Health Insurance and Small Businesses: Ways to Make Coverage More Affordable
With recent reports of continued increases in the number of uninsured Americans1, Congress has again turned its attention to increasing the availability of employer-based insurance among small businesses. Small businesses face considerably more challenges to providing health insurance to their employees than their larger competitors, including having a smaller group for spreading risk, lack of bargaining power with insurance carriers, and costly mandated benefits.2 Rising healthcare costs, in addition to these barriers, have forced many small businesses to increase the share of premiums that employees pay, and explore alternative benefit designs, such as high-deductible or minimum benefit plans.3,4 Pending legislation in Congress offers options that could ease these difficulties and increase the availability of health insurance to employees of small businesses.
S. 1955
“Health Insurance Marketplace Modernization
and Affordability Act of 2005”
Sponsored by Senators Enzi (R-WY), Nelson (D-NE), and Burns (R-MT)
Introduced in November 2005, this bill would create association-sponsored Small Business Health Plans (SBHPs) that would contract with a licensed insurance carrier to provide health insurance to an association’s members and their employees. Employers would be eligible to provide coverage to their employees through the SBHP if they were members of the association prior to the law’s enactment, or if they did not offer group health insurance during the year prior to enactment. Contribution rates for employers could not be based on the health status of the employees, or the industry in which the employer is engaged. As long as they meet minimum requirements as set by the Public Health Service Act, SBHPs or the carrier of the plans being offered have sole discretion over the rate setting of and benefits included in the offered plans. The law provides that the Secretary of Labor will “consult” with states about certification of associations and regulations of the plans, although it does not specify to what extent states must be consulted.5
S. 2510
“Small Employers Health Benefits Program Act of 2006”
Sponsored by Senators Durbin (D-IL) and Lincoln (D-AR)
Introduced in April 2006, this bill would create a small business risk pool administered by the Office of Personnel Management similar to that of the Federal Employees Health Benefits Program. Employers may enter the risk pool if they have up to 100 employees, or are self-employed. Each plan offered must be through a licensed carrier and have a contract of at least one year. OPM must ensure that “a range of health benefit plans are available to participating employers” and all plans must include the minimum standards for health benefit plans. Rates cannot be set based on health status, gender, class of business, or prior claims, and can only include five age brackets. Employers who enter the risk pool cannot offer employees any health insurance not offered through the risk pool.6
H.R. 525
“Small Business Health Fairness Act of 2005”
Sponsored by Representatives Johnson (R-TX) and Velazquez (D-NY)
Introduced in February 2005, this bill creates Association Health Plans (AHPs) which are sponsored by an association which has been certified by the Secretary of Labor. According to the bill, AHPs could provide health insurance through a carrier, or if they qualify, can also self-insure. Employers that are part of the AHP could offer outside health insurance coverage to employees not covered under the AHP as a result of health-status. Rates within AHPs could not vary based on health status, or type of business in which the employer is engaged. AHPs could preempt state laws regarding regulation and benefits.7
Two Sides to Every Story
As with most legislation, proponents and critics have mobilized as legislation is introduced and begins to move through Congress. Because it would allow rates to be set based on the employer’s prior claims and potentially allow for discrimination of those with chronic or severe illnesses,8,9 opponents of S. 1955 include AARP, the American Cancer Society, and the American Diabetes Association. Proponents of S. 1955 include trade associations, such as the National Federation of Independent Business, because they believe it will help to improve affordability for small business owners and employees.10
Not surprisingly, critics of H.R. 525 include insurance companies because it allows for self-insurance by associations. Self-insurance often means lower premiums for employees, providing fierce competition to insurance companies who cannot offer the same low rates. Proponents of H.R. 525 support it for the same reason; self-insurance allows small businesses to provide lower-cost health insurance to employees, often by those who have been previously unable to provide coverage due to costs.11
Although it has not attracted the same level of media attention, S. 2510 has earned its own proponents and critics. Proponents see it as a way to provide coverage with proven success (the FEBHP) at a lower cost due to the size of the pool and bargaining power. Critics condemn the use of a government body to provide insurance to the private sector.12
HCFO has funded work examining association health plans and other approaches that have been used regionally or locally to improve coverage among small-businesses. Mila Kofman, J.D., explored the dynamics of association health plans, such as how such coverage is regulated. Jack A. Meyer, Ph.D., explored the barriers to small-group purchasing coalitions, and whether these coalitions are an effective means of controlling health care costs.
