Copyright 1999 Federal News Service, Inc.
Federal News Service
MARCH 25, 1999, THURSDAY
SECTION: IN THE NEWS
LENGTH:
3468 words
HEADLINE: PREPARED STATEMENT OF
VICTORIA
CALDEIRA
MANAGER, LEGISLATIVE AFFAIRS
FEDERAL PUBLIC POLICY
NATIONAL
FEDERATION OF INDEPENDENT BUSINESS (NFIB)
BEFORE THE HOUSE
EDUCATION AND THE WORKFORCE COMMITTEE
SUBCOMMITTEE ON EMPLOYER-EMPLOYEE
RELATIONS
SUBJECT - ASSOCIATION HEALTH PLAN PROVISIONS IN
H.R. 448
BODY:
Chairman Boehner, my name is
Victoria Caldeira, and I am a Manager of Legislative Affairs for the National
Federation of Independent Business (NFIB). NFIB is the nation's largest small
business advocacy organization, representing 600,000 small business owners in
all fifty states. I want to begin by thanking you, Mr. Chairman, and the other
members of this subcommittee, for calling this hearing today and inviting me to
testify. Nothing is more important to NFIB than solving the
health care problems of small businesses. We firmly believe
that national association health plan options are an ideal
solution to our problems. We commend you for your willingness to hold a hearing
on this important subject, and we hope it is the first step in this Committee
toward the enactment of changes in law that NFIB can support. Growing Number Of
Uninsured
According to U.S. Bureau of the Census Current
Population Survey data, there were 43.1 million uninsured in
the United States in 1997. This number grows by about one million people a year.
A 1998 study by the Center for Risk Management and Insurance Research at Georgia
State University estimates that we will have over 53 million
uninsured Americans by 2007.
Approximately 62% or 24.5
million of the uninsured have a family head who is selfemployed
or working in a firm with fewer than 100 employees. (Source: Employee Benefit
Research Institute data from the Census Bureau's March 1998 Current Population
Survey)
We also know that the smaller the business, the less likely it is to
provide health insurance. In 1997, the U.S. Department of
Health and Human Services (HHS) published the results of a
National Employer Health Care Survey by the Centers for Disease
Control and Prevention and the National Center for Health
Statistics. It shows that only 33% of firms with less than 10 employees offer
health insurance, compared to 67% of firms with 10-24
employees, 83% of firms with 25-99 employees and 97% of firms with 500 or more
employees.
The HHS findings are very similar to what the Gallup organization
found in January 1998, when it looked at NFIB's own members. Only 30% of NFIB
members with fewer than 6 employees offered health insurance,
compared to 55% of NFIB's members with 6-10 employees, 75% of NFIB's members
with 11-25 employees and 90% of NFIB's members with 26-50 employees.
Why is
it that the smaller the firm the less likely the firm is to offer
health insurance? The Department of Health and
Human Services summarizes in the above mentioned report that "the cost of
health insurance for larger firms will be less than smaller
firms because large firms can spread the risks of medical claims over a larger
group of workers than small firms. Among the smaller groups, cost for
health care utilization is less predictable, posing more of a
risk to insurers. The cost of administering health insurance
plans (collecting employee share of premiums and enrolling and disenrolling
workers) also decreases as firm size increases due to economies of scale." State
Reforms Are Not Working
Over the past decade, many states have passed
reforms aimed at improving the health care market for small
business. In fact, these reforms have actually increased the number of
uninsured. In August 1998, The Galen Institute published an
analysis of a study conducted from 1990 through 1994 of the 16 states with the
strictest laws regulating the health insurance of small
employers and individuals. By 1996, all 16 states had experienced an annual
increase in the number of uninsured that was almost eight times
higher than the remaining 34 states. Consequently, many insurance carriers no
longer actively market in many of these states. For example, in Kentucky there
are presently only two insurance carriers servicing the population. In New
Jersey, the number of residents without health insurance is
higher today that at any other time in that state's history. Costs continue to
rise and average prices in the individual market are approximately double the
national average price for equivalent coverage. (Source: Americans for
Responsible Reform December 1997 Report)
In June 1998, the Urban Institute
published similar findings, concluding that premium rating restrictions in the
small group health insurance market are clearly associated with
lower rates of private and overall health insurance coverage.
