Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
March 25, 1999, Thursday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 3891 words
HEADLINE:
TESTIMONY March 25, 1999 DONALD G. DRESSLER CAE THE ASSOCIATION HEALTHCARE
COALITION HOUSE EDUCATION AND THE WORKFORCE EMPLOYER-EMPLOYEE
RELATIONS EMPLOYER PROVIDED HEALTH CARE COVERAGE
BODY:
Statement of Donald G. Dressler, CAE on behalf of the Association Healthcare
Coalition House Committee on Education and the Workforce Subcommittee on
Employer/Employee Relations March 25, 1999 My name is Donald Dressler, and I am
President of Insurance Services for Western Growers Association, headquartered
in Newport Beach, California. I am testifying before you today on behalf of The
Association Healthcare Coalition (TAHQ, a nationwide coalition of trade and
professional associations formed for the purpose of maintaining and improving
the ability of associations to provide health care benefits to
their members. First, I want to commend Chairman Boehner for scheduling this
hearing to review the need to provide greater access to affordable
health insurance coverage for American workers, and the role of
Association Health Plans (AHPs) in achieving this objective. I
also want to commend Ranking Member Andrews for his interest and leadership on
this issue. TAHC strongly supports legislation, soon to be introduced by Reps.
Jim Talent and Cal Dooley, which will strengthen and expand AHPs. Passage of
this legislation will make health insurance more affordable and
secure for millions of American workers and their families, both those who
currently have coverage but could lose it do to future price increases, and
those who can not currently afford coverage. This legislation would accomplish
these goals primarily by harnessing the power of value-creating trade
associations using market forces to stimulate competition and generate
innovative new health benefit options for workers employed in
small businesses. TAHC believes that this legislation is an essential component
of any Congressional effort to reduce the number of uninsured
workers across the nation. Mr. Chairman, we believe that AHP legislation is
necessary because we are in the midst of a crisis, which, although it may not be
on the front pages every day, is very real. Despite a very strong economy, the
number of uninsured Americans continues to increase at an
alarming rate. In California, the uninsured population grew by
50,000 per month in 1997, according to a new report issued jointly by the public
health schools of the University of California-Berkeley and the
University of California-Los Angeles. Moreover, the dominant providers in the
small group market, Blue Cross and Kaiser, have just announced 10- 12 %
increases in premiums for all plans offered to employers with less than 50
employees. This is strong evidence that health care costs are
expected to accelerate in the coming years for small businesses. As such, the
uninsured problem in California has already reached crisis
proportions, and will undoubtedly grow worse if there is an economic downturn
anytime soon. Thus, it is imperative that Congress implement a market-oriented
approach to deal with this problem. TAHC believes that the soon-
to-be-introduced Talent/Dooley bill is the best method for resolving this
problem, and looks forward to working with Congress on this issue. Associations
are a Vital Source of Health Coverage for Small Businesses Bona
fide trade and professional associations are a vital source of
health care coverage for millions of American workers employed
in small businesses. A comprehensive survey sponsored in 1997 by the American
Society of Association Executives (ASAE) and conducted by W. F. Morneau &
Associates determined that associations generate at least $6 billion in
health insurance premiums annually, and provide coverage for at
least 4 million employees and their dependents. Some associations have been
sponsoring health plans for over 50 years. It is important to
note that TAHC's membership is composed of trade and professional associations
organized for purposes other than selling health insurance, a
critical distinction in the debate over the role of AHPs in
health care. Our members are not affinity groups or businesses
that simply come together to purchase insurance. Rather, bona fide associations
exist for one reason, and one reason only: to serve the needs of their members.
Bona fide associations have an outstanding track record in providing a host of
services, one of which is high quality health insurance
coverage, to small businesses. AHPs are vital to enabling small businesses to
provide affordable health coverage to their workers, especially
in rural areas of the nation. The key to providing quality
health coverage at affordable rates is the ability of AHPs to
offer plans which are specifically designed to meet the health
care needs of their membership. As such, AHPs offer a wide variety of approved
health plans and managed care arrangements, both fully insured
and self insured. Outstanding Examples of Association Health
Plans First, let's look at a few examples of existing, bona fide associations
which are currently providing their small business members with affordable
health coverage through AHPs. One of our TAHC members is the
Ohio Lumbermen's Association, which operates an AHP that provides coverage to
lumber, nursery and forestry businesses throughout Ohio, including some in
Chairman Boehner's district. This fully-insured plan was established in 1952,
and currently covers over 5,500 employees and dependents. This AHP provides
workers with a choice of six medical plans and many optional benefits, and
includes a comprehensive preventive care benefit to encourage wellness which
goes beyond that which is required by state mandates. The Ohio Lumbermen's plan
also provides employees on layoff or leave of absence with the ability to
continue their coverage for up to six months. Over the past six years, medical
care rate adjustments for the plan have been significantly below insurance
carrier trends, with rates being decreased or not increased in six of the past
twelve periods. In Rep. Andrews district, one of the founders of TAHC, the
Eastern Building Material Dealers Association, provides insurance for lumber
yards in Cherry Hill and Medford, New Jersey. This plan has had its policies
canceled by insurance carriers in four of the six states within which it
operates because the carriers pulled out of the markets due to state mandates.