In addition, HCFO has also funded work that explores elements in current legislation, such as self-insurance, ERISA preemptions, and the impact of health-based risk adjustment. Gail A. Jenson, Ph.D. examined the relationship between increased state regulations and employers’ decisions to self-insure. Phyllis Borzi, J.D. analyzed characteristics and flexibility of ERISA health plans. David Knutson examined the impact that health-based risk adjustment had on the marketplace in eight markets.
HCFO Funded Research
Grant No.: 48160
Title: Private Insurance Markets: The Missing Link—Association Health Plans and Other Pooled Purchasing Arrangements
Institution: Georgetown University
Principal Investigator: Mila Kofman, J.D.
Grant Duration: April, 2003–April, 2005
Paragraph Summary: What are the dynamics of pooled purchasing arrangements? In this study, the researchers were: (1) identifying and describing different types of pooled purchasing arrangements, identifying examples of each type, and discussing how such arrangements are regulated by states and the federal government; (2) describing how coverage sold through such arrangements is regulated, focusing on key market reforms and consumer protections as well as applicable federal standards; (3) providing estimates on the prevalence of such arrangements; (4) summarizing how self-insured arrangements are regulated, identifying weaknesses in the law, discussing recent insolvencies, and identifying successful oversight approaches; and (5) discussing market failures focusing on the recent influx in health insurance scams promoted through pooled purchasing arrangements. The objective of this study was to inform state and federal policy discussions on expanding the role of association health plans and other pooled purchasing arrangements. In addition, it intended to help policymakers address current problems that consumers face such as insolvency and fraud.
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Grant No.: 26940
Title: Evaluating Business Initiatives in Health Care Purchasing
Institution: Economic and Social Research Institute
Principal Investigator: Jack A. Meyer, Ph.D.
Grant Duration: April, 1995–September, 1996
Paragraph Summary: Are voluntary, employer-based purchasing coalitions an effective means of controlling health care costs while maintaining quality of care? Researchers at the Economic and Social Research Institute evaluated the effects of health care purchasing coalitions on health care costs, utilization, and quality. This grant supported the first two phases of what is likely to be a three phase project, including: 1) a process evaluation; 2) an assessment of intermediate outcomes; and 3) a quantitative impact evaluation. During phase one, the researchers assessed the purchasing activities of six coalitions across the country, including how they have been implemented and how they compare to past purchasing practices. The objective of this research was to give employers and policymakers more information on the effectiveness of community-based efforts of business coalitions and individual companies to reform the way health care is purchased.
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Grant No.: 39886
Title: Evolution of Self-Insurance in an Era of Managed Care
Institution: Wayne State University
Principal Investigator: Gail A. Jensen, Ph.D.
Grant Duration: August, 2000–February, 2003
Paragraph Summary: What is the relationship between increased state and federal managed care insurance regulations and employers’ decisions to self-insure their managed care offerings? The researchers at Wayne State University tested the degree to which the decline in the percentage of employees who were offered self-insured managed care plans may be related to the passage of HIPAA and other federal mandates that could be applied to self-insured plans despite ERISA. In order to better understand the effects of federal and state policies on self-insured market between 1993 and 1999, the researchers: 1) described the evolution of self-insurance among large (over 200 workers) and smaller firms, including trends related to type of firm and type of health plan; 2) assessed whether there is a causal relationship between federal and state-level insurance regulations on employers’ self-insurance decisions, and on the type of self-insured plan chosen; and 3) compared effects of state regulations pre- and post-1996 on self-insured and purchased plans, within the context of the 1996 federal reforms. Their objective was to inform policymakers on the interrelationships between self-insured employer plans, state and federal regulations, ERISA, and the market.
