Association Health Plans -
A Remedy for Covering the Uninsured?

Many of America's uninsured work for small employers who cannot afford the premiums necessary to offer health care coverage to employees. To the extent small businesses are able to develop bargaining power by banding together through association health plans, health insurance premiums may become more affordable. Bipartisan legislation currently moving its way through Congress attempts to address the critical problem of millions of uninsured in America through the creation of federally certified association health plans. The legislation, titled The Small Business Health Fairness Act of 2003 (HR. 660 and S. 545), was introduced in the House and Senate earlier this year. The legislation would permit small businesses to join together through associations to purchase health care coverage at lower costs.

Association health plans are group health plans whose sponsors are trade, industry, professional, chamber of commerce, or similar business associations. The pending legislation would establish rules governing the structure and operation of such plans, including maintenance of reserves and the interplay between federal and state authorities.

Proponents of the development of federally certified association health plans argue that the legislation may offer much needed relief for small businesses by giving them purchasing power. By extending ERISA to association health plans (through conforming amendments), these plans receive exemptions from state regulations deemed costly and believed by proponents to be a major financial and administrative obstacle for this type of group plan. They note that implementation of association health plans will bear out the truth of their value.

Association health plans are not without critics. Some argue that such plans will cover the healthy and exclude high-risk individuals. Others argue that such plans will do little to bring the premiums low enough for employers and their workers to afford them. Still others lament the further fragmentation of the small group market and argue that states can more effectively regulate their unique markets.

As the debate continues, HCFO-funded projects will help decision-makers understand the strengths and weaknesses of these plans.

HCFO-funded Projects Relevant to the development of Association Health Plans

Title: Private Insurance Markets: The Missing Link-Association Health Plans and Other Pooled Purchasing Arrangements
Institution: Georgetown University
Time: April, 2003 - September, 2003
PI: Mila Kofman, J.D.

The researchers will undertake a comprehensive study of pooled purchasing arrangements. It will: (1) identify and describe different types of pooled purchasing arrangements, identify examples of each type, and discuss how such arrangements are regulated by states and the federal government; (2) describe how coverage sold through such arrangements is regulated, focusing on key market reforms and consumer protections as well as applicable federal standards; (3) provide estimates on the prevalence of such arrangements; (4) summarize how self-insured arrangements are regulated, identifying weaknesses in the law, discussing recent insolvencies, and identifying successful oversight approaches; and (5) discuss market failures focusing on the recent influx in health insurance scams promoted through pooled purchasing arrangements. The objective of this study is to inform state and federal policy discussions on expanding the role of association health plans and other pooled purchasing arrangements. In addition, it will help policymakers address current problems that consumers face such as insolvency and fraud.

Ms. Kofman recently completed an issue brief for the State Coverage Initiatives program-also administered by AcademyHealth-that lays out the types of issues states policymakers need to be wary of in regulating group purchasing arrangements.

Title: Sustaining Individual Health Insurance Markets Under Community Rating and Open Enrollment
Institution: Rutgers, The State University of New Jersey
Time: April, 2002 - September, 2003
PI: Joel Cantor, Sc.D.

The researchers will analyze the current extent of risk selection in New Jersey's Individual Health Coverage Program (IHCP), which was implemented in 1992 as part of the state's individual market reforms. The researchers also will analyze policy options for sustaining access to individual health plans and describe the role of the non-group coverage in New Jersey's health care insurance market. Using data from The Robert Wood Johnson Foundation-funded New Jersey Family Health Survey (NJFHS), the researchers will answer the following questions: (1) How has the distribution of risk changed in the IHCP since 1995-6 and what are the implications of those changes for the viability of community rating and related reforms? (2) What is the potential impact on current or potential IHCP enrollees of adopting modified community rating? and (3) What role does the IHCP play in the continuum of coverage in New Jersey? The objective of this study is to analyze changes in New Jersey's small group market in order to inform state policymakers who are considering reforms to make the non-group markets accessible and viable. The researchers will supplement the NJFHS data with a sample of 600 non-group subscribers (subscriber lists provided by top 4 or 5 carriers in state who cover 95% of lives in the individual market). Using the same methodological approach utilized by Swartz and Garnick in the early years of the IHCP, they will assess the risk of medical expenditures of adult IHCP enrollees compared to that of a contrast population comprised of individuals with non-small-group employment-based insurance. They also will compare the IHCP enrollees with the entire employer-group market and the uninsured.

Title: State Health Care Purchasing
Institution: JSI Research and Training Institute
Time: December 01, 2001 - November 30, 2002
PI: James H. Maxwell, Ph.D
The researchers will study the purchasing practices of state employers and assess their implications for employees and future purchasing. This study will continue their earlier HCFO-funded work looking at purchasing among Fortune 500 employers and build on earlier HCFO work conducted by Bryan Dowd. Specifically the researchers will pursue five objectives. They will: 1) document the health care purchasing practices among state employers; 2) explore the relationship between health care purchasing and procurement for other goods and services; 3) study the effects of public sector unions and collective bargaining on health benefits; 4) compare the results from this study to the findings from the Fortune 500 study; and, 5) examine innovation in purchasing among state employers. The objective of the study is to provide state executives and other decision makers with more information about the purchasing behavior of state employers.

