U.S. GOVERNMENT PRINTING OFFICE

60–579 WASHINGTON : 2000

ASSOCIATION HEALTH PLANS: GIVING SMALL

BUSINESSES THE BENEFITS THEY NEED

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

WASHINGTON, DC, JUNE 10, 1999

Serial No. 106–19

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

JAMES M. TALENT, Missouri, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

DONALD A. MANZULLO, Illinois

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PHIL ENGLISH, Pennsylvania

DAVID M. MCINTOSH, Indiana

RICK HILL, Montana

JOSEPH R. PITTS, Pennsylvania

MICHAEL P. FORBES, New York

JOHN E. SWEENEY, New York

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

EDWARD PEASE, Indiana

JOHN THUNE, South Dakota

MARY BONO, California

NYDIA M. VELA ́ZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

CAROLYN MCCARTHY, New York

BILL PASCRELL, New Jersey

RUBEN HINOJOSA, Texas

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

DENNIS MOORE, Kansas

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

SHELLEY BERKLEY, Nevada

HARRY KATRICHIS, Chief Counsel

MICHAEL DAY, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on June 10, 1999 ............................................................................... 1

WITNESSES

Neese, Terry, CEO and Founder, Neese Personnel Services ............................... 3

Lehnhard, Mary Nell, Senior Vice President, Policy and Representation,

BlueCross BlueShield Association ...................................................................... 5

Coleman, Jesse C., Vice President and Owner, Coleman’s Hamilton Supply

Company ............................................................................................................... 7

Gagne, Patricia C., Vice President, Claim Technologies Incorporated ................ 9

Rossmann, Joseph E., Vice President of Fringe Benefits, Associated Builders

and Contractors .................................................................................................... 12

Nicholson, John B., Proprietor, Company Flowers ............................................... 14

APPENDIX

Opening statements:

Talent, Hon. James M ...................................................................................... 36

LoBiondo, Hon. Frank A .................................................................................. 40

McCarthy, Hon. Carolyn .................................................................................. 41

Sweeney, Hon. John ......................................................................................... 42

Prepared statements:

Neese, Terry ...................................................................................................... 44

Lehnhard, Mary Nell ........................................................................................ 48

Coleman, Jesse C .............................................................................................. 68

Gagne, Patricia C ............................................................................................. 72

Rossmann, Joseph E ......................................................................................... 78

Nicholson, John B ............................................................................................. 85

Additional material:

Letter from Schramm, Williams & Associates ............................................... 90

Statement of Maurice E. Newman III, President, National Funeral Directors Association ............................................................................................. 91

(1)

ASSOCIATION HEALTH PLANS: GIVING SMALL

BUSINESSES THE BENEFITS THEY NEED

THURSDAY, JUNE 10, 1999

HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC.

The Committee met, pursuant to call, at 11:00 a.m., in Room

2360, Rayburn House Office Building, Hon. Jim Talent [Chairman

of the Committee] presiding.

Chairman TALENT. Good morning, ladies and gentlemen. Welcome. Thank you for joining us this morning. The purpose of this

hearing is to address a major concern of the small business community, the difficulty of finding affordable health insurance and to discuss association health plans as a means of helping small business

owners and employees gain access to affordable and quality health

benefits.

With over 60 percent of the 43 million uninsured Americans owning a small business, employed by a small business, or the dependent of an employer or employee, the need for increased access to

health insurance options for small business becomes apparent.

When I talk to small business owners about their health care difficulties, I get a consistent response: health insurance is simply too

expensive for the average small business owner to purchase. This

is especially distressing when coupled with the fact that some 64

percent of Americans rely on employer-based health insurance.

Workers in small businesses are suffering because health insurance continues to be too expensive for their employers to purchase.

This problem will continue to affect more and more small business

workers, especially since the percentage of jobs created by small

businesses and the number employed by small businesses continues to rise.

We have to find a way to accommodate these working people and

provide them with the health coverage they deserve. Association

health plans would allow small businesses to utilize a familiar, dependable resource when purchasing health benefits, their trade association. It would allow small businesses to unite through these

trade associations and obtain the same economies of scale, purchasing clout, and administrative efficiency that large businesses

currently enjoy when purchasing health insurance.

A study by the Consad Research Corporation found that AHPs

would substantially increase the number of people with health insurance. They estimate that as many as 8 million people could gain

coverage as a result of AHPs. AHPs would not only reduce the

number of uninsured, they would also aid small businesses which

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have health insurance by enabling them to offer better benefits at

a lower cost and with less of an administrative burden.

We have a responsibility to the 43 million uninsured Americans

to explore ways of expanding access to health coverage. I believe

association health plans are a step in the right direction for small

businesses; and I cosponsored, along with our colleague from California, Cal Dooley, the Small Business Access and Choice for Entrepreneurs Act of 1999, legislation which would allow small employers to offer coverage to their employees through AHPs.

Representative Dooley and I are joined by many distinguished

colleagues on this Committee in support of the ACE Act. The ACE

Act has overwhelming endorsement from many associations who

recognize the benefits its enactment would have for their members.

The ACE Act would allow small business owners to work with their

associations to design flexible, affordable benefit packages that

meet the needs of the small business community and their respective industries.

It would also allow small business owners to take an immediate

100 percent deduction of the cost incurred in providing health benefits, something large businesses are currently able to do. The ACE

Act is a viable, market-based approach to providing affordable

high-quality private sector health coverage to workers employed by

small businesses.

Today we have before us a diverse panel of witnesses. I am confident that through their testimony they will be able to give the

Committee members valuable insight about the role association

health plans would play both in increasing the number of small

businesses who can afford health insurance and lessening the ordeal many small businesses face in purchasing health insurance individually. I am now pleased to recognize my colleague, Ms.

Vela ́zquez, for any opening statement she might wish to make.

[Mr. Talent’s statement may be found in the appendix.]

Ms. VELA ́

ZQUEZ. Thank you, Mr. Chairman. Thank you for holding today’s hearing on association health plans. Despite the booming economy and growth of the stock market, almost 43 million

Americans are still without basic health insurance. Of this, almost

60 percent are either self-employed or have a family member employed by a small business that does not provide health benefits.

In 1997, workers in firms with fewer than 100 employees represented 32 percent of all workers age 18 to 64. Sixty percent of

these workers obtain health insurance through their employer or

their spouse’s employer, but 28 percent are uninsured. Those uninsured employees in small firms account for 49 percent of all uninsured workers.

Because many small employers are marginal firms that struggle

to remain in business, they are simply often unable to afford health

care. Additionally, those small businesses that do provide health

insurance are especially vulnerable to increases in premiums.

These factors make it more difficult for smaller firms to provide

health insurance.

As a result of this, small employers have been the focus of numerous health insurance reforms over the past decade. It is crucial

that a solution be found to this problem. The reason is that if our

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Nation’s small businesses are to remain competitive, they must be

able to offer health insurance to attract and retain employees.

I would like to commend the Chairman for his continued efforts

to help small businesses provide health insurance coverage for

their employees. I am happy to work with you on this issue. Both

last year and this year, I have been an original cosponsor of his bill

to provide an immediate 100 percent deduction for health care

costs. This is a critical issue for millions of uninsured Americans.

I hope that today’s hearing will provide us with a greater understanding of this problem and possible solutions. Today we will be

looking at one possible solution to providing small firms with the

ability to provide insurance to their employees, namely association

health plans. Employers have long been attracted to the idea of

banding together to buy health insurance as well as to provide

other benefits.

Association health plans will be small business purchasing entities that could benefit from economies of scale and greater purchasing power. Additionally, these plans would provide small firms

with some of the tax and pooling advantages that large corporations already have.

Although AHPs offer the promise of reducing the number of uninsured, there are a number of issues that we have to examine. A

recent study by the National Coalition of Health Care raises the

question of whether AHPs will reduce health costs enough to induce small firms not now offering coverage to buy health insurance.

Also, concerns have been raised because AHPs are exempt from

many State laws and regulations, most notably those that mandate

coverage of certain benefits. As a result, those who receive health

insurance through an association health plan may be getting less

coverage than they counted on.

In closing, I would like to thank the Chairman for holding today’s hearing and to reiterate my strong desire to help small businesses provide health care for their employees. I am looking forward to hearing the testimony of the witnesses and learning more

about association health plans. Thank you, Mr. Chairman.

Chairman TALENT. I thank the gentlelady. Our first witness is

Terry Neese, who is the CEO and founder of Terry Neese Personnel

Services of Oklahoma City, Oklahoma, the corporate and public

policy advisor for the National Association of Women Business

Owners, and a frequent and always welcome witness before this

Committee. Ms. Neese.

STATEMENT OF TERRY NEESE, CEO AND FOUNDER, TERRY

NEESE PERSONNEL SERVICES, OKLAHOMA CITY, OKLAHOMA, CORPORATE AND PUBLIC POLICY ADVISOR, NATIONAL ASSOCIATION OF WOMEN BUSINESS OWNERS

Ms. NEESE. Thank you. Thank you, Mr. Chairman and Congresswoman Vela ́

zquez and members of the Committee. At Terry Neese

Personnel Services in Oklahoma City, we employ 12 people and

1,000 temporaries on an annual basis. In 1998 we carried health

insurance with a large national insurer. Our monthly insurance

premiums for 12 employees were extremely high, but Terry Neese

Personnel Services covered 80 percent of all costs.

4

We had been insured by a national insurance company for about

three years with no claims being filed on the insurer. Pretty remarkable. One day out of the clear blue, we received a call from

the insurer that they were canceling our insurance due to the small

number of people employed in the firm. We were all devastated.

We spent about three months trying to find a firm that would insure the staff. This incident made it clear to me and my employees

that something had to be done to assist small business owners in

making insurance available at a reasonable cost without unfair and

unjust cancellation.

In my opinion and the opinion of my fellow NAWBO members,

association health plans are the answer. Because of economies of

scale and the dynamics of group purchasing, health insurance is

much higher per employee for small businesses than it is for large

companies. Small businesses that offer health benefits must comply

with costly State and Federal mandates.

The large companies that self-insure are exempt from those mandates. This is an enormous bias against smaller firms. The playing

field must be leveled by allowing small businesses to band together

across state lines to purchase health insurance through association

health plans. NAWBO is a bona fide association, and our members

and their families would benefit from this legislation.

