Association Health Plan Primer

cross-posted from tpm

The Senate Health, Education, Labor and Pensions Committee on Wednesday voted along party lines to approve an association health plan (AHP) bill.  President Bush pointed to AHP’s in his state of the union address as one of many reforms to help individuals attain health insurance.  But AHP’s expose individuals to another frontier of risk, where their health benefits are paltry, uncertain, and expensive. 

The key complaint driving the creation of AHP’s is that state regulation bars insurers from offering affordable health plans.  If insurers could offer plans on a national market, bypassing any state regulations, more plans would be offered and more individuals would become insured. Unfortunately, this type of thinking isn’t supported by reality.

Bare-bones plans have been offered for years, and people don’t want them.  But more than that, Ezra Klein takes a look at why we have state regulations in the first place:

The reason states mandate that insurers cover certain procedures is so insurers can't price folks who are likely to need those treatments out of the market. Insuring young women, if you didn't need to cover anything related to pregnancy, would be relatively cheap. Pricing the pregnancy package through the roof would be relatively easy. And denying the claims of those who bought the base package and then got pregnant would be trivial -- and would save you a ton of money. So almost all states mandate that you cover maternal care. And this goes across the board, from procedures the old use but the young don't need to packages that target specific lifestyles. If you allow the insurance companies to subdivide the market by treatment needs, what you'll have is bargain-basement pricing for the young and healthy coupled with unbelievable premiums for their less-lucky friends.

But this statement from Committee Chair Mike Enzi (R-WY) on the purpose of AHPs is the most revealing:

Let us put the power in the hands of small employers and family-owned businesses, rather than in the hands of insurance companies or the government. Let the consumers band together to drive the change that we want to see happen

Enzi is completely wrong about where the power in this situation is going.  It’s funneled directly to the insurers!  They’ll be offering bare-bones plans to these small businesses, who will have no ability to negotiate higher benefits.  Why?  Because there’s nothing barring them from trying to negotiate plans with insurers now.  Insurers simply aren’t interesting in offering an affordable but comprehensive product to small businesses. 

But why trust history?  Enzi wants consumers to band together and force doctors/ hospitals/ insurers/ employers to provide them with cheaper health care.  Because they surely haven’t had enough time to do so the last forty years. 

The bill has already passed committee.  If it passes the Senate, it will only continue to weaken health insurance as we know it.  The way to solve our health insurance problems isn't by cutting benefits, it's by fixing our fragmented system that costs twice as much as our more generous international counterparts.

Comments

[hgstern]

 
As usual, Ezra -- in his quest to make what is, I suppose, his point -- gets his facts wrong, and just sounds silly.

States don't (as a rule) mandate maternity coverage (although most do require cover for complications). So his whole argument is based on a false premise.

Time to burn that particular straw man, Ezra.

And Kate, I'd be very interested to see your documentation that large groups of people have been offered "bare-bones coverage" and taken a pass.

The reality is that -- for quite some time -- there have been darned few such policies available; and once they hit the market, they tend to be *very* attractive (cf: the explosion of the "new" mini-med plans).

Have a great week!
 

[Trapier K. Michael]

Re: "But why trust history? Enzi wants consumers to band together and force doctors/ hospitals/ insurers/ employers to provide them with cheaper health care. Because they surely haven’t had enough time to do so the last forty years."

Ugh. I don't even have the breath to comment. I can only say that as a lifelong patient yourself, you are a frightful spokewoman for health care consumers' rights. Frightful.

[Martin]

Trap, if I read your comment right... it was unnecessary.

Regardless, on AHPs... I think the insurance companies are making a legitimate argument here... right now large companies are able to self-insure under ERISA and therefore do not have to comply with state regulations and, while people can and do complain that ERISA creates a regulatory vacuum, there is no reason not to allow AHPs to follow exactly the same rules and regulations as self-insured employer plans under ERISA.

[Dan]

Martin:

Sure there is. ERISA plan benefits are created by companies that want to keep their employees. They have (or hire) expertise in the healthcare market, and the ability to make informed decisions.

Small employers in an AHP plan don't have expertise, can't afford to hire it, and most importantly, are subject to adverse selection.

[Martin]

Dan, I think it depends on who sets up the AHP plan. While small businesses can not hire healthcare consultants, on the other hand it is not clear who would sponsor the AHPs, for example, it would make a lot of sense for freelancer guilds, local chambers of commerce, and small business associations to sponsor AHPs. In fact it makes more sense for them to do so than for insurance companies for precisely the reasons we are disucssing: the affiliative organizations provide agency benefits becuase they would be able to employ healthcare consultatns and the like; the market that a non-insurance company sponsored AHP addresses is more diverse than the market that an insurance company sponsored one would address since the insurance company would, presumably, target discrete collections of employers, rather than the organization offering health insurance to its members. Of course, as you point out, this won't obviate the adverse selection issue, but it will go further towards making health insurance accessible to small businesses. A final point: AHPs, depending on structure, can reduce the fragmentation of health insurance purchasing, thus reducing the administrative costs of the plans and providing a cushion for some adverse selection before premiums would have to increase.