The association has had difficulty in replacing its canceled coverage because
there are fewer and fewer choices with all the insurance carriers leaving state
markets. While it has found other insurance coverage in each state, its
employees have not been as pleased with the limited choices of plans now
available compared with their previous coverage. At Western Growers Association,
we have been providing affordable health coverage to our fruit
and vegetable growers and seasonal agricultural workers for over 40 years, and
we now provide coverage to over 100,000 individuals. Thousands of these workers
would not have any private health coverage without WGA's
health plans, because insurance companies don't have any
interest in serving these people. At WGA, we are able to provide affordable
coverage to families because we offer a wide variety of choices that are
designed to meet the health and financial needs of our members,
their workers, and their worker's families. For example, WGA's least expensive
family health plan (PPO plan that covers employee, spouse and
children) is $136 ($149 as of April 1, 1999) per month for employees of any age
(average age of about 40). In comparison, the least expensive comparable
health plan offered by the government-run
Health Insurance Plan of California (HIPC) for the comparable
age range (30-39 age group) is $273.75 per month (as of July 1, 1998). However,
this plan is only available in certain areas of the state. Thus, the least
expensive HIPC plan is pearly twice as expensive than WGA's least expensive
plan. There may be some differences in benefits among these plans, but the
benefit packages are generally similar. Mr. Chairman, the Ohio Lumbermen's
Association, the Eastern Building Material Dealers Association and other TAHC
members are examples of outstanding organizations that are providing affordable
health insurance to many small businesses. Without these plans,
many of the workers currently covered might be uninsured. Bona
fide AHPs like these plans are an integral part of our health
care system, without which the problem of the uninsured would
be even worse. Associations are uniquely structured to be part of the ERISA
healthcare delivery system which has proven to be successful in extending access
to affordable health coverage. Because associations are already
structured to represent their members in other areas, they possess the
infrastructure, administrative mechanisms, and experience needed to unify
employers and employees into effective consumers of health
services. In summary, associations add-value to small employers and their
workers, as well as to the health care system as a whole.
Affordability in Health Care Coverage is Largely a Small
Business Problem The passage of portability reforms by Congress in 1996 was an
essential step in making health coverage more accessible to
millions of Americans. However, there is broad agreement that more needs to be
done by Congress to address the issue of making health coverage
more affordable to American workers. Evidence of this need is the fact that the
number of uninsured, currently at about 43 million, continues
to grow despite the strong economy. TAHC believes strongly that Congress must
take action to make health coverage more affordable for working
Americans. In doing so, it should recognize that a great deal of the
affordability problem is a small business issue. Since associations are critical
to providing small businesses with affordable health insurance
to their workers, the continued viability of AHPs must be an integral component
of any future insurance reform efforts. If one looks closely at the problem of
the uninsured, it becomes clear that conventional
health insurance is just too expensive for many working
Americans with families, and particularly those who are employed in small
businesses. Statistics complied by the Employee Benefit Research Institute
("Sources of Health Insurance and Characteristics of the
Uninsured: Analysis of the March 1998 Current Population
Survey") show that 84 % of the uninsured lived in families
headed by workers in 1997, and over 60% of all uninsured
workers were either self-employed or working in private-sector firms with fewer
than 100 employees. Table I (below) from EBRI's statistical analysis shows
clearly just how much firm size has to do with the problem of
uninsured. Table 1 - Percentage of non-elderly Americans
uninsured by firm size, 1997 (compare to national average =
18.2%): Self-employed = 24.1% Private firms - less than 10 employees = 34.7%
Private firms - less than 25 employees = 29.7% Private firms - less than 100
employees = 20.9% Private firms - less than 500 employees = 15.8% Private firms
- less than 1,000 employees 12.7% Private firms - 1,000 or more = 12.3% These
statistics illustrate a point that should be overwhelmingly clear: workers in
small firms are much more likely to be uninsured than those in
large firms. So much so, that workers in firms of less than 10 employees are
nearly three times more likely to be uninsured than those in
firms with 1,000 or more workers. Additionally, workers most likely to be
uninsured were whose working in agriculture, forestry, fishing,
mining and construction (33.7 % uninsured for these five
industries combined). This striking dichotomy between the
health coverage status of workers in small and large firms is
inequitable and unjustifiable, and demands the attention of Congress. Why this
disparity between workers employed in large and small businesses? The most
important reason is that most larger employers operate under ERISA, which allows
them to self-insure their employees. AHPs would be able to lower
health coverage costs for small businesses in four ways by
operating under ERISA: 1) Greater economies of scale and bargaining power to
negotiate discounts with medical doctors, hospitals, and other
health care providers; 2) Uniform regulation across state lines
would greatly reduce administrative costs, some estimates indicate by as much as
30%; 3) The ability to self-insure and pass the savings which result along to
plan beneficiaries; 4) The freedom to design benefit options which meet the
needs of small business workers without being constrained by excessive
government mandates. The ability for AHPs to self-insure is critical, even if it
is never utilized. The fact that an association has the viable option of
