NEW HEALTH PLAN OPTION

WASHINGTON-Legislation now awaiting action by a congressional conference committee would give small employers banding together through established trade associations the same health care buying advantages that larger companies already enjoy.

Provisions tucked into the House-passed tax bill would allow trade associations to provide members with health care plans exempt from state benefit mandates and many other state rules.

Instead of being regulated by the states, these new "association health plans," or AHPs, would have to meet new federal solvency and other rules and would be regulated by the Department of Labor.

AHPs could be self-insured or fully insured. However, to qualify for this special exemption from state regulation, at least one of the association health care plans offered to members would have to be fully insured.

Trade associations now are limited in the health care programs they can offer their members. If the association self-insures a program, it generally is considered to be a multiple employer welfare arrangement, which is subject to state regulation. States generally consider MEWAs to be unauthorized insurers and have tried to shut them down.

Trade associations can offer members fully insured plans, but those plans must meet state requirements.

Employee benefit plans run by individual employers, though, can escape state regulation if they are self-insured. That is because a provision in the Employee Retirement Income Security Act pre-empts state rules and laws that "relate" to employee benefit plans. But ERISA pre-emption is largely irrelevant to smaller companies because they typically buy health care plans from insurers, which must abide by state rules and requirements.

Backers of the legislation-mainly small-business groups-say the measure, if enacted, promises to give small employers the same purchasing clout as bigger companies while freeing them of state mandates.

"Frankly, we have not heard of a better idea. We are giving smaller firms the same health care purchasing benefits that larger companies now enjoy. This is a way to make health insurance more affordable for smaller companies and their employees," said Leslie Pryor, senior director of government relations with the National Assn. of Wholesaler-Distributors in Washington.

But critics of the legislation, mainly insurers and state regulators, worry that the legislation would undo decades of state regulation of health insurance and place it in the hands of the federal regulators, who critics say lack experience in regulating health care arrangements.

"We are very concerned about whether the federal government has the necessary resources" to regulate these programs, said Susan Nestor, executive director of policy for the Blue Cross & Blue Shield Assn. in Washington.

Others say trade associations lack experience in running and administering self-insured health care programs, and that-combined with a lack of continuous federal oversight-could lead to a rash of health care plan failures.

"This would be a sideline for trade groups. Yet, there is nothing in the legislation about ongoing monitoring of these plans," says Marianne Miller, director of policy development at the Health Insurance Assn. of America in Washington.

Supporters and opponents of the proposal, which was advanced by Rep. Harris Fawell, R-Ill., and inserted into tax legislation passed by the House, also differ on whether the final tax bill will include the provision. The Senate bill lacks a comparable provision.

"There is not that much interest in the Senate in doing this," said Ms. Nestor.

But George Pantos, Washington counsel for the Self Insurance Institute of America, a trade group primarily representing third-party claims administrators, says support for the measure is broad and bipartisan.

"I'm encouraged about the possibility of getting the legislation through this time," Mr. Pantos said.

To set up an AHP, a trade association would have to be in existence for at least three continuous years and organized for a purpose other than providing health care benefits to members.

Under the legislation, a self-insured AHP would be required to maintain surplus that is the greater of:

25% of the benefit liabilities expected to be incurred for which the risk of loss has not been transferred and 25% of expected administrative costs. Or:

$400,000.

In addition, self-insured AHPs would have to purchase aggregate stop-loss insurance with an attachment point not greater than 125% of expected claims.

The Labor Department would have responsibility for regulating the AHPs, though it could delegate that authority to the states.

Aside from giving trade associations new authority to establish AHPs, the legislation also would set new rules aimed at cracking down on "bogus unions" that set up employee benefit plans and claim to be collectively bargained multiemployer plans protected from state regulation by ERISA pre-emption.

In order to be a protected arrangement, a multiemployer plan could not utilize insurance agents or brokers to solicit or enroll members, and at least 85% of the participants must be current or former employees

of the sponsoring employee organizations or employers who are parties to the collective bargaining agreement.