The study also concludes that mandates for drag and alcohol treatment have also
contributed to the decrease in overall coverage.
The High Cost of
Health Insurance On Main Street
We at NFIB can substantiate
that the high cost of health care is the number one problem of
small business owners today. NFIB surveys show that for the past 10 years, small
business owners have ranked the cost of health insurance as
their number one problem -- higher than taxes, regulation, and every other
problem. Our members have also told us that they believe that providing
health insurance is the right thing to do -- right for their
employees and right for business. However, the cost of health
insurance is too high. In fact, a 1998 study by the Gallup organization of NFIB
members shows that 35% of small businesses and their employees paid $5000 or
more per employee, per year for a family plan in 1997. The median cost was $4342
per employee, per year for a family plan. In comparison, a study of companies
with 500 or more employees by the benefits consulting firm of William M. Mercer
shows that average costs were $3521 per employee for large companies over this
same period.
Association Health Plan Solution
In
searching for a solution to the cost problem, our members looked around at what
seems to be working in our current health care system. In
examining the issue it became apparent that for Fortune 500 companies our
current health care system is working very well in many
respects. These companies have exceptional benefits. They have the most modest
annual cost increases and the greatest number of health plan
choices. Moreover, these companies have benefitted from the economies of scale
that come from being able to purchase health care in a large
group, across state lines, under national rules. Unfortunately, under today's
law it is impossible for small business to be able to purchase
health care in the same manner as their big business
counterparts.
In today's society, when it comes to purchasing
health care, the rules of the game are definitely stacked
against small business. This is not fair. The small businesses with the least
income, actually pay the most. Association health plan
legislation like H.R. 448 evens the playing field by enabling small businesses
to purchase their health care like big business and union plans
through AHPs under ERISA. This is a private market solution to our nation's
health care coverage and cost problems.
It builds upon
what has proven to work. If small business could purchase
health care in the same manner and under the same rules as big
business, premiums would go down and coverage would go up.
Allowing small
businesses to purchase health care through association
health plans will give them access to nationally uniform
health plans that have the lowest possible administrative
costs, the greatest amount of bargaining power and sufficient numbers to absorb
risk without substantially increasing premiums.
Nationally Uniform AHPs Will
Result In Lower Per Person Administrative Costs For Small Business
Studies
done by the Congressional Research Service and Hay/Huggins Company show that
small businesses currently must pay the highest marketing, billing and claim
processing costs. In fact, some small businesses pay up to 30% more due to these
costs. However, if legislation similar to H.R. 448 becomes law, AHPs would not
have the high marketing costs currently charged to small businesses. Equally
important, administrative costs would be spread over thousands of members in
AHPs instead of a few workers in a small business, resulting in a significant
cost savings. Finally, H.R. 448 would enable an association
health plan to operate without having to comply with 50
individual state laws on benefits, premiums, and solvency. This will result in
substantial savings.
Nationally Uniform AHPs Will Have The Greatest
Bargaining Power
Purchasing health care for tens of
thousands of people would enable AHPs to negotiate lower rates with
health care providers in exchange for a large volume of
business. Fortune 500 companies and union plans have been actively bargaining
for lowest rates for years at centers of excellence around the country, based
upon this principle. This has enabled the quality of the health
care provided to improve at the same time that rates have been reduced.
Nationally Uniform AHPs Will Improve Small Businesses' Ability To Absorb
Risk
Similar to large employers, AHPs would have enough members around which
to spread the risk so that if a member gets sick, these costs can be absorbed by
the pool without a substantial increase in premiums. This principle has worked
for years for Fortune 500 companies, multi-employer union plans, and the few
multi-state MEWAS that still exist under current law.
Small Businesses'
Frequently Experience Drastic Rate Hikes
One of the most frequent complaints
of small businesses purchasing health insurance today is
drastic rate hikes that force them to drop or completely restructure their
employer sponsored health care coverage. Allowing small
businesses to purchase health insurance through AHPs will
minimize this problem.
Don Summers, NFIB member and owner of Austin Weldon
and Generator Service in Austin, Texas, had to drop his coverage after the
health care premiums for his six employee shop increased 400
percent over a one year period. This meant that his two sons, who are also
employees, and his eight grandchildren, would be without employer-provided
health care coverage. It was a heart-wrenching decision, but
one that had to be made to ensure the financial viability of his business.