Title: Guaranteed Renewability in Individual and Group Health Insurance: Functioning and Future Prospects
Institution: University of Pennsylvania, The Wharton School
Time: November 01, 2001 - October 31, 2002
PI: Mark V. Pauly, Ph.D
If private insurers can be encouraged to improve the protection offered by their products, is it possible that those improvements can benefit consumers and obviate the need for regulation with undesirable side effects? This proposal focuses on the individual and small group insurance markets; namely, the sharp increases in premiums which occur when an individual incurs large medical expenses. The applicants propose three research tasks, summarized as follows: 1) Estimate the age profile of premiums for an "optimal," benchmark GR policy that would cover claims (including the expenses of high-risk insureds) but not be priced so high that low-risks would leave for a cheaper policy: 2) Use data from MEPS, longitudinal claims data bases, and the Health and Retirement Survey to calibrate an empirically based, "exploratory" model derived from the optimal policy described in (1) that they can use in task #3. 3) Simulate hypothetical case studies that members of the Society of Financial Service Professionals, participating in "virtual focus groups," would evaluate on the basis of degree of realism. The objective of the study is to determine the effects of guaranteed risk on public policy, (particularly if GR could provide protection to high risks in a population) and inform insurance firms and insurance regulators on how to make GR work better.

Title: The Anatomy of ERISA Health Plans: Describing their Basic Structure and Key Areas of Variation
Institution: George Washington University, Center for Health Services Research and Policy
Time: October 01, 2001 - July 31, 2002
PI: Phyllis C. Borzi, J.D./Karl Polzer, Ph.D
How do variations in ERISA health plans affect the formation of policy? The researchers examined the anatomy of key types of ERISA health plans (i.e. identifying the fundamental characteristics, features, and structures that distinguish the plans), focusing on those distinctions that are relevant to the current "patients' rights" and "defined contribution" debates. In addition, they attempted to correct "prevalent public misconceptions" that may impede legislative development (i.e. the misconception that HMO's are making health plan decisions, when, in fact, decisions may be made by the administrators or fiduciaries of an ERISA plan.) The researchers hypothesized that "there exist important areas of variation among different types of ERISA health plans that might present policymakers with cause to consider crafting flexible laws and regulations that take into account this variation." The objective of the project was to provide policymakers with information on variations in ERISA health plans that are relevant to current debates on health plan regulation.

Title: Patterns of Individual Coverage
Institution: University of Southern Maine, Muskie School of Public Service
Time: October 01, 2001 - June 30, 2003
PI: Andrew F. Coburn, Ph.D
How do the dynamics of the individual insurance market inform how long participants remain covered and what factors affect the length of participation and subsequent insurance status? In particular, they will examine three questions: 1) Who uses the individual insurance market? 2) What role does individual insurance play in providing longer-term versus bridge coverage; and 3) What are the patterns of entry into and exit from the individual insurance market? The objective of the study is to better inform the policy debate, at both the federal and state levels, about the best options for sustaining affordable individual insurance coverage.

Title: Evolution of Self-Insurance in an Era of Managed Care
Institution: Wayne State University
Time: August 01, 2000 - February 28, 2003
PI: Gail A. Jensen, Ph.D.
What is the relationship between increased state and federal managed care insurance regulations and employers' decisions to self-insure their managed care offerings? The researchers at Wayne State University will test the degree to which the decline in the percentage of employees who were offered self-insured managed care plans may be related to the passage of HIPAA and other federal mandates that could be applied to self-insured plans despite ERISA. In order to better understand the effects of federal and state policies on self-insured market between 1993 and 1999, the researchers will: 1) describe the evolution of self-insurance among large (over 200 workers) and smaller firms, including trends related to type of firm and type of health plan; 2) assess whether there is a causal relationship between federal and state-level insurance regulations on employers' self-insurance decisions, and on the type of self-insured plan chosen; and 3) compare effects of state regulations pre- and post-1996 on self-insured and purchased plans, within the context of the 1996 federal reforms. Their objective is to inform policymakers on the interrelationships between self-insured employer plans, state and federal regulations, ERISA, and the market.

