Small Business Health Insurance Co-ops Won’t Solve the Nation’s Uninsured Problem

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Proposals in Congress to allow small businesses to purchase health insurance collectively, and more cheaply, won’t solve the growing problem of the uninsured, according to a report sponsored by the National Coalition on Health Care.

While such purchasing arrangements might reduce somewhat the erosion of health insurance coverage in the U.S., they also could undermine reforms in many states that have made the small business health insurance market fairer, says the report’s authors.

The legislative proposals would create two entities – Health Marts and Association Health Plans – through which small businesses could purchase health insurance. Both entities were included in legislation passed last year by the U.S. House of Representatives, but not taken up in the Senate. Health Marts and Association Health Plans appear in several bills currently being considered in Congress.

The proposals derive from the widely accepted notion that many small businesses would be more inclined to buy health insurance if it was less expensive, easier to administer, and if they got the same break big businesses do in avoiding state insurance regulations and coverage mandates. Currently 28 percent of workers in firms with fewer than 100 employees are uninsured. The proportion is far higher, exceeding 50 percent, for businesses with fewer than 10 employees.

The report, Small Employer Health Insurance Purchasing Arrangements: Can They Expand Coverage?, concludes that Health Marts and Association Health Plans are not likely to reduce health insurance prices enough to entice most small businesses not now offering health insurance to do so.

The authors of the study, Jack Meyer and Elliott Wicks of New Directions for Policy, a Washington D.C.-based health research group, say that even the most optimistic estimates suggest that Health Marts and Association Health Plans would extend coverage to 10 percent to 20 percent of the nation’s uninsured.

Health Marts would be locally or regionally based administrative bodies. Small businesses would have the option of purchasing insurance through them. Employees would choose from at least two plans. The coverage would not have to include services required under state laws.

Association Health Plans would be organizations small businesses could join. National and local trade, business and civic groups would be permitted to set them up. However, the groups could not form for the exclusive purpose of offering health insurance. As in a Health Mart, a small business joining an Association Health Plan would avoid state-mandated coverage. In addition, the proposed legislation would permit Association Health Plans to “self-insure” – i.e., they could set up and fund their own health insurance benefit plans just as virtually all large businesses do now. This would give Association Health Plans the added advantage of avoiding state insurance regulations and taxes, as federal law allows for businesses that self-insure. The benefit plans of such self-insured employers are regulated by the federal government.

The report’s authors argue that, as outlined in the proposals, Health Marts and Association Health Plans have the potential to undermine health reforms that states and the federal government have enacted in the last decade. Those reforms guarantee small businesses access to health insurance if they want to buy it. Many state laws also put restrictions on what factors insurers can use to set premiums and how much more insurers can charge small firms whose employees may be older or likely to be sicker compared to firms whose employees are “low-risk.” The general effect has been to create a market wherein insurers treat small businesses more equally.

Meyer and Wicks assert that the proposed legislation could dilute the effect of these laws by permitting small businesses with low-risk employees to group together, especially in Association Health Plans, to get cheaper coverage. To the extent that they do so, small firms with higher-risk employees would likely see their health insurance premiums climb.

Even so, small business health insurance purchasing cooperatives are an idea worth pursuing, the authors say. They have the potential, if properly designed and administered, to be part of a more comprehensive solution to the uninsured problem.

“As this report shows, permitting small businesses to join together to buy health insurance has some merits. But it can’t be the solution to the problem of the uninsured, which grows worse every year,” said Henry E. Simmons, M.D., president of the Coalition. “The proposals out there now to help small businesses could well take us backwards if they allow some small businesses to gain an advantage over others.

Simmons said it is time for a renewed debate on more comprehensive health care reform, which would extend health insurance to all Americans over time, restrain the mounting cost of care, stop cost-shifting among payers, simplify an overly complex system and improve the quality of care. “All these problems are deeply interrelated,” Simmons said. “We must address them together.”

The National Coalition on Health Care is the nation’s most broadly representative non-partisan and non-profit alliance working to improve America’s health and health care system. Its nearly 100 member organizations include large and small businesses, labor unions, consumer groups, health professional and religious organizations. Additional copies of the report are available by calling (202) 637-6830 or by visiting the Coalition web site at http://www.americashealth.org.