Jay Niskey, NFIB member and owner of Bowman Petroleum Company in
Tunkhannock, Pennsylvania recently contacted us to say that under his
BlueCross/Blue Shield plan, his 18 person company just experienced a 32% premium
rate increase for 1998. This increase forced him to eliminate company
contributions for the spouses and children of his employees. He also eliminated
a flexible spending account which had helped make health care
more affordable for him and his employees. After he announced these changes, he
lost two valued employees who went to work for employers who provided paid
family coverage.
AHPs Will Also Benefit From the Ability To Self-Insure
Experience has proven that companies that pay the bulk of their
health care claims out of operating costs have the incentive
and control necessary to make sure they are getting the most for each
health care dollar they spend. Self-insurance was the impetus
behind the movement toward preventive care. From maternal and child
health care to mental health care, no one
offers more preventive programs than self-insured companies do. Furthermore,
self-insured companies have been at the forefront of investing in private sector
research on what works and what doesn't work when it comes to improving
health care outcomes, and of sharing this information with
their employees. The best example of this is the development of the Foundation
for Accountability, a not- for-profit organization dedicated to helping
Americans make better health care decisions. Finally,
self-insured companies all across the country are banding together in purchasing
coalitions and contracting directly with hospitals, doctors and pharmaceutical
companies. This has resulted in substantial savings in health
care costs, while at the same time has improved health care
quality as physicians are held to best practice parameters.
AHPs Will Be
Able to Design Plans and Benefits Free Of State Mandates
Self-insured
companies are exempt from state benefit mandates. However, small businesses who
do not self-insure are required to comply with these rules. Often state benefit
mandates have more to do with what interest group most effectively lobbies the
state legislature than what benefits constitute the best medical care. The
result is that important benefit choices are not made by employees and
employers, but the state or federal government.
The cost of state benefit
mandates has been well documented. In 1996, the General Accounting Office
estimated that state benefit mandates add anywhere from 5% to 22% to claims
costs, depending on the state. In 1997, the National Center For Policy Analysis
(NCPA) estimated that mandates add 15% to 30% to the cost of
health insurance. NCPA concluded that based on these estimates,
a small business employing 25 people could see its premiums rise by $20,000 a
year, due to state mandates. Finally, in January 1999, Gail Jensen, of Wayne
State University, and Michael Morrisey, of the University of Alabama -
Birmingham, estimated that state mandates constitute 5% to 21% o( the cost of
claims. Due to the marginal cost, the difference between the actual cost and the
costs that would have resulted without the mandates, premiums were found to
increase 4% to 13% as a direct result of state mandated benefits. Jensen and
Morrisey conclude that one- fifth to one-quarter of the
uninsured have no health insurance because of
the high cost of mandated benefit requirements.
Interestingly enough,
self-insured Fortune 500 companies do not have to comply with state benefit
mandates, but nevertheless they offer generous benefit packages. This is because
they tailor their benefit packages to the needs of their workforce. A 1995
survey by KPMG Peat Marwick shows that self-insured health
plans actually offer more generous benefits than fully insured plans when it
comes to well child care, outpatient alcohol and drug treatment, and
chiropractic care.
Small businesses should also be able to tailor their
benefits to the needs of their workforce. It creates better value for each
health care dollar spent. It also makes them more competitive
with large corporations in competing for quality employees. H.R. 448 allows
small businesses to join an association health plan that would
be free to develop a tailor-made plan design and benefits package similar to the
way large employers do.
AHPs Are Not MEWAs
We have all heard about the
numerous disasters that occurred in the past as a result of fraudulent multiple
employer welfare arrangements (MEWAs). However, the association
health plans in H.R. 448 are not MEWAs. This is because
association health plans would have numerous new requirements
tailored to prevent fraud and abuse. If MEWAs had been forced to comply with the
requirements in H.R. 488, the problems resulting from them never would have
occurred.
New Eligibility Rules
Unlike the MEWAs of the past, the new
federal rules in H.R. 448 apply only to group health plans
established by legitimate bonafide trade associations. These associations must
exist for purposes other than providing health coverage.
Sponsors of AHPs must be in existence for at least three years. AHPs must also
be certified by the states or the Department of Labor. Failure to certify would
result in the AHP being subject to criminal penalties.
