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Small business groups split on health plan

In his State of the Union address, President Bush gave some hope to small business owners struggling with the soaring costs of health insurance.
/ Source: The Associated Press

In his State of the Union address, President Bush gave some hope to small business owners struggling with the soaring costs of health insurance.

Bush called on Congress to approve the creation of association health plans, or AHPs, which allow small companies to band together and buy insurance at much cheaper rates than they are currently able to get on their own. Small business advocates have long lobbied for passage of AHP legislation; last year, the House easily approved an AHP bill, but the measure didn't make it out of the Senate.

Many small business lobbyists are hopeful that with Bush's endorsement, AHPs will make it through Congress this year.

One of the most vocal pro-AHP groups is the Associated Builders and Contractors, which represents 23,000 construction firms, most of them small businesses.

"The nature of the construction industry pretty much requires it (health insurance) to be provided," said Katie Strong, the Washington-based group's director of legislative affairs. But, she said of small construction firms, "for them to be out there in the current health care market, they're getting killed."

The problem is that small companies, unable to achieve the same economies of scale as businesses with thousands of employees, are being hit by double-digit premium increases. According to the National Federation of Independent Business, which is lobbying for the creation of AHPs, 60 percent of the more than 40 million uninsured Americans work for small businesses.

A law permitting the nationwide formation of AHPs would allow insurers to bypass state coverage requirements and offer one policy across the country.

Currently, a health insurance policy must provide whatever coverage is mandated in the state where the insurance is sold. Different states have different coverage requirements, so a company in Wisconsin, for example, might not be able to buy a policy written in Kansas.

With those state barriers removed, more companies could buy into the same policy, lowering the costs for all.

But not all small business advocates believe AHPs are the solution.

Todd McCracken, president of the Washington-based National Small Business Association, worries that AHPs may "do more harm than good."

"They (the AHPs) may choose not to include some more expensive coverage," McCracken said, adding that in such a case, sicker or older workers would be forced to look elsewhere for coverage. Or, a company wanting to help its workers would be forced to buy more expensive coverage from a different provider, defeating the purpose of the AHPs.

McCracken said insurers would be able to exclude some medical conditions because AHPs would not be bound by state laws.

But Ianthe Jackson, an NFIB spokeswoman, said AHPs would comply with federal coverage mandates under ERISA, the law that governs employee health benefits.

Amanda Austin, the NFIB's manager of legislative affairs, said AHPs would not be required to comply with state laws calling for specific treatment options for diseases or medical conditions. But, she said, many plans might opt to cover them in hopes of being more competitive and drawing more subscribers.

The Associated Builders and Contractors points to its own experience operating state-by-state AHPs as proof that they help small businesses save on health costs.

Joe Rossmann, the group's vice president for fringe benefits, said his organization ran AHPs for 40 years, until 2000. He said that of each dollar contractors and builders spent on insurance from the plans, between 13.5 and 16 cents went to administrative fees and profits. For small companies buying directly from insurance carries, those costs came to 35 cents.

The group ended the plans because it was too costly to operate in so many different states.

Strong, the group's vice president, predicted that small businesses would get good deals from AHPs because it will become a highly competitive market.

"You're going to get associations competing against each other," she said. "Members of local chambers of commerce or the NFIB or electrical contractors — they're all going to be shopping to see which association is going to provide them the best package."