Since the late 1980s, small businesses, including many franchised businesses, have identified skyrocketing-health insurance costs as their biggest business concern. This situation is unlikely to improve unless more affordable and less burdensome health insurance options become available.
In past years, Congress has introduced legislation that would permit small businesses to band together to purchase health insurance for employees in multiple states, without complying with certain state insurance laws and regulations. While the legislation has passed the House eight times, the first Senate vote took place in May 2006, but the legislation was defeated.
While current law permits small businesses to form private and publicly-sponsored purchasing groups or associations to obtain health insurance, the plans must comply with numerous and varied state laws and regulations, namely state benefit mandates. In practice, this option has provided small businesses little economic relief.
Typically, a purchasing group is a trade, business or professional association with members in multiple states. Ideally, these purchasing groups should be able to pool and spread their risks, increase their bargaining power and reduce their administrative costs, resulting in lower premiums and increased insurance options. However, the Employee Retirement and Income Security Act requires the insurance plans established by the purchasing groups to comply with the laws and regulations of each state in which the participants live. Currently, there are approximately 1,500 diverse and wide-ranging state-mandated benefits, including acupuncture, in vitro fertilization, mental health services and even cosmetic surgery. In addition, the plans are subject to premium taxes, controls on premiums, mandatory disclosure and appeals, limits on the use of provider networks, funding minimums and insolvency requirements. Compliance with the varying state-specific requirements translates into increased administrative costs and, ultimately, health plans that do not provide employees with affordable options.
In an effort to ease administrative burdens, legislation with a single set of requirements for small businesses to purchase insurance plans across state lines has been introduced in the House and the Senate. Specifically, this legislation would exempt health plans from some of the state insurance laws and regulatory oversight. Among other things, those plans would not be required to offer the numerous and varied mandated state benefits. Except for the most recent Senate bill (S. 1955), commonly referred to as the Small Business Health Plan (SBHP) legislation, all of the prior House and Senate bills have been referred to as Association Health Plan (AHP) legislation. In 2005, sponsors of identical AHP legislation coordinated their efforts and introduced the Small Business Health and Fairness Act in the House (H.R. 525) and in the Senate (S. 406). On July 26, 2005, by a vote of 263 to 165 (which was divided largely along party lines with the majority of Republicans voting for, and the majority of the Democrats voting against, the bill), the House passed H.R. 525. That vote marked the eighth time that the House has passed AHP legislation.
The legislation's fate has been an entirely different story in the Senate. Before 2006, the Senate had never voted on AHP legislation. Since AHP legislation has historically struggled to garner support in the Senate, in 2006, Senator Mike Enzi of Wyoming (Chair of the Senate Health, Education, Labor and Pensions Committee) drafted and introduced the Health Insurance Marketplace Modernization and Affordability Act of 2005 (S. 1955). That bill attempted to address concerns regarding previous draft AHP legislation by including insurance marketplace reform that was excluded from the prior AHP legislation. However, the legislation was defeated on a procedural motion. The Senate vote split along party lines, with Republicans largely supporting the legislation and nearly all of the Democrats opposing it.
As the SBHP or AHP legislation is likely to be reintroduced in the House and the Senate in 2007, it is important to understand the positions of the supporters and critics. Advocates believe that this legislation will provide small businesses with the same economies of scale that large employers enjoy in the insurance market. Rather than being forced to shop for their own coverage plans or forgo providing insurance altogether, the employer may join an association. The association would negotiate the benefits on behalf of its members. The increased bargaining power and shared risks would likely result in much lower cost per health insurance policy. In fact, the Congressional Budget Office estimates that SBHPs or AHPs could reduce insurance premiums for small businesses by up to 25% and could decrease the number of uninsured people in the country by as many as two million.
Critics, including consumer and medical advocacy groups, the American Cancer Society, and the American Diabetes Association, contend that these cost savings do not justify bypassing mandated state benefits, like mammography or diabetes care, and that premiums for such plans are likely to vary widely. Moreover, certain states' rights advocacy groups, such as the National Governors Association and the insurance industry, strongly oppose the legislation. These groups argue that the existing state regulations protect health insurance consumers from unfair practices, and without them, SBHPs and AHPs would engage in activities such as "cherry picking" only healthy groups for coverage, leaving unhealthy individuals to fend for themselves in the insurance market. In addition, the critics believe that states, rather than the federal government, are in the best position to determine what rating policies are best for consumers. The critics also contend that the Labor Department, which would oversee and administer the legislation, would not have the necessary personnel and budget resources to regulate thousands of potential SBHPs and AHPs.
The legislation's supporters respond by noting that certain federal laws already provide sufficient protection, including prohibiting health plans from excluding sick or high-risk individuals, and that the Labor Department has managed to regulate tens of thousands of self-funded single employer and union health plans for more than 30 years.
Insurance companies maintain that exempting SBHPs and AHPs from state regulations—in particular, state-mandated benefits—would destabilize the insurance market by giving SBHPs and AHPs an unfair competitive advantage over insurers that are required to comply with those regulations. However, the small-group insurance market is already highly concentrated, and many analysts have responded that the state mandates actually hinder competition. Supporters note that exemption from state regulations may increase competition by potentially bringing millions of previously uninsured individuals into the health insurance market. Finally, SBHPs and AHPs that choose to fully insure, rather than self-insure, would actually become customers of large insurance companies, rather than competitors.
What the future holds for this legislation remains unclear; however, given the close Senate vote in 2006, Congress will likely take up such legislation again in 2007. The franchise community can expect the International Franchise Association to continue to lobby in favor of the legislation.