self-insuring helps keep insurance rates low for fully- insured AHPs. Indeed,
about 80% of TAHC's members are fully- insured plans. Ensuring that these plans
have the option of self- insuring will make insurance companies think twice
before raising premiums in the future, thus benefitting workers in small
businesses. The Talent-Dooley legislation will provide bona fide AHPs with these
same tools which allow large corporations to provide virtually universal
coverage to their employees. These tools are sorely needed by AHPs in order to
provide new, innovative products that enable small businesses to offer
health plan options while controlling their costs. Such
products are not being introduced by insurance companies at this time. In recent
years, Blue Cross of California, Arizona and Texas have offered virtually no new
innovative health insurance options which help small businesses
control costs. This is because the small group health insurance
market is like the U.S. automobile market in the 1950's, 60's and 70's, when you
had only three dominant players in General Motors, Ford, and Chrysler. The big
three did not respond to the American peoples' need for more fuel efficient
cars, even though this need was very real, until they were forced to do so by
new competitors entering the market with innovative products that meet
consumers' needs. If we are going to develop more innovate
health insurance products to meet the needs of working
families, we must have greater competition in these markets. The strengthening
and expansion of AHPs will generate this competition. This legislation also
would increase solvency and other consumer protection provisions for AHPs, thus
protecting consumers by preventing fraud and abuse. The solvency standards
contained in AHP legislation are more stringent than similar standards
maintained by many states. This also would help make affordable coverage more
secure for millions of workers employed in small businesses across the nation.
Unfounded Criticisms of Association Health Plans I would like
to address several criticisms which have been leveled at the market-oriented
approach taken by AHP legislation in the past. Probably the most important
criticism which some opponents make is that AHP's will create adverse selection
in health insurance markets by excluding less healthy
individuals, thus avoiding bad risks and driving up insurance costs for those
who are somehow excluded. I believe this criticism is completely without merit,
and I urge the subcommittee members to consider the following points very
carefully. First, I am not aware of any studies or evidence which supports this
claim unequivocally. However, a study by the respected healthcare consulting
firm Lewin-VHI in 1995 did find that there was no significant difference between
the risk characteristics of fully-insured and selfinsured populations. This is
an example of empirical evidence which indicates that self-insured plans do not
result in adverse selection. Let's look at the issue another way. If the claims
of AHP critics regarding adverse selection had any validity, it should follow
that large employer plans which self-insure also engage in adverse selection. In
order to verify this question, we have real world examples to look at: large
employers which currently self- insure under ERISA. Do these plans keep their
costs lower and provide coverage to virtually all of their employers by engaging
in adverse selection? If so, than it would follow that ERISA should be
completely dismantled, and the problem of the uninsured be
turned over to the state insurance departments. Another very important point is
that the adverse selection claims of AHP critics do not stand up to scrutiny
when analyzed in the context of market forces. Small businesses demand the
maximum amount of health benefits they can afford to attract
high caliber employees. In order for an AHP to remain viable and serve its
membership over the long term, it must offer comparable products as those
offered by competitors in the insurance market. AHPs can offer more affordable
coverage not because of lower risks among its beneficiaries, but through
administrative savings, economies of scale and bargaining power, and the actual
or potential ability to self-fund, which eliminates an insurance company profit
margin and passes it back to the consumer as more health care
coverage per dollar spent. Given these charges that have been made by opponents
of AHP legislation, it seems appropriate to ask if the Ohio Lumbermen's
Association and Eastern Building Material Dealers Association are providing
affordable coverage by taking only the good risks, therefore leaving sicker
people for commercial insurance plans in their states? Upon close examination,
you will find this is, and has not been the case. If these AHPs have been
providing affordable coverage without engaging in adverse selection for many
years, why do critics continue to insist that new or expanded AHPs will do so in
the future? AHP legislation contains strict criteria which ensures that only
bona fide associations can offer plans that must be offered to all employers
without any discrimination based on health status. In
California, the real world evidence also contradicts the claims of AHP
legislation opponents. AHPs have been operating for many years, and in 1994
California passed a law to require that they become certified and operate under
state regulatory authority. Has this damaged Blue Cross of California? On the
contrary, Blue Cross's market share has increased, and together with Kaiser,
these two dominant players have over three quarters of the small group market
share in California. Moreover, they have just announced 10- 12 % increases in
premiums for small businesses health plans. Increased market
share and higher profit margins are proof that these insurers are doing very
well despite competition from AHPs. However, small business workers are becoming
uninsured more rapidly every year. Nevertheless, in an effort
to "go the extra mile" to assure critics on this issue, we have attempted to do
everything possible to ensure that reasonable precautions are contained in AHP
legislation to prevent any adverse selection by AHP's. We have repeatedly
attempted to work with our critics to see if legitimate concerns can be worked
out. However, each time such attempts have been made over the past several
years, it has been our opponents who have walked away from the discussions.
