House Passes Bill Creating Association Health Plans

The NAIC has a longstanding position opposing federal oversight of AHPs. It has been joined by NCOIL, which in May sent a letter to Congress expressing opposition to H.R. 525. The letter, sent by NCOIL President and Texas state Rep. Craig Eiland, says health care for small business owners actually would become less affordable because of the expense caused by unauthorized and fraudulent insurers. It also notes an NCOIL resolution opposing federal oversight of AHPs and multiple employer welfare arrangements.

The potential for AHPs to lower costs was supported by Rep. Michael Fitzpatrick, R-Pa., who, according to the Congressional Record, noted that insurers selling directly to small employers typically incur administrative expenses of 20-25%. By contrast, according to the report, Fitzpatrick said the Congressional Budget Office estimates that AHPs will save an average of 13% on health insurance. The testimony also cites a study by the Research Corp., which says that up to 8.5 million uninsured workers and dependents could gain coverage from AHP legislation.

But the consequences of the bill are also outlined in a new study, "Association Health Plans: Loss of State Oversight Means Regulatory Vacuum and More Fraud," written by Mila Kofman, an assistant research professor with Georgetown University and an NAIC-funded consumer.

Kofman says the possibility of legislation advancing is "very serious. More serious than in the past."

In her study, she notes that between 2000 and 2002, over 200,000 policyholders were affected by fraud related to multiple employer welfare arrangements, including AHPs. The cost to these workers, she continues, is $252 million in medical bills. States shut down 41 illegal operations selling coverage through both illegitimate operations and real associations, while the U.S. Department of Labor shut down 3 entities, Kofman adds.

In her report, Kofman lists a number of concerns over federal oversight of AHPs (see chart on page 8).

Kofman also says that for the few instances in which AHPs are regulated at the state level, an operator would have great leeway in selecting the state in which it operated. For instance, she explains, that since the plans could be sold nationally, if a New York regulator had a question about an AHP, the operator could claim that it was, in fact, an Alabama policy and subject to Alabama regulation and not New York regulation. In effect, she continues, it would be creating 51 regulatory jurisdictions in addition to federal oversight.

AHIP President and CEO Karen Ignagni warned that AHPs could have "grave consequences" on the affordability of health care.

The Shortfalls

==A regulatory structure that relies on self-reporting and self-regulation, constraining regulators' ability to verify information and intervene in problems by arguing that state oversight is preempted;

==The lack of cease and desist authority by the DOL to shut down operations. The DOL must file and win a case in federal court to have such an effect;

==The ability for illegitimate operators to challenge state authority by requesting that cases be moved from state to federal courts;

==The lack of a specific provision prohibiting past illegitimate operators or those who have been convicted of a felony from running an AHP again.