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Researcher: Regional Health Pools Beat AHPs

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Improving state and regional small business health insurance purchasing pools for small businesses might work better than enacting an association health plan bill.[@@]

Len Nichols, health policy program director at the New America Foundation, Washington, presented that argument earlier this week at a hearing on small group health insurance organized by the Senate Committee on Small Business and Entrepreneurship.

President Bush and many small business groups support the AHP concept, which would allow small businesses to team up to form self-funded, multi-state health insurance purchasing pools that could buy coverage free from the mandates imposed on state-regulated small group health insurance plans.

AHP concept advocates say passing an AHP bill would give small businesses the same freedom to escape from state health insurance mandates that large self-insured employers now enjoy.

Opponents of the AHP concept, including the Blue Cross and Blue Shield Association, Chicago, and the National Association of Insurance and Financial Advisors, Falls Church, Va., argue that authorizing the formation of AHPs would create a system of poorly financed, poorly supervised health plans that, at best, would help small businesses with healthy employees get somewhat lower rates through AHPs while forcing small businesses with sick employees to pay skyrocketing rates for coverage from traditional health insurers.

Nichols, an AHP opponent, agreed that creation of an AHP system would lead to “cherry picking” of the healthiest small businesses by AHPs.

If members of Congress believe that state health insurance mandates are costing small businesses too much, “then you already clearly have the authority to repeal or override the unworthy mandates for all small firms, not just for those who happen to belong already or come to qualify for associations with the power to exclude those they do not want in their risk pool,” Nichols told members of the Small Business Committee, according to a written version of his testimony.

A good compromise might be to encourage small businesses to join state or regional health insurance purchasing pools that are open to almost all small businesses, Nichols said.

California and Florida are 2 of the states that have health insurance purchasing pools in place.

The purchasing pools have had problems mostly because they have less freedom than independent small group insurers to exclude or raise rates for employers with high claims rates, Nichols said.

The existing purchasing pools also suffer from “lingering attempts to limit agent/broker commissions on purchasing pool products,” Nichols said.

To make the state and regional purchasing pools successful, policymakers must “make sure agents and brokers are at least indifferent between selling inside or outside the pool,” Nichols said. “Industry insiders will tell you that small group health insurance is a product that is sold and not bought, by which I mean the purchaser must be talked into it. It is not worth expending the considerable and necessary persuasive and educational effort for a sub-standard commission.”

The Small Business Committee has posted a copy of Nichols’ testimony and other hearing witnesses’ testimony on the Web at