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Economies of Scale: Getting Small Business and Large Companies to Drink from the Same Risk Pool

Stephen Perez
July 06, 2006



globalEyeNews




When it comes to health insurance in America there seems to be an incurable political obsession with the total absence of logic. Also, what's good for the goose doesn't seem apply to the gander, either.

The so-called "Enzi Bill" which has been hotly contested by consumer groups across America and (1) "embargoed" by the Senate , endeavors to allow small businesses to drink from some of the same privileged health insurance waters that large companies have enjoyed through self-insure programs since the Employee Retirement Income Security Act (ERISA) became federal law in 1974.

Since 1974 large companies through ERISA have been able to self-insure without having to comply with tedious state imposed regulations. This glorious amnesty has enabled large companies to sidestep state regulations in order to offer comprehensive health insurance packages to their employees at substantially more economical rates by, in effect, bargain-hunting across state lines.

On the flip side, consider the plight of Associated Builders and Contractors which had its 43-year-old health insurance plan shut down after its insurance company quit and more than 50 others declined to take its place. According to Joseph E. Rossman, ABC’s vice-president of fringe benefits, ABC was legislated out of business by the states. Carriers said they were unwilling to assume the business because of the state laws they would have to obey that dictated how they could set rates, who must be eligible and what services they must provide on a state to state basis; an unholy mess.

Although there have been some exceptions, since 1974 some of the more exemplary health insurance products around have been minted through large company self-insure offerings. What the "Enzi Bill" proposes to do is to empower trade and professional "associations" with some of the same privileges, under ERISA jurisdiction, in order to craft the most cost-effective health insurance plans possible for their members and, even more importantly, enable them to engage plans without the cost-prohibitive administrative nightmare of having to deal with the gnarling complexities of 50 unique sets of state mandated regulations.

As with large company self-insure deployments, the Department of Labor, a staunch supporter of AHP legislation, such as the Enzi Bill SBHPs, would be the master key holder to any such healthcare initiatives. Here is some of what the (DOL) has to say about AHPs from its Association Health Plans: Improving Access to Affordable Quality Health Care for Small Businesses, AHP Report:

  • "In a voluntary health benefits system, how can small employers be encouraged to offer coverage? The challenge is to create incentives and remove barriers. Preemption of 50 state insurance regulatory regimes under federal ERISA law has allowed large employers and unions to provide cost-effective health benefits. A federal structure for small employers would bring stability, uniformity and lower costs for health care coverage."

  • "AHPs will provide small businesses the opportunity to band together through trade and professional associations to purchase affordable health benefits. By joining together, small employers will enjoy greater bargaining power, economies of scale, and administrative efficiencies. In this way, AHPs will level the playing field and give participating small employers the same advantages as larger employers and employers who provide benefits through Taft-Hartley plans (plans sponsored jointly by a union and two or more employers)."


  • "The lack of health insurance in America disproportionately affects workers in small businesses. About half of all uninsured Americans are in families headed by workers who are self-employed or who work at firms with fewer than 100 employees. Workers at the smallest firms are far less likely to be covered on the job, and far more likely to be without insurance from any source."

  • "Among private-sector firms with fewer than 100 employees, health benefits were offered at just 49% of work sites in 2000, compared with 98% among larger firms."

  • "Considering only low-wage work sites, where at least half of the employees earned less than $9.50 per hour, the disparity between small and large firms is even greater. Benefits were offered at just 34% of small firm low-wage work sites, compared with 95% of large firms."

  • "Among 600 small businesses responding to a recent survey, less than one-third currently offer insurance, but about three-fourths said they would be 'very' or 'somewhat likely' to participate in an AHP that offered lower prices, more choices, or less paperwork."

    As far as regulatory devices that would govern AHP entities, rigid ERISA compliance doctrine, would enforce consumer protection safeguards through DOL.

    According to the DOL, all AHP entry requirements would be determined by qualified actuary and in the event an AHP became unable to satisfy its financial obligations, "DOL could assume trusteeship over the AHP and pay premiums to a stop-loss and/or indemnification insurer to ensure that consumers’ outstanding claims for health benefits are paid."

    According to the DOL release, attempts at "cherry-picking" that would sculpt plans that benefit only healthy people or "make it easier for insurers to target their coverage to businesses with healthier workers" would be fruitless in that, among an arsenal of pre-emptive barriers:

  • Only bona fide associations that are in existence for three years for purposes other than providing health insurance would be eligible to sponsor an AHP.

  • The legislation makes clear that AHPs will have to comply with the Health Insurance Portability and Accountability Act (HIPAA), prohibiting group health plans from excluding high-risk individuals or employers with high claims experience.

    It's time cut the bull and all the healthcare political innuendo that continues to sicken America. Considering that the large company self-insure and Taft-Hartley plan sectors appear to have been the least affected by the healthcare crisis that is crippling the American family and workplace, it would seem that common sense insists that a closer look be taken at the AHP model.

    If the possibility does exist that AHP legislation would destroy state-fought health insurance standards, how is it that few of its critics can be more specific than politically crafted sound bites and generalizations that attempt to engage "consumer" paranoia in the masses (Sen. Ted Kennedy, D-Mass.)?

    How is it that in such media blasts on jeopardy and demise, there hasn't been a telling roll call of large company self-insured ERISA/DOL-sanctioned villains that would plainly demonstrate the point?

    That kind of blank political innuendo is called wanting to have your bread buttered on both sides.





    (1) Last Action: May 11, 2006: Cloture on the modified committee substitute not invoked in Senate by Yea-Nay Vote. 55 - 43. Record Vote Number: 119.





    © 2006 globalEyeNews. ALL RIGHTS RESERVED.© 2006 Stephen N. Perez. ALL RIGHTS RESERVED.

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    Stephen Perez

    Stephen Perez is editor and publisher of various websites, blogs and video review publications.

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