NAWBO as an association has substantial purpose other than offering health insurance. We collect dues from our members without

conditioning such on the basis of their health status or on the basis

of the members’ participation in a group health plan. Women business owners want to be able to offer their employees coverage. We

just can’t afford it.

Studies show that as firm size decreases, the likelihood of health

coverage is dramatically reduced. While 82 percent of women business owners offer health coverage, only 48 percent of women-owned

small business offer this benefit. Percents drop even lower as firms

get smaller. Only 25 percent of women-owned firms employing less

than five employees offer health care coverage. These are the bulk

of our 40 million uninsured.

New insurance coverage options for both the self-employed and

those workers in small businesses will also promote increased competition and greater choice in the health insurance market. By giving workers new sources of coverage through trade and professional

associations, it will make it easier and cost effective for many

Americans to continue coverage under the same plan when changing jobs.

Under association health plans, everyone wins, especially women

who represent 9 million businesses, the fastest growing segment of

small business owners. Statistics show that women business owners are dedicated to providing benefit packages to their employees.

We also want to recruit the best talent. Health benefits will

allow small businesses to attract and retain qualified workers.

Today with the unemployment rate at 4.2 percent, excellent benefit

packages are a key to attracting and retaining employees. We sincerely appreciate Chairman Talent and Congresswoman Vela ́

zquez

for putting this hearing together, for pushing Congress to enact association health plans, and providing minority- and women-owned

5

businesses the tools necessary to insure the workers that we care

about and the insurance that they deserve. Thank you very much.

Chairman TALENT. Thank you.

[Ms. Neese’s statement may be found in the appendix.]

Chairman TALENT. Our next witness is Mary Nell Lehnhard,

Senior Vice President of Policy and Representation for the

BlueCross and BlueShield Association here in Washington, D.C.

Ms. Lehnhard.

STATEMENT OF MARY NELL LEHNHARD, SENIOR VICE PRESIDENT POLICY AND REPRESENTATION, BLUE CROSS BLUE

SHIELD ASSOCIATION, WASHINGTON D.C.

Ms. LEHNHARD. Thank you. Mr. Chairman and members of the

Committee, I am Mary Nell Lehnhard, Senior Vice President of the

BlueCross and BlueShield Association. Our member plans are very

committed to finding ways to increase the number of small employers who can offer health care coverage.

In February of this year, our board unveiled a two-part proposal

to increase the number of people with insurance. First, we said

Congress should apply a new litmus test and not pass legislation

that would raise costs of health care coverage, thereby raising the

number of uninsured.

Secondly, our plans said Congress should focus on proposals to

increase the number, in particular, of small firms and individuals

who have coverage through changes to the tax system.

My message today is that exempting association health plans

and multiemployer welfare associations, MEWAs, from State consumer protection laws will undermine the first tenet of our proposal by raising premiums for many small firms.

The proponents of AHPs and MEWAs have stated three objectives: the creation of large pools, like large employers, with the objective having lots of people in the pool so that the healthy crosssubsidize the sick enrollees; reducing the number of uninsured individuals; and, third, lowering costs for small firms.

Let me comment first on the objective of creating large pools. The

States understand extremely well that maximum pooling in a small

group market is critical. It is the only way that you can get healthy

people to subsidize sick people.

In the 1980s, competition in the small group market had become

almost entirely based on insurers targeting and enrolling the

healthiest groups in the small group market and avoiding the sickest groups. Insurers did this by setting up lots of different pools of

enrollees. The idea was to put your healthy people in one pool

where you had very good rates and attracted new enrollment.

You put your sicker people in a different pool, the rates got very

high, and eventually those groups left you. Premiums for small

groups were as much as 10 times less for small healthy groups and

as much as 10 times more for groups that were sick, a 10 to one

rate range in your healthy groups to your sick groups in the small

group market.

The States led by the NAIC said, essentially, ‘‘no more of this.’’

It is bad public policy; we can’t tolerate it. And they required each

insurer to accept all small group business applicants and put all of

its small group business——

6

Chairman TALENT. We will go ahead and let you finish your

statement, and then we will go vote. Evidently we are going to

have to recess for a few minutes because we have several votes, but

please continue.

Ms. LEHNHARD. They said to each insurer, put all of your smallgroup business in one pool, and we want all of your products in

that pool and all of your enrollment in small firms. They allowed

insurers to vary the rates in those pools, but they essentially said

we are not going to have a 10 to 1 range between the sickest and

healthiest employer groups. We are going to allow you to vary your

rate only by maybe a 1.5 or 2 to 1 ratio.

State regulators in nearly every State said that we want the insurance principle of maximum pooling of risk to work for small employers like it does for large employers. Our concern is that the

AHP-MEWA legislation would reinvent the problem that States

had just addressed.

The legislation would mean a geometric increase in the number

of employer pools and would enable MEWAs to target the healthiest groups once again by pulling them out of the State-regulated

market. They would do this by attracting healthier groups that

don’t need the State-mandated benefits, establishing membership

criteria or marketing strategies that target healthier groups, and

marketing association memberships, for example, only in the lowest-cost part of the State where your health care costs would result

in lower premiums.

The bottom line, instead of creating larger pools, the MEWA legislation would take us back—this point is made on the chart up

here—to lots and lots of small pools of small employers and competition based on selection of the best risk.

The NAIC has shared our position also—the legislation would

mean certain groups ultimately would not be able to find affordable

coverage. My second point is that the AHP-MEWA legislation will

not solve the problem of the uninsured for small firms.

As MEWAs attract healthier groups, those State-regulated pools

will be left with an increasingly higher-cost pool of sicker and sicker employers and individuals. Moreover, while small employers

could join AHP-MEWAs when they wanted to get out of the Statemandated benefit cost, when their employees needed those benefits

they could jump back into the State-regulated pool with the attendant higher-mandated benefit cost.

The State-regulated market would very quickly become essentially a dumping ground for high-cost groups and State reform laws

would quickly unravel. Premiums for many employers would become unaffordable, and the result would be less access, not more.

Proponents of AHPs and MEWAs estimate that many more

groups will become insured under their group. I would like to submit for the record an analysis by Peat Marwick, which finds the

assumptions used are not credible. For example, they included in

their base of potential enrollees both the Medicare and Medicaid

population.

Third, I would like to comment on the notion that AHPs and

MEWAs could significantly reduce administrative costs. Rather

than reduce costs, a recent analysis by William M. Mercer found

that the administrative costs are essentially the same. After all,

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these are really just insurance companies. They are regulated by

the Federal government, rather than by the state. The AHPs would

incur the same costs as small group insurers.

In addition, the enrollees would pay a membership fee, royalty

or dues. Finally, I would comment on the regulatory bureaucracy

that is going to be needed to assure regulation of these entities.

AHPs and MEWAs would essentially, as I said, be new federally

licensed insurance companies.

AHPs would be licensed and regulated by the Department of

Labor. DOL has said that with today’s resources, they can expect

to get around to each current ERISA plan once about every 300

years. This level of regulation is obviously inadequate for these

new insurers, given the long history of MEWA fraud and insolvency.

Yesterday we released a new study by Bill Custer and Martin

Grace of Georgia State University finding the cost of regulating

these federally certified AHPs would be $3.2 billion over seven

years.

In summary, we ask you to keep several facts in mind: number

one, the proposal will very quickly and completely unravel state

small-group reforms that are working. Secondly, it will mean there

are two kinds of insurance companies, those regulated by the states

where your constituents call the state insurance commissioner

when they have a problem, often a local elected official, and those

regulated by the Federal Government where your constituents will

call the Department of Labor with their problems.

And third, the proposal would require a massive federal infrastructure and bureaucracy to even get a start at providing adequate regulation. We urge this Congress to work with the states,

not against them. The objectives of maximum pooling have been

achieved. By the way, you can have AHPs that cross State boundaries.

I think BlueCross and BlueShield plans insure about 60 percent

of the association health plans currently. We believe the next steps

to helping small employers should be financial incentives for employers with low-wage workers, the people who can’t afford the coverage, to address the affordability problem. Thank you.

[Ms. Lehnhard’s statement may be found in the appendix.]

Chairman TALENT. We will recess the hearing and then come

back after the next couple of votes, and we will hear from Mr. Coleman.

[Recess.]

Chairman TALENT. All right. We will reconvene the hearing.

Thank you for your patience. Our next witness is Jesse Coleman,

Vice President and owner of Coleman’s Hamilton Supply Company

in Trenton, New Jersey. Mr. Coleman.

STATEMENT OF JESSE COLEMAN, VICE PRESIDENT AND

OWNER, COLEMAN’S HAMILTON SUPPLY COMPANY, TRENTON, NEW JERSEY ACCOMPANIED BY RAYMOND J.

SAPUTELLI, ASSISTANT VICE PRESIDENT, EASTERN BUILDING MATERIAL DEALERS ASSOCIATION

Mr. COLEMAN. Good morning, Mr. Chairman and distinguished

members of the Committee. Thank you for giving me the opporVerDate 11-MAY-2000 14:26 Aug 02, 2000 Jkt 063239 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 E:\HEARINGS\60579 pfrm04 PsN: 60579
8

tunity to speak to you this morning about H.R. 1496. My name is

Jesse Coleman, and I am the Vice President of Hamilton Supply

Company, Incorporated.

We are a lumber and building material dealer in Trenton, New

Jersey. The company was incorporated in 1924, and we currently

have 65 employees. I also sit on the board of Eastern Building Material Dealers Association.

I am testifying before you today on behalf of over 800 small businesses that make up the EBMDA in support of H.R. 1496, the

Small Business Access and Choice for Entrepreneurs Act, and association health plans in general.

First and foremost, I would like to commend Congressman Talent for his work on this crucial issue and for scheduling this hearing to review how AHPs will benefit small business owners and

employees by increasing access to affordable health care options.

In my business, I am constantly battling to attract or retain

quality employees. In many cases, my strongest competition for the

best people is from large corporations, and the battle is often won

or lost based on the benefit packages. These large companies have

an immediate advantage over my company in that they can offer

less expensive health care programs.

As self-insured plans, they are governed under ERISA and exempt from compliance with onerous and expensive state-mandated

underwriting requirements. At Hamilton Supply, we went through

a period where we tried to level the playing field by self-insuring.

