Failure of the Senate on May 10 to act on S. 1955, legislation that would have created association health plans, could pave the way for compromise legislation, according to some sources. Meanwhile industry reaction to the bill’s failure was mixed.

Officials of the National Conference of Insurance Legislators said they were encouraged that the bill failed to pass muster in the Senate.

But Janet Trautwein, executive vice president and CEO of the National Association of Health Underwriters, said that although “there were ultimately not enough votes to bring the bill up for a final vote, important issues were debated that will hopefully lead to reform later this year.”

Trautwein said claims by critics of the measure that it would have allowed insurers and small businesses to bypass state-mandated protections and, in some cases, increase costs for firms with sicker workers were incorrect.

“S. 1955 would have helped some states a lot, particularly some in the New England area where tight rate bands and community rating are commonplace,” she said.

“The cost of small employer health insurance in those states is dramatically higher than in states that have a more flexible rating structure,” Trautwein said, while the majority of states would have seen no change in their state rating laws.

She argued all states “would have benefited from the availability of plans with fewer mandates.”

The Senate declined to limit debate on the bill, the Health Insurance Marketplace Modernization and Affordability Act, by a 55-43 vote, after several days of debate. Sixty votes were needed for the bill to clear a procedural hurdle that would have limited floor debate and set the state for final action.

The bill was sponsored by Sens. Michael Enzi, R-Wyo., and Ben Nelson, D-Neb.

There were some reports that defeat of the Enzi/Nelson bill would help win support for compromise legislation introduced by Sen. Olympia Snowe, R-Maine, that could pass the Senate.

Her bill, S. 406, filed as an amendment to the Enzi bill in the days before the vote, would have left intact coverage mandates in at least 26 states.

NCOIL Vice President Alan Sanborn, a Michigan state senator, said NCOIL “was heartened” to see the Enzi bill defeated.

“While the Enzi legislation was well intentioned, it would have pre-empted carefully crafted state laws that provide critical consumer protections and mandated benefits,” he said.

Sanborn said “NCOIL does not believe S. 1955 would have addressed effectively the growing issue of our nation’s uninsured.”

The bill would have allowed small businesses and trade associations to form association health plans across state lines.

Under the bill, insurers would be permitted to sell plans to businesses and individuals that do not meet current state benefits requirements.

However, they then also would have to offer a plan with benefits provided under a state employees’ plan in one of the five most heavily populated states–California, Florida, Illinois, New York and Texas.

The bill also would have pre-empted state laws that limit how much insurers can vary premiums from one small business to another.

Trautwein said that NAHU in general is opposed to any legislation “that creates an unlevel playing field, which AHPs under prior legislation and some purchasing pools have created historically.

“We are, however, open to discussions on proposals that create new affordability while maintaining a level playing field and protecting state-based regulatory authority,” she said.