Small Business Health Fairness Act (H.R. 525):  Helping Workers Access Quality Health Insurance

July 27, 2005

The Small Business Health Fairness Act (H.R. 525) addresses both the access and cost issues at the heart of the health care reform debate.  The bill, introduced by Employer-Employee Relations Subcommittee Chairman Sam Johnson (R-TX), former Committee Chairman John Boehner (R-OH), Nydia Velasquez (D-NY), and Albert Wynn (D-MD), would allow small businesses to join together through association health plans (AHPs) to purchase health insurance for their workers at a lower cost.  The measure would increase small businesses’ bargaining power with health care providers, give them freedom from costly state-mandated benefit packages, and lower their overhead costs by as much as 30 percent – benefit that many large corporations like GM and Ford already enjoy because of their larger economies of scale.  The House passed the bill on July 26, 2005.

President Bush strongly supports the bill, which currently has more than 110 cosponsors, and a broad and diverse coalition of more than 175 groups have endorsed it, including the U.S. Chamber of Commerce, the National Federation of Independent Business, the American Farm Bureau Federation, the Associated Builders and Contractors, The Latino Coalition, National Black Chamber of Commerce, the National Association of Women Business Owners, and the National Restaurant Association.  Companion legislation was recently introduced in the Senate (S. 406).  Following is a summary of the bill:

            Eligibility Requirements.  The bill establishes that an association health plan (AHP) is a group health plan that offers fully-insured and/or self-insured medical benefits, has been certified by the Labor Department, and is operated by a board of trustees with complete fiscal control and responsibility for all operations.  The association sponsoring the plan must have been in existence for at least three years for substantial purposes other than providing health insurance coverage. 

            To be certified by the Labor Department, a “self-insured” AHP must have at least 1,000 participants and beneficiaries.  It also must have offered coverage on the date of enactment, represent a broad cross-section of trades, or represent one or more trades with average or above insurance risk.

            Participation and Coverage.  The bill requires all employers participating in the AHP to be members or affiliated members of the sponsor.  All individuals under the plan must be active or retired employees, owners, officers, directors, partners, or their beneficiaries.  This applies to partnerships and self-employed individuals.  For plans that are in existence on the date of enactment, no unaffiliated employer may participate unless they were affiliated on the date of certification or did not maintain or contribute to a group health plan for the previous 12-month period.

            The measure expressly prohibits discrimination by requiring that all employers who are association members are eligible for participation, all geographically available coverage options are made available upon request to eligible employers, and eligible individuals cannot be excluded from enrolling because of health status.  Premium contribution rates for any particular small employer cannot be based on the health status or claims experience of plan participants or beneficiaries or on the type of business or industry in which the employer is engaged.

The measure makes clear that AHPs must comply with the Health Insurance Portability and Accountability Act (HIPAA), which prohibits group health plans from excluding high-risk individuals with high claims experience.  Thus, it will not be possible for AHPs to “cherry pick” because sick or high risk groups or individuals cannot be denied coverage.  The bill prohibits AHPs from charging higher rates for sicker individuals or groups within the plan, except to the extent already allowed under the relevant state rating law.  State-licensed health insurance agents must be used to distribute health insurance coverage provided to small employers under an AHP and must also be used to distribute self-insured benefits to small employers through an AHP if it also provides health insurance coverage.

            Reserve Requirements and Solvency Protections.  The bill includes solvency standards that are similar or stronger than standards enacted by states for association plans.  These new solvency protections go far beyond what is required of single employer and labor union plans under current law.  H.R. 525 requires self-insured AHPs to maintain reserves that are sufficient for unearned contribution, benefit liabilities, expected administrative costs, and any other obligations.  These reserve levels must be recommended by a qualified actuary who is a member of the American Academy of Actuaries. 

            AHPs must also obtain aggregate and specific stop-loss insurance; indemnification insurance for any claims if the plan is terminated; and must also make annual payments to an Association Health Plan Fund to guarantee that indemnification insurance is always available.  In addition, an AHP must maintain surplus reserves of between $500,000 and $2 million.  If an AHP is unable to provide benefits when due or is otherwise in a financially troubled condition, the Labor Secretary must act as a trustee to administer the plan for the duration of the insolvency.  A certified AHP may terminate only if the trustees provide 60 days advance written notice to participants and beneficiaries and submit a plan for timely payment of all benefit obligations.  The measure establishes a Solvency Standards Working Group within 90 days after enactment to recommend initial regulations.

            ERISA Preemption.  The bill gives certified AHPs freedom from costly state-mandated benefit packages by exempting them from state health insurance laws and regulations, except that AHPs must comply with any federal and state laws that require coverage of specific diseases, maternal and newborn hospitalization, and mental health issues.  The measure clarifies that states may regulate self-insured multiple employer welfare arrangements providing medical care which do not elect to meet the certification requirements for AHPs.

            Labor Department Enforcement.  The measure requires the Labor Secretary to consult with the states about the regulation of AHPs located in their state.  It establishes criminal penalties for willful misrepresentation as an exempt AHP or collectively bargained status; authorizes the Department to issue cease activity orders against fraudulent health plans; and outlines the responsibility of the board of trustees for meeting required claims procedures.  The Labor Secretary must report to Congress no later than January 1, 2010, on the impact of AHPs on reducing the number of uninsured.