The difficulty came in the fact that my company group was simply

too small to get credible experience rating over time, and our good

years simply did not generate the savings to offset the bad years.

We now participate in the Eastern Group Trust, a medical program offered by the EBMDA. As a member of this organization, my

company has been able to stabilize health care costs. But as a Director of the association, I am also aware that the insurance trust

could do much more for companies smaller than mine if we could

operate like an ERISA plan as envisioned in H.R. 1496.

If these smaller companies were allowed to join employee insurance pools to obtain health care coverage similar to mine for their

employees and given freedom to design a plan according to their individual needs that our Fortune 500 competitors already enjoyed,

this combination of pooled risk and design freedom would allow

them to afford association benefit plans.

It is important to note here that my company and many others,

some larger, but most smaller, in the Delaware, Maryland, Pennsylvania, New Jersey area utilize the EBMDA for many services

that help and make our businesses more efficient. This is a critical

distinction in the debate over the role of AHPs in health care.

The EBMDA is not a group of businesses that simply come together to purchase insurance. Rather, Eastern, like all bona fide

associations, exist for one reason and one reason only, to serve the

needs of the membership.

Bona fide associations like the EBMDA have an outstanding

track record of providing a host of services, only one of which has

been high-quality health insurance coverage. Among other things I

did to prepare for this testimony in front of the Committee today

was to get a haircut on Monday.

9

Jokingly, I said to my barber that he had to fix me up because

I was testifying in front of a Congressional Committee on Thursday. He asked me what it was all about; and when I explained it

to him, he said that he hoped that I would succeed.

I asked him if his employer provided health care insurance. He

said that his employer did not and that he obtained it himself. I

then asked him how much he was paying for his coverage, and this

was when I knew I had to try to impress upon you, Mr. Chairman,

and the members of this Committee the real everyday costs that

are associated with mandated plans.

He told me that he paid $1,000 a month for himself and his wife.

He showed me his plastic ID card for the program. It was a standard state-mandated BlueCross and BlueShield 80/20 plan with a

thousand dollar deductible. This gentleman, who was in his early

60s and spends over 25 percent of his gross income for medical insurance, and he and his wife have no chronic health problems.

Then we talked about the barber, his coworker next to him, who

was a couple of years younger. This gentleman chose not to obtain

coverage. He chose to take a chance. I would venture to guess that

many people in his situation choose to take a chance. That is why

so many people are without health care coverage today.

You can be sure it is a very risky bet to make with your life not

to carry health insurance. That decision could end up costing you

all you have worked towards your entire life should an illness

occur. If these gentlemen were allowed to join a group as small as

1,000 persons, the size of my associations’s pool, my barber’s cost

for health care would be $343.14 a month.

This is such a dramatic difference, that I believe this coworker

would not hesitate to join the pool that made health care insurance

this affordable. Why not give thousands of hard-working people like

them a chance to obtain affordable insurance? Supporting H.R.

1496 is a step in the right direction.

Allowing AHPs to cross State lines without being subject to mandates that do more harm than good when it comes to buying affordable health care is the right thing to do. If my barber had an association-sponsored health plan like the one available to me, his situation would be dramatically improved. Allowing AHPs under

ERISA to provide health care insurance as one of the many services that bona fide trade associations provide would mean that

many more people would be insured. Thank you very much.

[Mr. Coleman’s statement may be found in the appendix.]

Mr. HILL. [presiding]. Thank you, Mr. Coleman, and that is a

fine haircut, by the way.

Mr. COLEMAN. Thank you.

Chairman HILL. Our next witness is Patricia Gagne, Vice President of Claims Technologies, Inc.

STATEMENT OF PATRICIA GAGNE, VICE PRESIDENT, CLAIMS

TECHNOLOGIES, INC. DES MOINES, IOWA

Ms. GAGNE. Good morning, Mr. Chairman and members of the

Committee. My name is Patricia Gagne. I appear today on behalf

of the Boys & Girls Club Workers Association in support of H.R.

1496. I am the Vice President of Claim Technologies, Incorporated,

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a small employer of 12 employees in Des Moines, Iowa; and I am

a member of the Self Insurance Institute of America.

My company is the broker and administrator of the insurance

programs sponsored by the Boys & Girls Club Workers Association.

B&GCWA asked me to attend here on their behalf today to state

that they believe H.R. 1496 will allow employees working for small

businesses to obtain more affordable health coverage by enabling

the formation, continuation, and control of association health plans.

The opportunity to participate in an association health plan will,

as you have heard here today, allow small employers to enjoy the

same economies of scale as larger employers.

We wish to commend Representative Talent for sponsoring this

bill, which will help thousands of small employers provide better

benefits for their employees. Standing to gain most considerably

are nonprofit employers like those of the Boys & Girls Club of

America.

In fact, Representative Talent, securing coverage for their employees through the B&GCWA health plan today are for Boys &

Girls Clubs from your home State of Missouri. I would like to summarize the comments made in our written statement first with a

few facts about the Boys & Girls Club Workers Association.

The Workers Association was established over 30 years ago for

the purpose of improving benefits for the employees of the more

than 700 clubs throughout the country that make up the Boys &

Girls Clubs of America. The average club employs five full-time employees.

Of particular interest of the Boys & Girls Clubs was the development of a medical plan that would provide, among other things,

portability of coverage when an employee transfers from one club

to another, usually across State lines, benefits comparable with

large employers, many of whom they compete against when hiring

and retaining their good and qualified employees.

Affordable premiums and coverage for clubs with only one employee, which is the way that many Boys & Girls Clubs begin and

most small employers begin. This is of great importance because

today the Boys & Girls Clubs of America is the fastest growing

youth organization in the country.

The Workers Association Insurance Trust provides group health

insurance for 250 Boys & Girls Clubs representing 4,000 lives

across the country. However, its ability to continue to do this will

be questionable without the passage of legislation like that supported by H.R. 1496.

Our experience in trying to secure health coverage for this group

of nonprofit small employers is as follows: in 1944, American Heritage Life Insurance Company, who had profitably insured the Workers Association health and life coverages for 13 years, advised that

it would not be in the small employer health insurance market in

California due to state laws that they found too prohibitive there.

Then in 1995, it decided that it could not afford to continue to

provide health coverage to any association of small employers in

multiple states because it could not justify the overwhelming cost

of compliance with state health insurance regulations. As a result,

the Workers Association first was forced to terminate medical coverage for 46 clubs insuring approximately 600 lives in California.

11

On January 1, 1994, we rolled over all participating California

clubs to the Health Insurance Plan of California, the HIPC. However, today only 17 clubs remain insured with the HIPC. The reason for this attrition is the higher cost of the HIPC’s plans, as well

as the administrative problems that clubs have experienced in trying to understand and comply with the many rules and requirements of that program.

Our search for a new carrier to replace AHL in all the remaining

States encompassed more than 54 insurance carriers. With one exception, every carrier declined, largely due to an inability to be in

compliance in all States.

Beginning January 1 of 1996, the Workers Association moved its

medical and life insurance plans to the CNA companies of Chicago,

Illinois. Unfortunately, CNA encountered the same difficulties as

AHL had: the cost of compliance was too great; and on July 1 of

1997, CNA advised us that we needed to seek another insurance

company because they would be terminating our medical policy effective December 31.

Once again, CTI conducted an extensive search for a carrier, but

the marketplace was no different than it had been only 2 years before. With no other alternative that it could find and in the belief

that self-funding was the correct funding alternative for its medical

benefit plan, on January 1, 1998, the Boys & Girls Club Workers

Association became a self-insured health plan with specific and aggregate stop loss.

The elimination of insurance carrier fees and profit margins has

already had a significant impact on our plan. Since becoming selfinsured, the B&GCWA has given no rate increases to its medical

plan participants, and after its first year of being self-insured, the

medical plan was actuarially determined to be fully reserved.

Yet, as a self-funded multi-State association plan, the existence

of our health insurance plan is not secure. There is nothing to protect our status in each of the States that we currently have participants in. As has been done to other plans, we know that ours can

come under attack and be forced to disband on a State-by-State

basis if we cannot comply with State regulations.

H.R. 1496 would protect the B&GCWA Insurance Trust and others like it. The B&GCWA sees many advantages of Federal standards for AHPs. ERISA has played an important role in holding

down health insurance costs for large and medium-sized employers.

H.R. 1496 builds on the current successful ERISA framework

adopted by Congress in 1974. The Federal standards in H.R. 1496

will help by increasing the insurance coverage choices available to

the members of the Workers Association. As you know, under H.R.

1496, AHPs can offer self-insured coverage, but must also offer at

least one option of insured coverage.

H.R. 1496 also requires AHPs to meet stringent standards for reserves, stop-loss protection, and solvency indemnification. The Boys

& Girls Club Workers Association recognizes that State governments have a valid concern and a desire to ensure long-term comprehensive health insurance solutions for the employees and families of small employers.

But we know from firsthand experience that State regulation of

national plans and the elimination of association health plans is

12

not the answer. In addition to our growing list of clubs leaving the

HIPC in California, we have clubs that, while the association was

insured by CNA, they were forced to leave the Workers Association

medical plan in the State of New York and participate in the state

purchasing pools there.

Their premiums increased by over 75 percent in a 2-year period.

How can this be acceptable when these same clubs were insured

through the Workers Association Insurance Trust for 13 years, during which time the plan remained solvent and profitable?

Boys & Girls Club Workers Association greatly applauds H.R.

1496’s provision of a regulatory framework to qualify association

health plans. We believe that H.R. 1496 is in the best interests of

the Boys & Girls Clubs and similarly situated organizations, and

we urge you to support the passage of H.R. 1496. Thank you for

this opportunity.

[Ms. Gagne’s statement may be found in the appendix.]

Chairman TALENT [presiding]. Thank you.

Our next witness is Mr. Joseph E. Rossmann, the Vice President

of Employee Benefits Operations, Associated Builders and Contractors.

STATEMENT OF JOSEPH E. ROSSMANN, VICE PRESIDENT, EMPLOYEE BENEFITS OPERATIONS, ASSOCIATED BUILDERS

AND CONTRACTORS, INC., WASHINGTON, D.C.

