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WASHINGTON -- Trade associations could offer their members health care plans exempt from many state regulations under legislation passed by the House of Representatives.
Provisions tucked into broader patient protection legislation would create new "association health plans" that could operate nationwide after meeting new federal solvency benchmarks and other standards.
"This would open the door for national trade associations to offer health care plans certified under federal law and provide a uniform benefit package across state lines," said George Pantos, Washington counsel for the Self Insurance Institute of America.
States, if they so chose, could regulate these plans, but they generally would have to enforce the federal rules and not their own. The U.S. Department of Labor would regulate the new plans in states where insurance commissioners declined to regulate the AHPs.
AHPs could be either self-insured or fully insured. However, to qualify for the special exemption from state regulation, at least one of the association health care plans offered to members would have to be fully insured.
As a practical matter, trade associations currently are limited to offering members insured health plans that are subject to state regulation.
If an association self-insures a health care plan, that plan generally is considered a multiple employer welfare arrangement, which is subject to state regulation.
States, however, historically have taken a dim view of MEWAs. Some state regulators consider MEWAs to be unauthorized insurers and have tried to shut them down, though a few states have passed statutes setting special rules to allow MEWAs to operate.
By contrast, health care plans sponsored by individual employers can escape state regulation if they are self-funded. That is because a provision in the Employee Retirement Income Security Act exempts self-funded plans sponsored by employers from state laws and regulations that relate to employee benefit plans.
But that ERISA pre-emption is largely meaningless to smaller companies that alone lack the size to take on the financial risk of self-funding their health care risks. And even if a small employer joins a trade association offering health insurance plans from insurers or health maintenance organizations, those plans are subject to state requirements, which can mean higher costs.
AHPs -- through their special exemption from state requirements -- would be eagerly embraced by trade association members, many of which are so small as to have little leverage in dealing with commercial insurers and HMOs, according to trade group officials.
"This could be the best thing that ever happened for small business in health care," said Victoria Caldeira, manager of Senate legislative affairs for the National Federation of Independent Business in Washington. The NFIB projects that about 4 million employees who are now uninsured could be covered through AHPs if the legislation were enacted.
Indeed, trade groups say the AHPs -- through their exemption from state health insurance rules -- would be a cost-effective way to provide consistent benefit packages to small businesses that belong to trade groups.
"This would allow us to offer a more uniform benefit plan to members with lower administrative costs," said Joe Rossman, vp-fringe benefits at the Associated Builders & Contractors, an Arlington, Va.-based trade group whose fully insured health plan covers about 27,000 of its members' employees and dependents.
But critics of the legislation -- chiefly insurance companies and state regulators -- warn that a regulatory vacuum could develop. They say state regulators might be reluctant to enforce rules other than their own, as well as ones that may be less stringent than their own.
"If the federal government lowers standards, states may not want anything to do with AHPs," said Christina Nyquist, director of health policy at Blue Cross & Blue Shield Assn. in Washington.
In addition, Ms. Nyquist notes, AHPs have the potential of attracting the healthiest of risks, leaving insurers to cover older, sicker employees.
"I hope that legislators see these plans as a real threat to the viability of the insured market," Ms. Nyquist added.
What legislators decide to do likely will be known in the next few weeks. While the House has included the AHP provision in its patient protection legislation, the two main patient protection bills that the Senate could take up in September currently lack a comparable provision.
That would mean -- assuming the Senate passes patient protection legislation -- that a conference committee would have to resolve the fate of the AHP provision. And what the conference committee would do is not clear.
In fact, last year, a conference committee stripped a somewhat different AHP provision when that committee met to put together a uniform budget bill. As is the case this year, the House last year put an AHP provision in its budget bill, while the Senate did not.
AHP backers say it is less likely that the same scenario -- conferees removing the AHP provision -- will develop this year.
"I think there is more interest in the Senate, which improves the chances," said Mr. Pantos, who noted that Senate Majority Leader Trent Lott, R-Miss., supports the concept.
Mr. Pantos and others say chances of the AHP provision surviving also are improved because of changes made to address concerns of state regulators. For example, among other things, the current bill would require AHPs to meet tougher solvency standards than last year's proposal.
"This is a different bill than last year, something the critics have yet to acknowledge," said Don Dresser, president of the Western Growers Assn. Mr. Dresser's Irvine, Calif.-based group of fruit and vegetable growers offers its members a self-funded health care plan, which is allowed under California law. The health plan, one of the largest of its kind, is purchased by about 3,000 members and covers about 100,000 employees and dependents.
Under the legislation, only established trade associations -- those in existence at least three years -- could offer AHPs. In order to offer an AHP, a trade group would have to be established for a purpose other than providing health insurance to members. In addition, the AHP would have to be controlled by a board of trustees composed of trade association employers that participate in the plan.
These provisions are a direct response to avoid problems that often occurred with MEWAs before Congress passed legislation in 1983 to make clear that states could regulate them. In many cases, MEWAs were organized and controlled by outsiders -- often insurance agents -- who created associations with few or no eligibility rules. These entrepreneurs established low-cost self-funded plans to attract employers, chiefly smaller, less-sophisticated firms.
The plans offered low premiums but paid agents high commissions. Inadequate premiums and outright fraud by some plan organizers led to the collapse of dozens of MEWAs and their predecessors -- multiple employer trusts or METs -- in the 1970s and early 1980s, sticking employers and employees with hundreds of millions of dollars in unpaid claims.
AHP backers say that because AHPs would be controlled by trade group members -- not outsiders -- it is unfair to compare them to the trouble-plagued self-funded MEWAs of past.
"It is like comparing apples and oranges. MEWAs had no requirements on who could set them up, and there were no solvency requirements," the NFIB's Ms. Caldeira said.
Solvency requirements for self-funded AHPs set by the legislation include:
* Purchase of aggregate stop-loss insurance, with an attachment point not greater than 125% of expected claims.
* Purchase of specific stop-loss insurance coverage, with an attachment point, as recommended by the plan's actuary, of up to $200,000.
* Payments to a new "AHP fund" that would pay covered claims if an AHP failed and its reserves and stop-loss insurance did not meet outstanding claims. This provision in the legislation does not contain much detail on how such a program would be administered.