Congress needs to look closely at this question, because it is at the heart of
the debate over the problem of the uninsured. Second, some
critics contend that the legislation does not respect the role played by state
governments in regulating health insurance. This ignores the
fact that the bill contains a number of provisions to ensure that many state
regulatory functions remain intact. First, states are given the option to
regulate AHPs domiciled in their states by enforcing the uniform standards
established by the bill. Also, AHPs will be required to inform state authorities
of their existence, which many are not now required to do. Finally, this
legislation has been criticized by some as allowing AHPs to "escape" consumer
protection provisions under state law. However, this criticism ignores the
bill's establishment of new, tough consumer protections at the federal level.
Moreover, such criticism also ignores the fact that only a limited number of
states currently have consumer protections. Indeed, this is why there have been
numerous "horror stories" of fraudulent health plans leaving
unpaid claims in years past. The Talent-Dooley bill will contain provisions that
will enhance the ability of both state and federal regulators to identify and
shut down fraudulent plans, and the Department of Labor's inspector general has
testified to this before Congress in previous years. Thus, by enacting the
uniform federal system of solvency standards and other safeguards, AHP
legislation will in reality increase consumer protection provisions
significantly. Conclusion The policy decision for Congress is clear. Our nation
has a problem - the 43 million uninsured Americans, the
majority of whom are employed in small businesses. In order to address this
problem, are we going to give more decision-making capability to bona fide
associations like the Ohio Lumbermen and Eastern Building Material Dealers which
exist to serve small businesses, and which work on a daily basis with their
members to solve problems they face. This is the approach to the problem taken
by the Talent-Dooley bill. Or, are we going to expand public-sector decision
making, government mandates, and subsides, under which the level of
uninsured has reached the unprecedented levels it has today? If
state government efforts have been so successful, why are insurance companies
continuing to leave these highly regulated markets? Recent examples of national
carriers which have stopped writing coverage for association plans, and some of
which have stop writing health coverage totally, are Pacific
Mutual, John Alden, John Hancock, Prudential, Principal Mutual, Metropolitan,
New York Life, Travelers, Mass Mutual, and Lincoln. This mass exodus from the
state markets are not the sign of markets with appropriate levels of
competition. Another option is for Congress to simply do nothing. However, TAHC
believes this is unacceptable. AHPs currently face challenges which are making
it more difficult to provide affordable health coverage to
working families. The 1997 Morneau study cited earlier concluded that rising
costs driven by "state- specific health care legislation" was
driving up rates and making it more difficult for plans to maintain affordable
coverage. An example of this is our current situation at WGA, where the
health coverage of thousands of families covered by WGA could
be threatened if our state law is not renewed before it sunsets at the end of
2000. At this time, it is difficult to discern what type of regulatory structure
may take the current law's place, or what types of new government mandates may
be imposed. This regulatory uncertainty detracts from our ability to provide
affordable health coverage. As such, Congress should pass
legislation which would: (a) prevent the erosion of the ability of AHPs to
continue providing affordable health coverage; and (b) enhance
and expand the ability of AHPs to offer affordable coverage through ERISA. The
Talent-Dooley bill will accomplish these objectives by building on the solid
foundations already established by bona fide Association Health
Plans. Thank you for this opportunity to appear before you today.
LOAD-DATE: April 3, 1999 