Mr. ROSSMANN. Thank you, Mr. Chairman. ABC appreciates the

opportunity to testify before the Small Business Committee, and we

thank Chairman Talent and members of the Committee for undertaking a sensible look at improving the Nation’s health insurance

coverage and the opportunity to talk about legislation which would

enhance the association health plans.

I have a detailed written statement. I would just like to cover

some of the highlights of that statement now. Associated Builders

and Contractors, ABC, is a national trade association representing

over 21,000 contractors, subcontractors, and suppliers through a

network of 83 chapters.

Construction as an industry is small businesses with 94 percent

of all construction companies being privately held. There are 1.3

million construction companies which are not incorporated. ABC as

an association has a 50-year history of serving its members. It offers a myriad of services for members through its public affairs department, government affairs, meetings and conventions, education

for management, craft training and apprenticeship training.

ABC’s association health insurance plan is just one of its many

services, but as a purchasing pool for small employers it has had

a real impact on the small employer market in both price and design. I would like to relate some real world experiences on what association health plans have done in the past and what we feel they

can do in the future through the AHP legislation that is currently

in Congress.

ABC is a perfect example of an industry purchasing pool. It

started 42 years ago by five contractors who couldn’t buy health insurance coverage because it wasn’t available to employers of their

size.

13

Since that time, the Insurance Trust has served as a voluntary

purchasing pool for members. An important component of the

plan’s long term success is the fact that it is guided by contractor

members who serve as trustees and actually participate in the program for themselves and their employees.

The Trust board is a key ingredient in aggregating the voices of

small employers to negotiate price and coverage with insurance

carriers and other providers. ABC’s insurance program offers

HMOs, PPOs, and traditional insurance plans, all of which have innetwork and out-of-network benefits.

All of our plans also provide wellness benefits with coverage for

physicals and annual checkups. This feature includes 100 percent

coverage for annual PAP smears and mammograms for women covered under the program.

ABC also offers dental coverage, life insurance, and disability

programs to serve members. Today, the program covers 31,000 employees and dependents nationwide; and the majority of those covered work for small construction companies of five to 20 employees.

Each ABC plan currently is fully insured with claims payment

processing done by the insurance company. The insurance company

also provides medical case management for larger complicated

claims. Plan administration and enrollment are handled by staff in

the insurance division at ABC’s national headquarters over in

Rosslyn, Virginia.

The insurance trust operates in full compliance with ERISA,

COBRA, and HIPAA. Complying with the federal HIPAA legislation requires that ABC and other associations provide open access

to all members and provide employees credit for prior coverage. In

fact, association health plans are specifically referenced and defined in the HIPAA legislation and required to take all members.

Like a large employer, association health plans can have economies of scale in numerous ways. The ABC plan, which operates nationally, has total expenses of about 131⁄2 cents for every premium

dollar. These costs include all marketing, administration, and insurance company risk charges, claims payment expenses, and even

premium taxes.

If you compare these numbers to small employer marketing and

administration costs of insurance companies, which can run 30 percent or more if the small employer buys it directly from the insurance company, you end up with savings in the AHP model of anywhere from 15 to 20 percent or more.

Bona fide associations like ABC have an established infrastructure which allows them to communicate with members more effectively because of their preestablished relationship. Another component of association health plans is that any profits or margins of

a health plan in a given year don’t go to the stockholders of an insurance company, but they stay right there in the plan to inure to

the benefit of participants keeping costs lower in the future.

All of these items come into play before we ever start talking

about any savings that may be available through state-mandated

benefits. AHPs can also be similar to large employers with unique

plan designs. As an example, the ABC plan, which serves the construction industry, has coverage for safety glasses in all of its proVerDate 11-MAY-2000 14:26 Aug 02, 2000 Jkt 063239 PO 00000 Frm 00017 Fmt 6633 Sfmt 6602 E:\HEARINGS\60579 pfrm04 PsN: 60579
14

grams, a small item but one that you don’t usually see in the small

employer market.

The problems association health plans like ABC’s face today are

evident in the differing state laws on ratings and benefits and in

the reduction of the number of insurance carriers in the association

market.

State health care reforms have not always had the positive impact they purport for small employers. A number of states like

Maryland’s reform have actually forced us to increase rates and reduce benefits to comply with the law.

State insurance reforms in New York forced ABC’s insurance carrier to completely withdraw from the market for employers with

less than 50 employees. What this means for smaller employers is

fewer alternatives for health insurance coverage for themselves and

their employees.

Recent mergers of insurance companies have reduced competition

likewise and alternatives for small employers, mergers such as U.S.

Health Care and Aetna or Unicare Insurance buying up the group

operations of Mass Mutual or John Hancock and even BlueCross

of Georgia. These are just a couple of examples that are reducing

the alternatives for small employers.

We feel that we need to bring competition back into the system,

rather than continually reducing it. That is why association health

plan legislation is so necessary for small employers. ABC strongly

supports H.R. 1496, the ACE Act, and feel it would enhance association health plans and provide options for small employers

through bona fide associations.

Association health plans do and can provide affordable health

coverage to small businesses and extend insurance to the uninsured. We know that AHPs are not the entire answer for the uninsured. However, we feel it can be an essential component in the future. I appreciate the opportunity to be a part of this hearing and

look forward to answering any questions. Thank you, Mr. Chairman.

Chairman TALENT. I thank the gentleman.

[Mr. Rossmann’s statement may be found in the appendix.]

Chairman TALENT. Our next witness is Mr. John Nicholson, the

proprietor of Company Flowers in Arlington, Virginia. Thank you

for being here, Mr. Nicholson.

STATEMENT OF JOHN B. NICHOLSON, PROPRIETOR, COMPANY

FLOWERS, ARLINGTON, VIRGINIA

Mr. NICHOLSON. Thank you for allowing me to appear before you

to talk about getting adequate health care at reasonable costs for

small businesses such as our flower shop in north Arlington, which

has been described—excuse the advertisement—as the best little

flower shop in all of Washington.

We have five full-time employees, three of whom are a family,

and several part-time employees who work on an hourly basis. We

pay one-half of their medical insurance and one, our daughter, obtains virtually identical coverage through her spouse’s insurance

program, which is substantially cheaper since is he a professor at

the University of Maryland and, therefore, part of a much larger

group.

15

Our family has been a part of the local university hospital’s

HMO for many, many years. We started with the HMO when my

business included 13 full-time employees. When I quit to become a

sole entrepreneur, we were forced to join a made-up small business

group based in Massachusetts, which charged us rather substantial

fees to remain with the same HMO.

When we bought our flower shop some 8 years ago, the HMO had

changed its policy to allow three or more employees to constitute

a group, so we saved almost half of the monthly cost by abandoning

the made-up small business group and working directly with the

HMO.

Then last month, approximately 30 days prior to the end of our

current contract with the HMO, we were informed that we would

no longer be eligible for insurance. We were told by the HMO that

their new owner had decided to cease supplying service directly to

employee groups of less than 10 subscribers. Each one of our employees could join as a separate individual, but there would be no

prescription coverage, and the family rate would go from $552 to

$571 for the substantially reduced, that is, no-prescription coverage.

We frantically began searching for a substitute, not only anxious

about coverage but a little bit irate that 20 years or more with this

HMO meant nothing, basically. As luck would have it, I had not

recorded our new HMO underwriter’s name in our files, so I had

to call the previous person with whom I dealt with at the HMO and

he listened to our story, contradicted his fellow underwriter, and

asserted that the policy was just being reviewed.

Sure enough, back came the response that the dictum against 10

applied only if the group did not have 100 percent coverage. That

meant that all five of our full-time employees had to be signed up

with the HMO. Our daughter, however, was covered by her husband’s policies and her anxieties about medical coverage were already taken care of. Our anxieties continued.

So another day of worry, while I have other things to do, and

then finally back came a response. Can you verify that the daughter’s coverage is there so that we can remove her from the group

and thereby obtain 100 percent coverage for our HMO?

Well, I faxed off the records, et cetera, and finally we were back

to being eligible for coverage. True, our families rates went up from

$552.49 a month to $715.21 including basic medical and prescription drug coverage. But frankly, we were so relieved to be able to

continue coverage with that HMO of our choice that we just tightened our belt and resolved to pay more.

I hope these rather small details help you understand what it is

like where the rubber hits the road and how important it is to provide small businesses with adequate coverage mechanisms such as

an association health plan.

Drawing some conclusions from our experience, number one,

medical coverage is not just pricing, not just a competitive business

like valuations of a commodity. Certainly, that is necessary; but,

frankly, our emotional attachment to almost a quarter century of

personal care from one institution dictates stability in lieu of constant changes.

16

The proposed cutoff of service from the HMO was traumatic to

me, especially because my employees looked to me as a source of

stability and trust. Bigger numbers, secondly, have an impact, so

aggregating small business clientele into a larger group makes

sense if properly run.

Sadly, our early experience was otherwise, and we were relatively helpless to find another service group or know what other

small businesses were being changed by the Massachusetts madeup small business service group. Had our HMO offered to guide us

to a small business group with which they worked successfully, we

would have respected their choice.

Third, most of the sources that we contacted last month did not

accept HMOs, which provoked questions in my mind as to why. I

hope that whatever solution you, Congress, come up with that it

does embrace including HMOs.

And finally, stability of coverage is of high importance. Frankly,

I have already spent too much time from my business looking at

all of this. I want a rock solid source to be the best for me and employees at what my peers agree is a reasonable cost.

That is the way that I look upon my trade association and that

is what a CEO of a major corporation, I think, looks to his human

resources experts to find. Lower, lower, lower prices invoke only

the dictum: you get what you pay for. So thank you for inviting me

and taking time to discuss with me my everyday work-a-day solutions. I would be pleased to answer any questions.

[Mr. Nicholson’s statement may be found in the appendix.]

Chairman TALENT. Thank you, Mr. Nicholson. I thank the whole

panel. In just a second, I am going to recognize the ranking member. Ms. Lehnhard, let me ask you just one question. I want to establish something. You said in your testimony that AHPs could,

under the bill that Mr. Dooley and I filed, establish membership

criteria that would essentially limit enrollees to healthier groups,

rather than take any small group that applies, as required by

HIPAA.

I want to know what you mean by that. I take it that you don’t

mean, for example, that the National Restaurant Association can

refuse to take a member of their association into the AHP or refuse

to cover any of their employees on the same basis as they would

cover other employees, because the bill specifically requires that

the AHP be offered to all members of the association and all of the

employees, according to HIPAA. Tell me what you mean by that.

