States Loathe to Lose say Over Insurance Plans

Strong objections are being voiced in the states to part of President Bush’s prescription to make health insurance more affordable for small businesses. The principal worry is that states will lose the ability to regulate certain insurance plans and protect consumers.

Bush’s plan calls for creating “association health plans,” insurance pools that would let groups of small businesses, trade groups and religious and civic organizations band together and collectively negotiate better prices for health insurance for self-employed or private-sector workers and their families.

To create the federally regulated insurance pools that Bush envisions, Congress would need to change federal law to exempt multi-state insurance pools from state insurance regulation. But state insurance regulators say that could leave residents without consumer protections currently granted under state law.

Those in favor of the new insurance pools, including the U.S. Chamber of Commerce, say they would help lower costs by allowing smaller businesses to spread insurance risks among more people, as large companies already do, and by cutting state regulatory requirements. Small businesses then could afford to provide health coverage to more employees, helping to lower the number of uninsured Americans, which reached 45 million in 2003, according to the latest U.S. Census Bureau data released Aug. 26.

States don’t oppose the idea of small businesses pooling insurance resources. In fact, states have experimented with the concept since the early 1990s, using a wide variety of public and private group purchasing agreements. But states are resisting pooling plans that would cross state lines and be overseen by the U.S. Department of Labor.

Under federal regulation, the plans would be exempt from state insurance consumer protection laws and benefit mandates, which might offer more protections, states argue.

“If employers are able to band together and try to get coverage in a way that goes around all of these provisions, then the state is no longer able to provide the kinds of consumer protections that people in that state have said that they want,” said Alan Weil, executive director of the National Academy of State Health Policy in Portland, Maine.

Kansas Insurance Commissioner Sandy Praeger, who heads the health committee at the National Association of Insurance Commissioners, also opposes the proposal for federally regulated insurance pools. She said the federal labor department doesn’t have the manpower or resources to respond to consumers’ insurance needs as well as states can.

Praeger, a Republican, also said the plan could segment the insurance market by allowing insurers to “cherry pick” firms that employ younger, healthier workers. Removing this healthier and therefore less-costly segment of workers would leave behind businesses with older or high-risk employees who might be denied coverage, Praeger said.

“The whole goal … would be to bring insurance companies to provide a lower-cost alternative, but the only way to provide lower costs is to have a healthy group of people,” she said.

The percentage of small employers with three to 199 workers providing health insurance fell from 68 percent in 2001 to 63 percent in 2004, according to an August study by the Kaiser Family Foundation and the Health Research and Educational Trust. The drop in employer-based insurance coverage is one of the reasons for the latest jump in the number of uninsured Americans, along with the economic downturn and sluggish job market, according to Daniel Weinberg, a U.S. Census Bureau official.

President Bush advocated insurance pools for small business during his 2000 campaign and renewed his proposal in his Sept. 2 address at the Republican National Convention. Democratic U.S. Sen. John Kerry of Massachusetts opposes the idea.

In Congress, several bills to expand insurance pools have passed in the U.S. House of Representatives, but the issue is caught in a logjam in the highly partisan U.S. Senate.

The National Governors Association and the National Conference of State Legislatures have opposed certain legislation to create federally regulated insurance pools, though they have not addressed Bush’s campaign proposal specifically.

Some proponents of the legislation find state concerns unwarranted. “It’s the same federal regulatory umbrella that regulates many of the largest labor union plans, and none of these state officials seem concerned about their workers who get insurance from the United Steelworkers,” said Craig Orfield, a spokesman for the U.S. Senate Committee on Small Business and Entrepreneurship, which is chaired by U.S. Sen. Olympia Snowe, R-Maine, who sponsored insurance pool legislation this year.

Meanwhile, many states are experimenting with their own ways to reduce the burden of high insurance costs on individuals and small businesses. Nearly a dozen states introduced legislation this year to establish, examine or amend existing group purchasing arrangements, according to the Virginia-based Health Policy Tracking Service (HPTS). Those states include Colorado, Hawaii, Iowa, Illinois, Missouri, Nebraska, New Mexico, Oklahoma, Tennessee, Utah and Washington.

In addition, over the past few years a number of states have passed laws allowing insurance providers to sell scaled-back coverage plans that do not include all of the state’s coverage mandates, many of which were put into place during the 1980s when health-care cost inflation was lower and consumer protection was the bigger concern, said Trudi Matthews, a health policy analyst at the Council of State Governments in Lexington, Ky.

Since 2001, Arkansas, Colorado, Florida, North Dakota, Texas and Utah have taken steps to offer “bare-bones” or “mandate-lite” insurance policies, according to the HPTS.

In addition, at least 32 states offer high-risk insurance pools, which generally provide coverage to individuals who are either uninsurable otherwise or who are extremely expensive to insure. Individuals usually are required to pay a small premium, but the pools usually are heavily subsidized by the state, Matthews said.