reported on by Martha Bebinger (A Plan To Ease Health Insurance Costs For Small Businesses, Wednesday, July 15). The proposal – The Affordable Health Plan – would provide immediate relief to small businesses and consumers and reduce premiums by as much as 22 percent by getting at the cost of health care.
The proposal sets a standard benefit package on par with the Health Connector’s Commonwealth Choice Bronze level, which is similar to the benefits that many small employers now provide. It would cap reimbursement rates to providers for this product at no more than 110% of Medicare and it would limit insurer profits on all products sold to individuals and employers with 50 or fewer employees. For more on the plan, visit http://www.mahp.com/news/costcontrol2.html.
Reducing the premium by 22 percent would generate significant savings for small businesses. For example, the lowest-priced Bronze package for a family of four, with two 40-year-old parents and two children living in Boston, is $822. Cutting the premium by 22 percent would save $180 per month or nearly $2,200 a year. For a small business, those savings can add up pretty quickly.
The bulk of the premium dollar – nearly 90 cents – pays for medical care, including doctor visits, prescription drugs and hospital stays. Tinkering with the rating rules or exempting groups from the small group law does nothing to address those costs. The Affordable Health Plan does and would go a long way to help small businesses.
A number of employer groups that represent small businesses support the proposal, including the Worcester Regional Chamber of Commerce, Small Business Service Bureau, the Smaller Business Association of New England, Massachusetts Business Association, and the Massachusetts Association of Health Underwriters. They talk with small businesses all day long. They know the challenges small businesses face and the difficult choices they have to make at renewal. Their support tells us that this is the right thing for small employers.
The Affordable Health Plan wouldn’t fix everything in health care and would be a short-term solution while the health care system works to implement the Payment Reform Commission’s recommendations. But small businesses can’t wait, nor should they. The Affordable Health Plan would go a long way to helping individuals and small businesses while the rest of us in health care work on the longer-term issues.
Actually, the current rules in the Small Group/Individual market do allow health plans to use “smoking” and “wellness programs” as rating factors. This could mean a discount (or surcharge) for smokers and/or for participation in wellness programs. Is there not ONE health plan in Massachusetts willing to step up and use these rating factors?
People should read the current group buying bills and not be influenced by the spokespersons for big health care and big insurers. They do nothing more for small businesses than to apply equal rights under the law already available to big employers. In fact the current bill calls for only one non-profit buying group, made up of a minimum of 25 non-profit organizations and their members/employees. Truly the proposal calls for a small business and non-profit counterpart to the big government GIC program.
I find it incredible that people believe that small businesses are not big enough, not smart enough, or not equal enough under the law to have the same rights as big business and big government. For some reason, it is ok for the GIC to get bigger and to achieve savings through wellness activities, broker fee avoidance, etc. But for some reason, the same rights are not available to small businesses, and shouldn’t be because they have to subsidize the costs of someone else. We force small businesses and their employees to subsidize non-group purchasers currently gaming the system, as well as non-US citizens, etc. A small business wants to institute a wellness program? Go ahead, but it won’t save you or your employees one dime as your group gets healthier and claims drop. The benefits acrue to the insurers and their bigger clients. Don’t use a broker? Too bad. You still have to pay fees as high as 10% for a service you don’t use.
I don’t see big business or big government having to cover costs other than their own. The GIC, cities and towns, and big businesss do not cover any costs of non-group gamers of system–just small businesses. Make no mistake about it. The current system is discrimatory against small businesses and their employees and it will be the downfall of “Health Care Reform” in Massachusetts unless changed and changed soon.
Those that advocate for the current system are no friends of small business owners and their employees in Massachusetts.
BCBS of MA is all over town lobbying to prevent the requirement that cities and towns go into the GIC. Their arguments make sense until applied to small employers and employees. For some reason, they argue the same rules shouldn’t apply to the little guy. Their lobbying is ethically challenged, and represents contradictory public policy positions at best.
Family policies for small businesses versus big government and big business in Massachusetts are as much as a whopping $10k difference today. This is a crisis; this is scandal; and it must change NOW!.
The current discrimination cannot be sustained either economically or politically. And all the foundation money, directors fees, and company money of big payers spread around Boston will not change that fact.
Jon Hurst
Retailers Association of Massachusetts