Myth: Association Health Plans (AHPs) will allow organizations to “cherry pick” only the healthiest individuals, leaving the states’ small group markets to care for the sickest individuals.

Fact: AHPs are prohibited from being able to “cherry pick”. Under the current Health Insurance Portablility and Accountability Act of 1996 (HIPAA), an individual or employer cannot deny coverage based on the health status or claims experience. AHPs are subject to all the preexisting condition, portability, nondiscrimination, special enrollment and renewability provisions under HIPAA.

Myth: Association Health Plans are just another name for Multiple Employer Welfare Arrangements (MEWAs).

Fact: Association Health Plans are completely different from MEWAs. MEWAs are often “front” organizations for insurance companies to sell insurance. Unscrupulous individuals or corporate entities can start them for the sole purpose of providing health insurance – this can lead to adverse selection and fraud. Often there is no certification process before MEWAs can begin providing health benefits to workers. There are no federal solvency standards for MEWAs, which has often led to fraud and abuse. In contrast, the sponsor of an AHP must be a bona fide professional or trade association organized and maintained in good faith, with a constitution and bylaws specifically stating its purpose and providing annual meetings, and must be in existence for a minimum of 3 years for purposes other than that of obtaining or providing health coverage. Also, the association must collect dues from its members without conditioning such on the basis of the health status or the claims experience of the plan participant or beneficiaries or on the basis of the member’s participation in a group health plan.

Myth: AHPs would weaken state consumer protections since they could operate across state boundaries.

Fact: Labor unions and large corporations operate across state boundaries, but their plans’ consumer protections are not considered weak. To the contrary, these organizations offer some of the best healthcare coverage in America—AHPs would do the same! The solvency standards, plan requirements and patient protections included in the AHP legislation are more stringent than those now required by many states.

Myth: Because insurance is traditionally regulated on the state level, national AHPs would infringe upon states’ rights.

Fact: Congress and the state legislatures have already allowed for the regulation of health insurance by the federal government and thus have already deemed this regulation to be consistent with the Commerce Clause of the Constitution—large corporations and labor unions are able to offer health benefits across state boundaries under the federal law Employment Retirement Income Security Act (ERISA). Extending the same rights to small business is a matter of consistency. The bill actually takes steps to preserve state oversight of insurance—it allows states to undertake enforcement of uniform standards for AHPs if they opt to do so and also provides state authority for necessary and legitimate enforcement decisions to prevent fraud and abuse. Some argue that it is inconsistent for supporters of “states’ rights” to support the bill because the bill preempts state mandated benefits and other regulations. However, this obscures the real issue, which is not state vs. federal government, but harnessing the private sector rather than government bureaucracies—at any level—to provide affordable coverage to small businesses.

Myth: The Department of Labor (DOL) is not capable of regulating AHPs effectively.

Fact: The U.S. Department of Labor has effectively regulated tens of thousands of self-funded employers for almost 30 years. The Department of Labor currently administers ERISA protections covering approximately 2.5 million private, job-based health plans and 131 million workers, retirees and their families. Of these, 275,000 plans covering 67 million individuals are self-insured, and therefore subject exclusively to DOL oversight. In addition, self-insured multi-employer plans (established and operated jointly by a union and two or more employers) are overseen exclusively by DOL under the Taft-Hartley Act. These self-insured and union plans cover more than 72 million participants. Secretary Chao has promised to allocate the necessary resources to AHP certification and oversight. DOL released a report in early January 2003 that reveals high rates of compliance by group health plans covered under ERISA. The Employee Benefit Security Administration (EBSA) reviewed these health plans for compliance with the health care laws in Part 7 of Title 1 of ERISA. These laws are HIPAA, the Mental Health Parity Act of 1996 (MHPA), the Newborns’ and Mothers’ Health Protections Act of 1996, and the Women’s Health and Cancer Rights Act of 1998. In many cases, noncompliance is attributed to a mistake in understanding and complying with the laws. The review was initiated at the very early stages of implementation of these laws, and taking into account the size of the ERISA health plan universe, this confusion in implementation is not unexpected. EBSA is optimistic that partnership efforts with plans, issuers, and other service providers will increase compliance rates.

Myth: AHPs could actually increase administrative costs by inserting another layer between the employer and the health plan.

Fact: Administrative costs for small employers today are typically 25 to 40 percent of their premium (SBA, January 2003). By contrast, self-funded large employers typically pay only about 4 to 11 percent. AHPs have the potential to lower insurance premiums from small firms by freeing employers from some state taxation (excluding premium taxes), some mandated benefits, and the cost of compliance with multiple state regulations.

Myth: AHPs would have an unfair advantage.

Fact: To the contrary, AHPs would level the health insurance market for small business. Right now, small business is frozen out of federal health plans. So while big corporations and labor unions can benefit from federally regulated plans, small business cannot. Attracting quality employees is a major issue for entrepreneurs. Without quality health care plans at reasonable prices, small business will fail to attract quality employees. AHPs will level the playing field for all employers.

With regard to competition with other insurers, AHPs would simply provide competition, but would not receive any more of an advantage than that of the large employers and unions that already self fund their own plans. In fact, the standards that apply to AHPs are more stringent than those that apply to existing federal plans. Furthermore, one way for an association to offer an AHP is through using and insurance provider to develop a plan that meets the needs of the members and their employees. Thus, AHP legislation may open up more opportunities for insurance companies to serve small businesses that currently cannot afford health insurance.