New Solvency and
Other Consumer Protections
Under current law, Fortune 500 Companies who
self-insure are not subject to any solvency requirements. In contrast, the
association health plans in H.R. 448 would be subject to a
whole host of solvency requirements and additional precautions. First and
foremost, AHPs who self-insure must set aside cash reserves for unpaid claims
and administrative expenses. They must also set aside a surplus capital amount
of at least $500,000 to $2,000,000, based on the level of aggregate and specific
stop loss provided by the plan. Mandatory stop loss coverage is required with an
attachment point not greater than 125% of expected gross annual claims and
specific stop loss insurance with an attachment point of $50,000 to $200,000
based on the number of covered individuals. Also, all plans are required to have
plan termination indemnification coverage. This ensures that if the first two
protections should somehow not work causing a plan to terminate with unpaid
claims, an insurer has already agreed to absorb the loss. Moreover, AHPs must
undergo annual determinations by a qualified actuary on plan funding levels.
Quarterly review by a plan's board of trustees is also required. Trustees are
required to develop rules of operation and financial control based on an
adequate three year plan that meets the requirement under Title I of ERISA.
Finally, all AHPs must offer at least one fully insured
health coverage option to its members, even if they also offer
a self-insured plan. Therefore, if employees do not like the selfinsured plan
option, they are able to select the fully insured health
insurance option. Generally if a plan is self insured, the plan sponsor is
responsible for paying benefits to plan participants in accordance with plan
terms. Alternatively, in a fully insured plan, the risk for plan benefits is
transferred to an insurance carrier in return for a premium.
Adverse
Selection Concerns
In addition to concerns about problems with MEWAs under
current law, NFIB understands that there is a great deal of concern by Blue
Cross/Blue Shield and the NAIC that AHPs will take all the healthy people from
the insurance pools, and exclude unhealthy people from their plans. Make no
mistake about it -- under H.R. 448, AHPs are not allowed to deny coverage or
charge higher premiums to businesses or their workers based upon
health status. Under current law, and H.R. 448, if an NFIB
member has an employee with a heart condition, NFIB must take that employer and
cannot charge the employer or any members of his small business a higher premium
than anyone else in the NFIB plan. This is because under the
Health Insurance Portability and Accountability Act, a group
health plan is prohibited from establishing eligibility rules
or raising premiums based upon the health status of an
individual. This means that plans are not allowed to deny coverage based up on
the health status of an employee. Also, plans can not set
premiums based upon the claims experience of a particular employer. Moreover,
H.R. 448, Subtitle D, Section 801(b)(3) specifically states that membership in
an association and coverage under the association health plan
cannot be based upon the health status of an individual or a
group's claims experience. If an AHP is found to be engaging in such an illegal
practice, DOL can freely deny certification to these plans, and the plan can
have its tax qualified status taken away. Association health
plans would only be allowed to self-insure if they do not limit their membership
to trades or industries with below-average risk. Furthermore, the reputation of
the trade association offering a plan depends upon its fair and respectful
treatment of all its members, sick or healthy.
AHPs Will Increase Coverage
NFIB and other members of the association health plan
coalition contracted with CONSAD Research Corporation to determine a reasonable
estimate of the number of uninsured that would obtain coverage
due to the increases in choices and the decline in premium prices that would
result if H.R. 488 became law. CONSAD estimates that health
care premiums for small business owners and their employees would be reduced by
5% to 15%. This would result in association health plans being
able to provide coverage for 2 to 8.5 million people who were previously
uninsured.
Conclusion
Mr. Chairman, you and the other
members of this committee must ultimately decide for yourselves whether the
association health plan legislation will increase
health care coverage. If you pass this bill and coverage
increases even by one million people, that will be one million more people who
can go to bed at night with peace of mind knowing that they have
health care coverage. If it does not increase coverage, I fail
to see how we could be worse off than if we had never attempted to provide this
option.
NFIB strongly believes if the association health
plan provisions become law, our health care system will be
fairer, and more choices will be available to small businesses owners at a lower
cost. The over 100 members of the Association Health Plan
coalition hold the same conviction. We are confident that the
health care marketplace can work to provide better options for
small business at no cost to the government if we just let it. We hope that you
will step out in faith and work to provide us this opportunity. We look forward
to working with you in this regard.
END
LOAD-DATE: March 27, 1999