Ms. LEHNHARD. I think it is two things. One is that, obviously,

certain associations by definition are going to have much healthier

memberships. I think your bill recognizes that by trying to say, we

are only going to let the healthier health associations, the ones who

are at least of average health, be certified. We don’t think this is

really a workable way to address the problem.

Also for the individual business, I believe that the association in

the individual business can actually underwrite and exclude individuals who have an existing health condition, which is a very obvious form of excluding people who are sicker.

Chairman TALENT. I am not sure what the comment means. Associations can, under the bill, sponsor plans the same way that

17

large companies currently do. I don’t think there is anything in the

bill that refers to healthier associations or anything like that.

My concern is for the 43 million uninsured people out there, of

whom about 60 percent either work for or are dependents of people

who work for small businesses. They don’t have any coverage now.

They are not in the small-group market. They are not in anybody’s

market.

This would make insurance available to them which would help

everybody. You can’t possibly say that would affect the small-group

market. We have a lot of evidence, that it is precisely the people

who have the sicker employees who can’t get the insurance on the

small-group market.

If they were part of a big national group akin to IBM, or a big

national company, they would be able to get it less expensively.

That is the evidence that we have been getting all along. I know

the concern over the years has been about this, but I think the bill

has been reworked to remedy these issues. I think that it is going

to have the opposite effect that you suggest, and that you are going

to see smaller groups with sicker employees going into AHPs because they can join a larger group that way, a stable group with

fewer administrative costs, which will in turn lower their costs.

That doesn’t even count the people who aren’t insured now who

will be covered. Go ahead and make your comment and then I will

recognize the gentlelady from New York, Ms. Vela ́zquez.

Ms. LEHNHARD. As you mentioned, right now any group with sick

employees can find coverage. In every State, small insurers have

to accept every small group. I think my point was that the insurance commissioners in the states have worked very hard to make

sure that there are these big pools for small groups. They told

every insurance company, you put all of your groups in the same

pool to make the coverage more affordable for the sickest groups.

And our concern is that if you run that system parallel to a system that says, if you don’t need mental health coverage, if you

don’t need substance abuse coverage, if you don’t need the women’s

mandates, you can go over into this product and not have those

benefits; but when you get sick, boy, you can jump back into this

other product that is run by the State. You are going to divide the

population into those who need comprehensive benefits and those

who don’t, and it won’t be manageable.

Chairman TALENT. What has the small-group reform done for

people who are uninsured?

Ms. LEHNHARD. There is a very recent study by the Urban Institute that what it did was stop a tremendous erosion in the smallgroup market caused by risk selection. The author’s concern is that

MEWAs with their different benefit packages, those based on people dividing themselves on what they need, would return to that

very negative public policy of risk selection, competition based on

risk selection.

Chairman TALENT. The evidence we have had is to the contrary—I haven’t had a lot of small businesses call me up and say

their insurance premiums are going down. I just haven’t had it.

Ms. LEHNHARD. All of the insurance premiums are going up.

18

Chairman TALENT. Exactly. If these reforms are enabling the

sicker people are able to afford insurance, then the premiums

should be going down, and they are not.

Ms. LEHNHARD. They are not going down, however. For example,

the commissioner in Maryland has made it very clear that more

small groups in Maryland have coverage because they have stabilized the market. They have lowered premiums for the very sick

groups who were—the premiums were just totally out of sight for

those groups.

Yes, healthy groups might have had to pay a little bit more to

help subsidize that, but next year they might be the group that is

sick and benefiting from the subsidy.

Chairman TALENT. We will get back to this later. I want to recognize the gentlelady from New York.

Ms. VELA ́ZQUEZ. Thank you, Mr. Chairman. Ms. Lehnhard, why

should a large employer enjoy Federal preemption of State regulation but not the small employer?

Ms. LEHNHARD. I don’t think that we are talking about a federal

preemption for a small employer in this case. What we are talking

about is a federal preemption for a group of small employers that

are essentially an insurance company. That is very different. It is

essentially a MEWA.

There is a long history of insurance companies for small employers disappearing. As you heard, it is very difficult to manage and

it is very difficult to keep stable. An insurer can enroll healthy people, have a low rate, and in 3 years it is not manageable. MEWAs

have a history of closing down and going somewhere else when

times get bad.

There are a lot of very good companies in this business. A lot of

the people here today—I know there are some very good association

health plans. We have about, I think, 50 to 60 percent of the association health plan business in the country. We feel that it works

pretty well. Would it be cheaper if you didn’t have the state-mandated benefits? Yes.

But you can’t get rid of state-mandated benefits for part of the

market and keep them for the rest of the market and expect the

market to work. It is like our plans have said, we will be out of

the state-insured business. We will be in the association health

plan business.

Ms. VELA ́ZQUEZ. What kind of benefits would most often be preempted by association health plans?

Ms. LEHNHARD. I think most of the mandated benefits are, breast

reconstructive surgery, women’s benefits, mental health, and in

some states, substance abuse.

Ms. VELA ́ZQUEZ. If AHPs are allowed, could you describe what

would happen to those small businesses who are not a member of

the association and forced to remain in the State insurance pool?

Ms. LEHNHARD. Our plans have said—we are in the small-group

business in every State. We cover one out of four small employers

in the country. And we supported the State reforms. Our plans

have said that the small-group insured market won’t be sustainable if the association health plans are preempted from the reforms. This happened in Kentucky. Kentucky passed small group

reform. They applied it to the state-insured market. They said, we

19

are going to let association health plans out from under it. 60 percent of the market moved to the association health plans. We were

the only carrier left in the State and losing money, and the State

had to repeal their small-group reforms. You can’t run a market

with two different rules and expect it to be stable.

Ms. VELA ́ZQUEZ. Ms. Gagne, would you like to comment on that?

Ms. GAGNE. It is a case of which came first, the chicken or the

egg. Did the insurance companies exit as a result of state regulation and, therefore, BlueCross and BlueShield was the only game

in town? Rates went up. Employers had no choice. They had to go

self-insured. They had to seek an alternative solution if they were

going to provide insurance. We have seen it happen over and over

again.

Ms. LEHNHARD. I think the rates went up after they left the insured market. The people left the insured pool in the state—according to the State analysis, they were so sick you could hardly sustain the premiums because every year the premiums went higher

and the healthier people would leave. The concentration of sick

people got worse each year in Kentucky.

Ms. VELA ́ZQUEZ. Yes, sir.

Mr. ROSSMANN. If I could comment on the point that the lady

made on the Kentucky program. I have a different understanding

of that, and I think there is some bad information going around on

that.

The association health plans in Kentucky represented only 3 percent of the total market. It is my understanding that the health

care reform done in 1994 by the State and then again in 1996

which limited rating and went to a modified community rating and

required certain mandated levels of benefits, actually drove 45 insurance companies out of the individual and group market.

So it was the lack of competition that drove insurance companies

out of the market. It wasn’t association health plans. They weren’t

that big of a piece of the puzzle.

Ms. LEHNHARD. I can submit for the record that after they

passed the reforms, the association health plans became 32 percent

of the market. This is the state’s own report.

Ms. VELA ́ZQUEZ. Ms. Gagne, one of the concerns that I have is

insolvency. The Department of Labor estimated that it could get

around to regulating large ERISA plans only once every 300 years.

Who is going to be examining these AHPs to ensure they are properly regulated and funded?

Ms. GAGNE. I am not probably the best person to answer that

question. I am sure that needs to be done and that is an issue that

needs to be addressed. I think that if you put the requirements into

place and monitor the association health plans to make sure they

are in compliance, that you remove some of the bad risks and horror stories that are associated with age-old MEWAs.

The fact is there is a lot of very healthy association health plans

out there that have been operating for large numbers of years without any regulatory framework whatsoever. So I think that if you

give them guidelines to work within, yes, you may want to watch

them; but I am not so sure that it is as monetary intense of a process or as personal intense of a process as is being suggested.

20

Ms. VELA ́ZQUEZ. Ms. Lehnhard, would you like to comment on

that?

Ms. LEHNHARD. The association health plans right now are regulated by the states. And I can tell you in our insured business, we

file our financial documents once a year with the state. They review those documents; they ask us questions. If we are in trouble,

we have to give them a plan of recovery. If we don’t meet it, they

literally put someone from the insurance department in our company to cosign any check over $1,000 or whatever amount. Under

this bill, the companies would do self-reporting to DOL and tell

DOL when they thought they were in trouble, a very different level

of regulation.

Ms. VELA ́ZQUEZ. Mr. Coleman, today’s legislation would allow

AHPs to terminate coverage if they provide written notification of

their intent at least 60 days in advance of termination. What if an

AHP decided to terminate its plan after one of its members gets seriously ill with a costly illness, whose cost will be incurred largely

in the future, let’s say two years? What will happen to the sickest

invalids?

Mr. COLEMAN. I am not sure that I could answer that because

I might have to defer that to one of my experts in the back. But

it is my understanding that there would be requirements for moneys to be set aside just for that reason, reserves.

Ms. VELA ́

ZQUEZ. If any of the experts who are with us, if they

have any other information or comment they would like to add?

Mr. SAPUTELLI. I am having trouble hearing. I am sorry.

Ms. VELAZQUEZ. Saying that today’s legislation would allow

AHPs to terminate coverage if they sent a written notification of

their intent in 60 days, what if an AHP decided to terminate its

plan after one of its members gets seriously ill with a costly illness

whose cost would be incurred largely in the future, say two years?

What will happen to the sickest invalids?

Mr. SAPUTELLI. I guess Mr. Coleman’s answer is partly my answer as well. There are reserves in each association health plan.

But my association, the Eastern Building Materials Dealers Association, has existed since 1949. We have seen the sickest of the

sick. We have seen the healthiest of the healthy. We have never

left anyone uninsured since 1949.

I don’t see where in a bona fide trade association where our job,

among other jobs, is to provide quality health insurance to our

members. I don’t see where it is in our best interests to take one

of those programs, which is health insurance, and leave our members in the cold.

Ms. VELA ́ZQUEZ. Ms. Lehnhard, would you like to comment on

that?