Title: Studies of the Working Uninsured, Their Dependents and Insurance Reform on Their Behalf
Institution: The Urban Institute
Time: June 01, 2000 - July 31, 2002
PI: Linda J. Blumberg, Ph.D.
What are the effects of certain insurance market reforms that were designed to expand coverage? Researchers at the Urban Institute will conduct several analyses looking at the working uninsured and these effects using the Current Population Survey (CPS), the National Survey of America's Families (NSAF), and the National Health Interview Survey. In particular, they will attempt to answer the following five questions: 1) Who are the working uninsured? 2) Why do employer-sponsored coverage rates vary across the 50 states? 3) Have health insurance market reforms affected the composition of insured risk pools? 4) Did HIPAA have any effect in the small group market? and 5) Why do so many workers in large firms lack health insurance? The objective of this series of studies is to provide a better understanding of the working uninsured in order to better inform the policy debate about coverage expansions and identify those interventions most likely to work.

Title: Premium Variation and Insurance Demand in the Individual Insurance Market
Institution: University of Pennsylvania
Time: March 01, 1999 - October 31, 2000
PI: Mark Pauly, Ph.D.
What effect does prior risk have on the premiums faced by purchasers in the non-group health insurance market? Researchers at the University of Pennsylvania's Wharton School analyzed the extent to which premiums paid for non-group health insurance vary with the purchaser's prior risk, and how this relationship varies with income, family size, presence or absence of strong individual insurance product community rating laws, managed care competition and penetration, and provider competition. Using the Community Tracking Study Household Survey, along with data from the Medical Expenditure Panel Survey (MEPS), the Area Resource File and the InterStudy Survey, they examined whether purchases in the individual market were affected by these factors differently than purchases in the group market. Part of this analysis involved constructing measures for each individual's projected health care expenses, based on known predictors of health spending. The study's objectives were to: 1) look at the extent to which non-group premiums vary with individual characteristics such as age, gender, family size, and poor health status; 2) examine the overall variation in non-group premiums for various population subgroups; 3) assess how local market conditions or community rating laws affect the variation of risk selection along the premium scale; 4) examine how much variation exists in benefit design and other plan characteristics within the non-group market; and 5) examine if otherwise similar families choose differently from a choice of non-group plans than from a choice of group plans.

Title: Barriers to Small-Group Purchasing Coalitions
Institution: Economic and Social Research Institute
Time: August 01, 1998 - December 31, 1999
PI: Jack A. Meyer, Ph.D.
How might policy makers, consumers, small employers, and others identify and overcome barriers to the growth of health care purchasing coalitions? Researchers at the Economic and Social Research Institute, with a subcontract to Mark Hall, J.D., investigated why the growth of such coalitions has not been greater, given that the literature portrays consensus among analysts that coalitions are of value in the purchasing of coverage. The researchers identified and analyzed legal and policy constraints, structural and technical features, and political factors that might have slowed the adoption of coalitions. Ultimately, the objective of the study was to further understanding of the barriers to coalitions and formulate policy recommendations providing incentives to achieve the benefits predicted to and from coalition purchasing.

Title: Health Insurance Purchasing Cooperatives: Analysis of Existing Data
Institution: University of Minnesota, Institute for Health Services Research
Time: November 01, 1993 - December 31, 1995
PI: Bryan E. Dowd, Ph.D.
How do large public employers go about purchasing health plans? What effect do those practices have on premiums? This project was designed to study large public employers' health plan purchasing practices as prototypes of health insurance purchase cooperatives (HIPCs). The researchers inventoried current health plan purchasing practices and estimate the effect of those practices on premiums. The study gathered data regarding: (1) employers' decisions to offer multiple plans; (2) standardization of benefit packages among health plans; (3) information provided to employees during open enrollment periods; (4) risk adjustments among multiple plans; and (5) methods for determining employer premium contributions. The objective of this research was to provide information which will assist policymakers as they design and implement HIPCs.

Title: Evaluation of State Initiatives to Expand Health Insurance Among Small Businesses
Institution: Wayne State University, Institute of Gerontology
Time: December 01, 1992 - February 28, 1995
PI: Gail A. Jensen, Ph.D.
Are states' efforts to encourage small businesses to offer their employees health insurance successful? This study was designed to evaluate whether three sets of state initiatives -- waiving mandated benefit requirements, subsidizing premiums and reforming the small group insurance market -- have led to an increase in the availability of insurance among employees of small firms. Results from the study helped states to understand the potential effects of implementing legislative mandates to reform the small group market and the relative impact of three types of initiatives on expanding coverage among small businesses.

Title: A Comparative Analysis of Small and Large Group Health Care Utilization and Costs, 1988-1990
Institution: Pittsburgh Research Institute
Time: September 01, 1991 - November 30, 1993
PI: Wanda Young, Sc.D.
Do employees of small firms and individual health insurance plan subscribers use more health care services than employees of large firms? This research study compared utilization and costs for enrollees in Blue Cross of Western Pennsylvania (BCWP) and Pennsylvania Blue Shield (PBS) risk pools of small firms and individuals with those for enrollees of large firms that have similar BCWP and PBS benefit packages. The objectives were to provide empirical information to assist private insurers in developing products for small firms and individuals that are comparable in benefit design and price to those for larger firms, and to assist public policymakers in evaluating the impacts of private health insurance market reform options.