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Grant No.: 43649
Title: The Anatomy of ERISA Health Plans: Describing their Basic Structure and Key Areas of Variation
Institution: George Washington University, Center for Health Services Research and Policy
Principal Investigator: Phyllis Borzi, J.D.
Grant Duration: October, 2001–August, 2002
Paragraph Summary: How do variations in ERISA health plans affect the formation of policy? The researchers examined the anatomy of key types of ERISA health plans (i.e. identifying the fundamental characteristics, features, and structures that distinguish the plans), focusing on those distinctions that are relevant to the current “patients’ rights” and “defined contribution” debates. In addition, they attempted to correct “prevalent public misconceptions” that may impede legislative development (i.e. the misconception that HMO’s are making health plan decisions, when, in fact, decisions may be made by the administrators or fiduciaries of an ERISA plan.) The researchers hypothesized that “there exist important areas of variation among different types of ERISA health plans that might present policymakers with cause to consider crafting flexible laws and regulations that take into account this variation.” The objective of the project was to provide policymakers with information on variations in ERISA health plans that are relevant to current debates on health plan regulation.
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Grant No.: 37062
Title: Implementation and Impact of Health-Based Risk Adjustment
Institution: Institute for Research and Education, HealthSystem Minnesota
Principal Investigator: David Knutson
Grant Duration: June, 2000–May, 2003
Paragraph Summary: Now that various risk-adjustment tools have been developed, what impact is risk-adjusted payment having in the health care marketplace? Researchers at the Institute for Research and Education, HealthSystem Minnesota, evaluated the implementation of risk-adjustment mechanisms in the following eight markets: Minneapolis-St. Paul; Sacramento, CA; Seattle; Denver; Portland, OR; Baltimore; Phoenix; and Miami. They surveyed managed care organizations, assessing in particular the purchaser-health plan relationship as it related to risk-adjusted payment. Their goal was to inform state and private policymakers on the impact of risk adjustment on the mix of enrollees, costs, and satisfaction of payers and plans.
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1 Collins, Sara et al. “Gaps in Health Insurance: An All-American Problem.” New York: The Commonwealth Fund. April 2006.
2 Hearne, Jean. “Access to Health Insurance for Small Businesses: Bills in the 109th Congress.” Presented at the Alliance for Health Reform, “Ideas for Making Health Insurance More Affordable for Small Businesses,’ April 24, 2006.
3 Perotin, Maria M. “Small Firms Struggling with Rising Health Costs.” Dallas-Fort Worth Star Telegram. http://www.dfw.com/mld/dfw/14415702.htm?template=contentModules/printstory.jsp.
4 Pear, Robert. “Loss of Competition Is Seen in Health Insurance Industry.” The New York Times. http://www.nytimes.com/2006/04/30/us/30insure.html
5 U.S. Senate. S. 1955. “Health Insurance Marketplace Modernization and Affordability Act of 2005.” November 5, 2005.
6 U.S. Senate. S. 2510. “Small Employers Health Benefits Program Act of 2006.” April 6, 2006.
7 U.S. House of Representatives. H.R. 525. “Small Business Fairness Act of 2005.” July 27, 2005.
8 Kofman, Mila. “Ideas for Making Health Insurance More Affordable for Small Businesses.” Presented at the Alliance for Health Reform, “Ideas for Making Health Insurance More Affordable for Small Businesses,’ April 24, 2006.
9 Appleby, Julie. “Bill to Help Small Business with Health Insurance Criticized.” USA Today. April 26, 2006.
10 Ibid.
11 Ibid.
12 Alliance for Health Reform, “Ideas for Making Health Insurance More Affordable for Small Businesses,’ April 24, 2006.