Ms. LEHNHARD. I would just comment that the trade—the AHPs

he is talking about, again, is regulated by the state and the state

law is you can’t drop groups. It is guaranteed renewable. And I

know that in that particular state, you couldn’t stay in the smallgroup business and begin to drop your small-group coverage.

Ms. VELA ́ZQUEZ. I will finish, Mr. Chairman. Ms. Neese, the proposals that we have been discussing today seem to do nothing to

address the health insurance access problems of small businesses

21

that are not part of an association. What should be done to assist

those businesses?

I would like to add also, what could be done to help part-time

employed workers who have the ability to get health coverage?

Ms. NEESE. Well, let me speak to your last question first about

part-time and temporary workers because I know that is an issue

that many people talk about. Being in that business, I actually provide insurance for my temporary employees.

So I am in a plan where they can go in and be on insurance for

30 days, 60 days, until they actually acquire a job. It is very high.

But that is a benefit that I provide my temporaries. I couldn’t help

but think as I was sitting here listening to everyone—and this kind

of goes to your first question—about why can’t we go back to 30

years ago when I could go to the doctor, any doctor that I wanted

to go to, and have my insurance with whoever I wanted to have

it with and any doctor and go in for services and write a check for

what I needed to pay for and my insurance pay the rest. It was

really simple. What has happened in the last 30 years to change

that?

Ms. VELA ́ZQUEZ. Ms. Gagne.

Ms. GAGNE. Ms. Vela ́zquez, I would like to address your question

that you asked a little bit earlier about the reserve requirements

and what would happen to protect the person who became sick and

the association plan decided to desist.

I think the reserve requirements in the AHP legislation are far

more stringent than most insurance companies themselves even

pretend to agree to. We just left an insured arrangement and became self-insured. When we compared the reserves that we had

upon leaving CNA and kept all of those reserves intact against

what this legislation would require us to have, we will increase our

reserves by almost 15 percent in order to be in compliance with

this legislation.

That is the route that the Boys & Girls Club Workers Association

chose to take, to be in compliance with what would seem to be the

minimum requirements of this legislation. That is more than we

had set aside as an insured arrangement with the CNA companies.

There are solvency requirements and indemnification requirements

and things that I am not even sure where we are going to go to

find them yet; insurance requirements, I am not even sure where

to go to find them yet.

I think we have done a lot with this legislation to protect the solvency of the AHPs. I have been involved with AHPs that met just

that fate, that hit upon a bad stretch of bad claims experience and

were forced to terminate their plans because they hadn’t thought

far enough ahead. They never thought it would happen to them.

That is an unfortunate situation. It happens amongst the employer

groups as well, though.

I have also been involved with large employers who hit upon the

same bad stretch of financial experience, whether it was health insurance related or simply business related. They were forced to disband their health insurance plans and maybe even their entire operation. Those things are sad. When they happen, it is unfortunate;

but I think the AHP legislation goes a long way to protecting those

exact same situations.

22

Ms. VELA ́ZQUEZ. Yes, sir.

Mr. NICHOLSON. You asked about what would happen if the employer wasn’t a member of the trade association. Generally speaking, employers don’t join trade associations because they are not

getting service; and, therefore, it is not worth the money. I am

chairman of the FTD flower shops in Virginia, and I would love to

have FTD offer health insurance because so many of our shops and

shop owners can’t get it at a reasonable price. Were that to be the

case, I know surely that we would have many, many florist shops

joining FTD, probably.

Ms. VELA ́ZQUEZ. Mr. Chairman, I will come back with more questions. Thank you.

Chairman TALENT. For the record, let me just say that over the

course of debating this bill for a number of years, the reserve requirements have continually been increased. The bill’s reserve requirements are a minimum of $500,000 up to $2 million as prescribed by the Secretary of Labor, of aggregate stop-loss insurance,

with an attachment point of not greater than 125 percent of expected plan claims, specific stop-loss insurance, indemnification to

satisfy claims in the event of mandatory plan termination.

These were designed to meet objections that had been raised by

the American Academy of Actuaries. It is interesting that people

who raise these objections about reserves don’t withdraw their objections when their concerns are addressed. Mr. Rossmann, is your

trust covered by state law?

Mr. ROSSMANN. Yes, it is. We have a fully insured program, Mr.

Chairman.

Chairman TALENT. Covered by state mandates?

Mr. ROSSMANN. Yes, it is.

Chairman TALENT. You offer insurance at lower cost than employers can get on a small group market; is that correct?

Mr. ROSSMANN. We feel that our costs are lower for some of the

examples that I mentioned in my testimony earlier, the fact that

we have a built-in infrastructure and we have the ability to communicate with our members. I think the overall administrative and

insurance cost for our program are less than what you would see

in a small-employer market.

Chairman TALENT. You are covered by the state mandates, right?

Mr. ROSSMANN. Yes, sir.

Chairman TALENT. I have a letter from the Western Grower’s Association, which I will put in the record.

[The information may be found in the appendix.]

Chairman TALENT. They are an association health plan in California. Their least expensive family plan is $114 per month for employees of any age. They are covered by the state mandates.

Plans offered under the state’s small-group insurance reforms

vary for the same coverage of $273 a month to $304 a month. Ms.

Lehnhard, these association health plans that must offer California’s state mandated health benefits, offer coverage at less cost

than the state small groups market.

Ms. LEHNHARD. That is right. We administer a number of these.

He is absolutely right that you have lower marketing costs, lower

communication cost. But I think that makes a key point, that you

can do it under current law.

23

Chairman TALENT. It also makes the key point, does it not, that

your argument that the difference between the two markets, one

being covered by state mandates and the other not, is the reason

why association health plans are attractive and would introduce an

instability?

Ms. LEHNHARD. Right now you don’t have the existence of an entity without the state-mandated benefits. I don’t understand the

question.

Chairman TALENT. Right. But the point is that AHPs still offer

much greater choice of coverage at a lower cost for the employers

who participate.

Ms. LEHNHARD. We haven’t disputed that. We work with associations all the time to minimize costs. They can help us with the

communication cost. Many times they are younger and our smallgroup pools will be a big mix of older and younger groups. There

are many reasons why it might be less expensive than the Staterun pool, particularly if they can work with us to minimize some

of the administrative costs.

Chairman TALENT. That is one of the points. Mr. Rossmann, your

plans offer your members more choices. They can join your plan,

and you offer a number of different choices of coverage for them;

is that right?

Mr. ROSSMANN. That is correct. We offer about 18 different plans

currently, but if they don’t like the association plans, they can go

out in the open market and buy from anyone else.

Chairman TALENT. So there is more competition; people have the

market, the competitive market, at their disposal.

Mr. ROSSMANN. Yes, sir. And I feel what we are seeing now is

less and less competition. With State health care reform the way

that it has been, we are seeing association programs such as ours

not being able to offer members options, in New York, for example,

in the under-50 market and in other States.

Chairman TALENT. We know there is less competition in the

small-group market, right? Ms. Lehnhard has already testified that

one company controlled 60 percent of it. BlueCross and BlueShield.

Is that right, Ms. Lehnhard?

Ms. LEHNHARD. No. These are 51 different companies insuring 60

percent collectively. They are all independent.

Chairman TALENT. But they are all a part of the national

BlueCross and BlueShield. Your association controls 60 percent of

the market?

Ms. LEHNHARD. No. We are not in the insurance business.

Chairman TALENT. Do you expect your constituent companies to

lose market share if this bill is adopted?

Ms. LEHNHARD. No. They expect to gain much of the association

health plans business, but they think it will be at the cost of the

people left in the State-insured market.

Chairman TALENT. Okay. I will now recognize Mr. Hill.

Mr. HILL. Thank you, Mr. Chairman. Just for the record, Ms.

Lehnhard, did your association support the Patient Protection Act

or the Patient Bill of Rights, either one of those bills?

Ms. LEHNHARD. No. We are not supporting Federal legislation in

that area.

24

Mr. HILL. I just want to clarify something that you said earlier.

Under ERISA plans, ERISA plans, exempt plans, can’t exclude

sicker people. Isn’t that correct? I mean, they could theoretically

dissolve a group that was a sicker group, but under HIPAA, they

can’t exclude sicker people now. Is that correct?

Ms. LEHNHARD. That is correct.

Mr. HILL. If this bill was to pass, your members could compete

for these association plans and would compete for them. You just

made that statement. Your concern is—and I think there is a valid

concern, by the way—that having one set of regulations, a stateregulated plan, and then having the set of plans that are outside

of those state regulations, and, in essence, what this bill would do

would be to allow fully insured, multiple-employer, multiple-state

groups to be able to be exempt from state mandates.

Ms. LEHNHARD. It would also say to self-funded MEWAs or

health plans, you are not subject to any state law; you are regulated by DOL. We think that is where the market would go.

Mr. HILL. You may be right about that. The question that I

would ask you is, is that the ERISA plans have been more successful in controlling costs and the MEWA plans than the state-mandated plans generally. Would you agree with that or not agree with

that? That is why they exist, isn’t it?

Ms. LEHNHARD. No. In fact, we are seeing a trend back from selfinsured plans to insured plans. I think they have adopted the same

techniques. Now, an ERISA plan would achieve a savings. A large

ERISA employer would achieve a savings because they don’t have

to establish the reserves that a state requires, and they pay benefits out of their cash flow.

But in terms of managing health care costs, there is not a difference. We have large insured groups, we have large self-funded

groups we administer.

Mr. HILL. Mr. Rossmann, would you care to address that question? Would it be your judgment that the multiple-employer plans

have been able to contain costs as opposed to the individual group

plans?

Mr. ROSSMANN. I think when you compare them to the smalleremployer group plans, yes. I think they are more cost effective because of the infrastructure that I mentioned. Also, the type of plan

that you are going to have is through a bona fide association. It is

not just for some health care purchasing pool.

That is the key, in my mind, the fact that this bill is for bona

fide associations who are in existence for other things than just

doing health insurance, but health insurance can be an important

component of it and can help to keep costs down for smaller employers.

Mr. HILL. Isn’t it true that one of the problems with the effort

to try to create small-group guaranteed issue that we haven’t really

been able to get the real costs of that guaranteed issue benefit outside the confines of the small-group marketplace? Most of the costs

of providing that benefit have been forced to be captured within

that small-group market. Would you agree with that statement,

Ms. Lehnhard?

