Pending Legislation Would Mark Major Changes in Association Health Plan Oversight

Published September 1, 2004

One of the most confusing areas of health insurance reform has to do with legal treatment of association group insurance (AGI) and association health plans (AHPs). These are two types of insurance offered by private associations. There are similarities between the two, but there are also distinct and important differences.

Association group insurance is available today and is regulated by the individual states. Millions of Americans obtain their health coverage through various private associations offering association group insurance.

By contrast, association health plans are not yet available. Congress will have to pass enabling legislation, and the president will have to sign it into law.

One AHP enabling measure, the Small Business Health Fairness Act of 2004 (H.R. 4281) sponsored by Senator Olympia Snowe (R-Maine), is currently pending in Congress. Under Snowe’s bill, associations that use insurance companies to underwrite their insurance products would come under federal law, bypassing most state mandates. The AHPs would be regulated by the U.S. Department of Labor.

Participation in the AHPs would be voluntary. An association might prefer to offer a state-regulated AGI plan–if, for example, the association’s leadership feels the laws in its state provide consumers with protections the federal AHP legislation doesn’t have. (We will not know exactly what those are until the law passes, if ever, and the regulations are written.)

To make clear the differences between these two association models, we present this comparison.

Association Group Insurance

There are roughly 15,000 active private associations in the United States today. Many of them offer direct access to or group discounts on a wide range of products and services, including health insurance. A licensed insurance company operating under state insurance oversight and regulations provides the policy. The association might be professional, such as the local Chamber of Commerce. Or it might be an “affinity” group or an organization someone chooses to affiliate with, such as the National Rifle Association or the Sierra Club.

Currently, a number of insurance companies sell health insurance through such private associations. Those plans must conform to the laws of each state where they are sold. Most states impose fewer restrictions on AGI plans than they do on health insurance purchased in the individual market (where consumers buy their own policies).

Forty-six states specifically authorize group health insurance offered through associations. The National Association of Insurance Commissioners (NAIC) provides a model to guide states’ oversight of the association group market.

The AARP Model. Purchasing health insurance as well as other products and services through an association is a long-established and widely accepted model. Perhaps the oldest and largest of these associations is the American Association of Retired Persons (AARP).

In 1947, two decades before the federal government launched Medicare, retired school principal Ethel Percy Andrus created the National Retired Teachers Association (NRTA) to provide affordable health insurance and other services to retired teachers. That plan took a different direction when Andrus met Leonard Davis, an insurance broker and aggressive marketer who put up $50,000 in 1958 to start a parallel organization, the American Association of Retired Persons, which offered a range of insurance policies through his newly created Colonial Penn Group.

After Medicare became law in 1965, AARP began to offer supplemental coverage, which pays the medical bills that Medicare doesn’t cover. Today, some 35 million people, roughly a third of whom are under age 60, pay annual dues to AARP because they believe they get value–including access to affordable health insurance–out of being a member.

Association Health Plans

Legislation to place all such plans under federal oversight in the form of AHPs has been pending in Congress for several years. It has strong support from the Bush administration and in the House of Representatives, but less in the Senate.

Under the pending bill, which the Bush administration strongly favors, the associations could continue to provide health coverage through traditional health insurance companies, just as some do now by selling through the association group market. But the legislation also would allow associations to self-insure, just as large companies do now under the Employee Retirement Income Security Act (ERISA). That means associations could become their own insurers, paying health claims themselves rather than using an insurer.

The bill would put insurance sold through these associations under federal oversight. As a result, states would lose considerable control over the policies, including who is eligible for the coverage and what benefits the insurance must offer. The plans would have to meet federal standards.

The pending legislation requires associations to guarantee that everyone applying for coverage will be issued a policy regardless of their individual health status. By contrast, association group insurance is free from this requirement on the federal level, though states can impose it.

The side-by-side chart on page 14 is intended to clarify the differences between association group coverage and association health plans.

Victoria Craig Bunce is director of research and policy for the Council for Affordable Health Insurance. Merrill Matthews is director of the Council for Affordable Health Insurance. For additional information, please contact Tom Gardner, director of communications, at 703/836-6200 or by email at [email protected].