Association Health Plans Offer Promise, But Face Opposition

Published July 1, 2003

Allowing individuals and small businesses to purchase health insurance through associations, called Association Health Plans (AHPs), has the backing of civic and business groups representing millions of families nationwide. But opponents of AHPs are trying to block legislation that would make it easier for insurers to sell through associations.

Federal Deregulation

The “Small Business Health Fairness Act of 2003” is currently under consideration in the House Education and the Workforce Committee (HR 660IH) and Senate Committee on Health, Education, Labor, and Pensions (S 545).

The bills would authorize the formation and multi-state operation of federally certified AHPs, allowing small businesses to group together to purchase affordable insurance through their trade associations, giving them the economies of scale and administrative efficiencies currently enjoyed by large employers and unions. Several states already authorize AHPs; the two federal measures would regulate them for financial solvency and truthful representation under one federal law, instead of the diverse insurance laws of the several states.

The House measure, sponsored by Ernie Fletcher (R-Kentucky), currently has 159 sponsors and cosponsors, while the Senate measure, introduced in March by Olympia Snowe (R-Maine), has seven cosponsors. The National Federation of Independent Business is among the many small business groups supporting the bills.

Insuring the Uninsured

Millions of Americans are currently not covered by health insurance. Many of them would have access to affordable coverage through AHPs.

  • A Congressional Budget Office (CBO) analysis of legislation pending in Congress estimates small businesses would save between 9 percent and 25 percent of the cost of their health insurance premiums if AHP reforms were enacted.
  • As a result, the CBO estimates at least 330,000–and as many as 2 million–of the currently uninsured would obtain health insurance.
  • CONSAD Research Corporation estimates AHP reform could encourage employers to extend insurance coverage to approximately 2.3 million workers and 2.2 million dependents.

Critics Question Benefits

Reporter Joel Finkelstein noted in the May 19, 2003 edition of AMNews, “The American Academy of Actuaries (AAA) and 38 state attorneys general have joined the ranks of those opposing [AHP reform] bills in the House and Senate.”

In a letter to Rep. John Boehner (R-Ohio), chairman of the House committee, the AAA says, “While the goals of the legislation are laudable, the bills do not address the core problem, which is the high cost of health care.” One of the key factors driving insurance premium increases is over-regulation, and the AAA doubts whether the AHP measures address that problem.

Finkelstein cites other concerns expressed by opponents: that AHPs will “fragment” the insurance pool, “cherry-pick” healthy employees, and raise premiums for the majority of workers. Similar concerns, later disproven, were raised in the infancy of Medical Savings Accounts, defined contribution, and other reform approaches designed to return decision-making and purchasing power to consumers.

Advocates Have Answers

In an April 2003 report issued by the National Center for Policy Analysis, “Insuring the Uninsured through Association Health Plans,” economist Donald Westerfield of Webster University explains how AHPs would address the problem of uninsurance.

“One of the unintended consequences of increasing government regulation was to increase the numbers of people without health insurance,” he writes. “The high cost of complying with different state regulations has raised the cost of employer-sponsored health plans, leading many small businesses to drop coverage altogether.”

Westerfield describes state-level regulations that serve as a barrier to affordable health insurance and explains how a lack of uniform regulation across all states negatively affects the insurance market.

“If small firms could buy AHP insurance,” Westerfield writes, “with guaranteed uniform regulation, they could enjoy the same lower administrative costs now available to large company health plans that are federally regulated. AHPs would also be able to avoid mandated benefits and other complex, cost-increasing regulations that are imposed in different states.

“These are plans created for individuals and groups who belong to associations that are related to jobs, careers, or hobbies and interests,” explains Westerfield. “The potential for growth of this type of insurance is quite large–given a favorable regulatory climate.”

Millions Could Benefit

According to a May 28 Wall Street Journal report, the National Federation of Independent Business–the largest backer of federal Association Health Plan (AHP) legislation–would gain more than $100 million in annual revenue if the bill exempting AHPs from state insurance regulations is passed.

“By uniting many small groups with similar interests across the country,” Westerfield explains, “AHPs could take full advantage of economies of scale to lower health care costs for their memberships. There are about 15,000 associations throughout the country, and some six million Americans are insured through associations … and the number is growing.”

Among the groups that might benefit from AHP deregulation:

  • AARP–the American Association of Retired People–which offers supplemental medical insurance to all of the Medicare enrollees among its 35 million dues-paying members.
  • the National Association for the Self-Employed (NASE), which currently makes AHP insurance available to its members throughout the country.
  • the National Restaurant Association and National Rifle Association, which could offer AHP insurance to employees or members in all 50 states.

Business Community Is Divided

AHPs have not, however, attracted across-the-board support from the business community.

In Washington State, notes Peter Neurath in the May 3 Puget Sound Business Journal, the Association of Washington Business and the Greater Seattle Chamber of Commerce wrote to state senators claiming AHPs would “destabilize the market and render small employers’ health insurance reforms unworkable.” The article identifies other AHP opponents, including the state hospital association, medical society, the local Blues plans, and the insurance commissioner.

By contrast, business groups in Ohio support a state-based AHP bill allowing associations to “pool their workers for health insurance rating purposes,” according to Jeff Bell in the April 4 issue of Business First of Columbus. The measure is supported by the Ohio National Federation of Independent Business, Chamber of Commerce, Business Roundtable, Manufacturers Association, Retail Merchants Association, and Farm Bureau, known collectively as the “Big Six.”

The Ohio bill will relax state regulations and strengthen anti-trust laws, according to Bell. Local attorney William Todd expects the bill to encourage the development of “more complex insurance programs that hold out hope for reasonable control of health care costs,” including consumer-driven plans like Health Reimbursement Arrangements.

Greg Scandlen is director of the Galen Institute’s Center for Consumer Driven Health Care and assistant editor of Health Care News. His email address is [email protected]. Conrad F. Meier is managing editor of Health Care News. His email address is [email protected].

More Information

The House and Senate versions of the Small Business Health Fairness Act of 2003 are available through PolicyBot. Point your Web browser to, click on the PolicyBot icon, and search for documents #12359 (S. 545, 70pp.) and #12360 (H.R. 660, 72pp.).