Ms. LEHNHARD. I am not sure I understand your question.

25

Mr. HILL. Obviously, guaranteed issue is a benefit. The costs of

providing that benefit should be spread to the largest pool possible,

but it has been hard to get the costs of that benefit out of the pool

of small employer groups. The states have had a difficult time.

Ms. LEHNHARD. We have a whole history in BlueCross and

BlueShield of groups saying they don’t want to subsidize other

groups. We used to pool everybody. But the large groups are not

going to subsidize the small groups. The small groups generally

don’t want to subsidize the individual market.

Mr. HILL. But large groups already had guaranteed issue. So

when states went to guaranteed issue and we passed HIPAA to

provide national guaranteed issue, it was primarily associated with

the small-group market, correct?

Ms. LEHNHARD. Yes.

Mr. HILL. And the costs of that benefit have been confined. We

have had difficulty spreading that out into the other pools. You

can’t spread it to a self-insured association pool. Am I correct?

Ms. LEHNHARD. There are no self-insured association pools right

now. I think that is exactly what the State commissioners have

said. We have got to keep those pools big and stable.

I would make the point that the HMO that Mr. Nicholson talked

about stayed in business. It didn’t go out of business. It has been

there 20 years. It is a State-regulated entity. If you look at the history of AHPs or MEWAs, it is a terrible history in terms of staying

in the market and stability. That is why our plans oppose

MEWAs—it is not a competitive issue.

They want a stable market where they can have a retention

strategy of keeping people and keeping them happy, not churning.

Mr. HILL. We have heard testimony today, though, that is, individual state strategies are making it more difficult to maintain

these association plans because some states aren’t eligible for those

association plans anymore or because of state mandates they can’t

comply with.

Ms. LEHNHARD. We are able to insure association health plans in

every state. We have that business in every state.

Mr. HILL. But they are state-by-state association plans as opposed to multi-state.

Ms. LEHNHARD. We have national association health plans, also.

You flip the switch on the computer, and it adjusts the benefits.

You can do it. We have a lot of them.

Mr. HILL. The experience in Montana as a consequence of all of

this is that the small-employer group impact has been about a 25

or 28 percent increase in the cost of small-employer group insurance. And so employers in Montana are saying there has got to be

a better option.

Ms. LEHNHARD. I think what will happen, though, is if you start

setting up these entities in Montana that jump out of that State

pool, you will have premium increases of 40 percent for that pool

that is left. Where do they go?

Mr. HILL. To the associations.

Ms. LEHNHARD. If they can get in.

Mr. HILL. The last point I want to just ask about this—and I

would ask all of you to address this. One of the troubling aspects

of all of this is obviously the effort for guaranteed issue, both on

26

the individual and group market, has been to try to find a way to

help sicker people get insurance. That is an appropriate social interest.

Is it appropriate, though, that we try to contain the cost of all

of that within the group insurance market or should we look for

some mechanism to help support that outside the insurance mechanism itself?

Ms. LEHNHARD. We have said that we think the states have created the pools and you have got to go beyond that for subsidies for

your very small groups. Thirty-eight percent of groups of employees

of groups under 10 are uninsured. It is the highest rate of any size

group. It is your low-wage workers.

We have urged Congress, get it on the table with all of the debate over the surplus. Look at beginning to use those resources to

help low-wage workers in small groups, either through increasing

the employer share or the employee share.

You have to make it easy for small employers because they don’t

have people to handle the administrative costs. We have recommended deducting it from their quarterly Social Security payment so they have a regular cash flow for it.

Mr. HILL. Mr. Rossmann.

Mr. ROSSMANN. I guess to respond to your question, Congressman, what concerns me with state pools or any type of pool that

you have, as you said, the small-employer market is one segment

of the whole thing. What concerns me is we have less and less competition today than we have ever had before.

I think that is what makes our country great and that is what

makes our small employers great, is the fact that they compete

with each other and are successful with new and creative ideas.

What we need to do is put more competition back into the system.

I can tell you from ABC’s perspective and trying to have access.

All employers have access to coverage. It is whether or not they can

afford it right now. From the ABC perspective in the last 4 years,

about 40 percent of the employers that came into the program for

the first time were employers that had not provided health care

coverage to their employees before. It wasn’t because we have such

a great health insurance plan.

It was basically competition for good quality craft people in the

labor market. But because they needed to get good people to work

for their companies, they realized they had to start providing benefits.

Mr. HILL. The competition that you are looking for is, obviously,

competition among insurers, competition among providers. That is

the value of the purchasing pool. The point that you made earlier—

and perhaps you want to comment again—is that the benefits of

that competition accrue to the association rather than to the benefit of the insurer.

Mr. ROSSMANN. That is absolutely true. If you have an association health plan and it has good experience in one given year, those

benefits stay in that program and inure to the benefit of the participants in the plan, rather than going to some stockholders.

Mr. HILL. And that allows you to mitigate for maybe increasing

costs, slow the increase of premiums to associate with that, or, if

27

you have a bad year, to mitigate the impacts of that 1 bad year

without having to adjust premiums looking prospectively, right?

Mr. ROSSMANN. Absolutely correct. Yes, sir.

Mr. HILL. Thank you. Thank you, Mr. Chairman.

Chairman TALENT. Ms. Millender-McDonald.

Ms. MILLENDER-MCDONALD. Thank you, Mr. Chairman. Mr.

Chairman, I regret that I have not seen your bill or your proposed

bill, and so therefore I can’t comment on it. On its face it sounds

great, but then I need to look at it in its totality in order for me

to be able to even decide as to whether I am going to support it,

basically, because what my colleague just said.

We are looking for insurers, insurance companies to insure those

who are high risk because the low risk really have no problems in

getting plans. But this plan that you have, several questions have

come to mind. Mr. Rossmann, before I get into the questions, you

made a point of saying that this plan is for other than for health.

Are you talking about the AHP or what plan are you speaking of

when you speak of this plan is other than for health?

Mr. ROSSMANN. I am sorry. I don’t remember that particular

point. But ABC has an association plan that offers group life insurance, dental benefits, disability benefits, and also health insurance

to the members so our program covers all health and welfare benefits.

Ms. MILLENDER-MCDONALD. Okay. Fine. We do recognize that

plans have to be comprehensive, especially given the fact that state

plans have to cover to those who are high risk.

The question to Ms. Lehnhard, do you agree that the state plan

has to be a broader plan, it has to be a bigger pool so that we can

take in all of those, albeit high risk, low-risk insureds?

Ms. LEHNHARD. That was certainly the objective of the state insurance commissioners when they passed these laws. They said put

all of your—they said to us, you can’t run three different pools. We

can have separate association health plans that are insured. But

they said for the rest of your small-group business, put it all in one

pool.

Ms. MILLENDER-MCDONALD. When you have these AHP plans,

how much does it take from the pool of those who are high risk as

opposed to low risk?

Ms. LEHNHARD. I think the dynamics are that, if we are running

a state-insured pool with maximum cost subsidy for the very sick,

and there is a choice of an association health plan—it could be an

association that is very defined, but it could be the chamber of commerce that is basically anybody, everybody which becomes an insurance company—they are saying, join us and you don’t have to

pay for substance abuse, you don’t have to pay for mental health,

you don’t have to pay for all of the bone marrow transplants.

Ms. MILLENDER-MCDONALD. So it siphons them out of this pool?

Ms. LEHNHARD. The people who don’t need the benefits are going

to move over to that lower-cost option; and when they get sick, they

are going to move back into the insured pool. They tried this in

Kentucky. We stayed in that market, but we were the only carrier

that stayed in that market.

Many of our plans in different States said, we wouldn’t stay

there. And then that is going to leave a pool of people who can’t

28

get into the association health plans in some states without any

coverage.

Ms. MILLENDER-MCDONALD. Perhaps they have not had enough

wherewithal to provide for any of their claims that they should

have for a very serious and chronic illness.

Ms. LEHNHARD. Very few people can personally cover a serious

illness.

Ms. MILLENDER-MCDONALD. I suppose that is where we are

going. This is a question that we have, especially for me, coming

out of Los Angeles. It is so important that we have insurance that

can cover the at-risk as well as low-risk people.

Mr. Chairman, I don’t know what your plan is all about, but I

am going to have to look at it because I must say that small businesses do need a plan. But we have got to make sure that it is a

plan that encompasses everyone, both the at-risk as well as the

low-risk. That is where the problem comes when we speak about

insurance. Thank you, Mr. Chairman.

Chairman TALENT. I thank the gentlelady. Let me ask the panel

a couple of more questions. Would you say that on the whole, currently, ERISA plans or employers who are under ERISA plans offer

better, more in-depth, wider range of coverages than people who

are in the small-group market?

Ms. GAGNE. As a broker and consultant for health insurance

plans for the last 18 years, I would say absolutely that is true.

Chairman TALENT. So in other words, employers right now who

are covered under ERISA, forget about AHPs for a second——

Ms. GAGNE. Just employer and employer group plans.

Chairman TALENT. You have more choices of better coverage if

you happen to work for one of those, right?

Ms. GAGNE. Sure. They can spread the risk around to all of their

many members.

Chairman TALENT. They are exempt from the State mandates

right now.

Ms. GAGNE. If they are self-insured, and the majority of them

certainly are.

Chairman TALENT. Yet they still for the average individual, sick

or not, you are better off having access to those plans than being

on the small-group market, aren’t you?

Ms. GAGNE. If it is a stable employer, yes.

Chairman TALENT. Absolutely. There is no question about it. So

if the ill people are acting rationally, unless they need one of the

State mandates, they would rather be in a plan covered by ERISA

than a small group plan. Isn’t that right?

Ms. GAGNE. I certainly would be if I was ill.

Chairman TALENT. So absent from the mandate issue, creating

AHPs nationally is going to tend to draw, is it not, more ill people

into the AHPs and out of the small-group market, absent the mandate issue?

Ms. GAGNE. The mandates that I am familiar with on a stateby-state basis, generally speaking, don’t address the very ill. Most

of the stock insurance plans that are out there address the needs

of the very ill. Even when you look at medical savings account type

plans, high-deductible and high-risk plans, they are there to protect the people that are very ill.

29

Chairman TALENT. Exactly. The average person with diabetes or

cancer or who is ill because he or she has some kind of heart problem, for the vast range of physical illnesses, if you are ill and you

have a choice or your employer has a choice of having you in the

small-group market or having you under an AHP or ERISA plan,

the vast majority would opt for coverage under an ERISA plan.

Ms. GAGNE. That is right.

Chairman TALENT. That is exactly right. So far from contending

with a lot of ill people to be left in the small-group market, these

people are going to run into the AHPs because they get lower-cost

coverage and they get more choices, don’t they?

Ms. GAGNE. That is right. Most employers are not making benefit

decisions on whether or not you cover a mammogram.

Chairman TALENT. Exactly. In fact, many of the ERISA plans

cover what is mandated by many of the States, don’t they?

Ms. GAGNE. And most of the AHPs that are in existence do as

well.

Chairman TALENT. The argument about AHPs, about quality, actually works in the direction of AHPs because what you are going

to end up with is far more choices with far better coverage for far

more people. Isn’t that right?

Ms. GAGNE. That is absolutely correct.

Ms. MILLENDER-MCDONALD. If the gentleman would yield for just

a second, I would just want to ask will the premium be down.

Chairman TALENT. Oh, yes. No question. Even Ms. Lehnhard

would admit that. That is why she says they are going to move because it is going to cost less. She is just saying that the coverage

is going to be inferior. You are going to get a lot of sick people who

will stay in the small-group market because they need that coverage with those mandates, and we have just established that the

sick people overwhelmingly on balance are going to move into the

AHPs.

Ms. GAGNE. If you have a very, very sick person, they are going

to leave your AHP plan and jump into the State’s mandated plan

because it provides——

Ms. MILLENDER-MCDONALD. You say they are or are not?

Ms. GAGNE. The assumption that we have heard today, that people will leave the AHP plan and join a plan that is in compliance

with all state mandates because they have some very sick people

is just absolutely backwards because they are going to stay with

the lower-cost plan during those periods of time that the plan has

got the most stability.

Ms. MILLENDER-MCDONALD. Gives you the same mandates that

the state insurance company does?

Ms. GAGNE. The states mandates, by and large, aren’t for highrisk problems. The state mandates that are out there deal with

things like wellness care, very important things, but not things

that are important necessarily to the person who has already been

diagnosed with colon cancer.

Ms. MILLENDER-MCDONALD. May I just point out——

Chairman TALENT. I will just suspend for just a second and I will

reclaim any time. Generally, a way to look at this mandate situation, I say with the greatest respect, is a bit of a red herring. This

is the point I made before. Even controlling for the mandate issues,

30

looking at AHPs that are covered by state mandates compared to

the small-group markets that are covered by State and the AHPs

offer better coverage at less cost. That is the point Mr. Rossmann

just made. He has an AHP like that. He is covered by the State

mandates. He is offering coverage at less cost because there are efficiencies and economies of scale that you get with an AHP apart

from the mandate issue.

The only other thing I will say is I am working on the bill to try

and—I think the direction ERISA ought to go in is we ought to

have some mandates. Why should you have a country where people

in the United States have no floor, their insurance, because we had

140 million people covered by ERISA now.

I think that we ought to have basic patient protections in there

and what we ought to be arguing about is what ought to be in

ERISA and what ought to be protected and not whether to allow

everybody in the small businesses these economies of scale. Ms.

Lehnhard, your rebuttal.

Ms. LEHNHARD. In the one State where we do have self-funded

AHPs, California, they can’t set their own benefits. Some of those

AHPs, for example, have a $20,000 cap on the payout for the year.

They don’t have 365 days of hospitalization. That would not happen under state-insured groups.

I don’t think that your bill provides that kind of protection. It

doesn’t allow for a floor of benefits. You could have 10 days of hospitalization under the plan with no guarantees that it is going to

be marketed so that it is clear that you only get 10 days of hospitalization.

Chairman TALENT. Well, I will tell you that we had somebody

from the Western Growers Association from California testify at

our press conference. As a matter of fact, they brought a little girl

named Lizette Alvarez. Her mom is a migrant worker who worked

for one of the members of the Western Growers Association operating as an AHP in California. She had one of these family plans.

I think the cost of hers was about $140 a month. She got a heart

transplant under that plan. This little girl was at the press conference and her mom just said, if it hadn’t been for this AHP, I

wouldn’t have had health insurance and my little girl wouldn’t be

here today.

This is real people. We have been arguing here about people who

currently have coverage under small group, and are they going to

get better, and what is going to effect them. What about the 43 million people who don’t have any coverage? They are out there now,

and their total cost is being picked up.

Ms. GAGNE. If there is a plan out there in California, there very

well could be, that is offering a plan that has a $20,000 a year benefit, I first would want to know why they think that plan is a benefit to their members.

They wouldn’t be offering a benefit plan that their members

wouldn’t buy. That just wouldn’t be in their best interests. So that

$20,000 worth of coverage must be worth something to somebody.

If it is all that membership can afford for its employees, it is certainly better than nothing.

Mr. ROSSMANN. I would comment also, Mr. Chairman, that I

think the association health plans with separate trusts and trustVerDate 11-MAY-2000 14:26 Aug 02, 2000 Jkt 063239 PO 00000 Frm 00034 Fmt 6633 Sfmt 6602 E:\HEARINGS\60579 pfrm04 PsN: 60579
31

ees who are actually member firms and participants of the program

are going to take a look at the benefits that they offer to the members who purchase for their employees, and they are going to buy

comprehensive-type benefits.

I don’t think that you are going to see a complete slashing of benefits in association plans because they are providing those same

things for their employees now.

Chairman TALENT. Plus, when you self-fund, you don’t have the

insurance company’s profits to take care of, do you? Right there,

there is a cost that you don’t have.

Ms. Neese, you wanted to say something. Maybe you can comment as an employer and as somebody who deals with employers

of personnel. Would you rather deal with—if you have a concern

about your insurance where you think that you would get better responsiveness from a NAWBO association person, National Association of the Women Business Owners, or from the State insurance

department, who do you think would be more responsive if you had

a complaint about your insurance?

Ms. NEESE. NAWBO.

Chairman TALENT. That is kind of easy. I was in the legislature

for 8 years. I am going to tell you that anybody who thinks, with

the greatest respect, that people are pleased with responsiveness

from the State insurance departments is going to have a complaint—and maybe I am overstating it. That is probably unfair, but

I sure have got a lot of constituents who weren’t very happy about

it. Go ahead.

Ms. NEESE. Two things. One is, and I know Congresswoman

Millender-McDonald wasn’t here when I talked about this, but Mr.

Nicholson and I both had our insurance cancel us. And I happen

to have someone on the plan who—not during the time that we

were insured, but prior to the insured time—had had two heart attacks and colon cancer.

And so to go out and try to find somebody that we could get our

employees insured by after we had been canceled was very, very

difficult. And this person’s insurance premium was about $800 a

month. These heart attacks and colon cancer was not during the

time that we were insured by this particular company. They had

no claims under this insurance company, and they canceled us because we didn’t have enough numbers for them to insure.

Chairman TALENT. But if this bill passed and NAWBO, National

Association of Women Business Owners, sponsored AHPs, that

would allow you to buy insurance for that very ill person under the

same terms as the person who hadn’t had that history. That would

be the law.

Ms. NEESE. Exactly. The other point I want to make, NAWBO

is a bona fide association. We do a lot of things for our members.

All of you know the exponential growth right now of women business owners and minority-owned businesses.

And so we are helping a lot of women go out and start their own

companies. Once they do, we provide a lot of education and training. We have partners that partner with us on capital financing

and a number of different issues like that.

So this would be a great recruiting tool for us as well to go out

and pull a lot of the women business owners that don’t have insurVerDate 11-MAY-2000 14:26 Aug 02, 2000 Jkt 063239 PO 00000 Frm 00035 Fmt 6633 Sfmt 6602 E:\HEARINGS\60579 pfrm04 PsN: 60579
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ance right now to come into our association, and we could assist

them with their insurance needs.

Ms. MILLENDER-MCDONALD. Even someone with a preexisting illness?

Ms. NEESE. I would certainly hope so.

Ms. GAGNE. They are required to by law.

Ms. NEESE. And not only be able to provide them with insurance,

a great recruiting tool for us because there are so many women

business owners today; but also when they come in, we can provide

them with so much education and training to continue to build

their business and grow their company and hire more people. So

it would be a great thing for NAWBO.

Chairman TALENT. The gentlelady from New York has another

question or two.

Ms. VELA ́

ZQUEZ. We have heard today that currently existing

AHPs include state mandates in terms of their coverage. If this is

the case, why then allow AHPs to be exempted from state minimum benefits?

Mr. ROSSMANN. I can’t say. Speaking specifically for ABC, I do

not think that we would eliminate all state mandates if the AHP

provisions of H.R. 1496 passed. What we need to do is to compete

in the open market to get our members to purchase the insurance

coverage through their association health plan. So to say that,

carte blanche, the association trust would drop mandated benefits,

I don’t think that would occur.

Ms. VELA ́ZQUEZ. Ms. Lehnhard.

Ms. LEHNHARD. I don’t know if I need to respond. I don’t know

why they feel a need to drop the mandated benefits.

Chairman TALENT. If the gentlelady would yield, what I am trying to do—this bill goes back to before me—but the reason that I

want at least a partial exemption is that some of the state mandates—and I was in the legislature. The hair plugs or dance therapy or that sort of thing, I do think drive up costs without really

meeting any kind of broad-base needs.

I would like to have some kind of a definition where we allow the

mandates that provide a floor for decent quality coverage for people. I might could put that in the rest of ERISA also.

Ms. VELA ́

ZQUEZ. Mr. Rossmann, I believe that there is a difference between cookie cutters and minimums. Could we all agree

that there is a minimum, that women who have a C-section birth

are entitled to a minimum stay in a hospital or that there is a minimum number of PAP smear or breast exams that people are entitled to?

Mr. ROSSMANN. I think that we have those provisions in law

right now. As I mentioned earlier, under ABC’s plan we provide

coverage for PAP smears and annual mammograms.

Ms. VELA ́

ZQUEZ. I am talking about under this bill.

Mr. ROSSMANN. Under this bill?

Ms. VELA ́

ZQUEZ. Yes.

Mr. ROSSMANN. Again, I think it goes back to the associations

having the ability to be competitive. If the market is going to require that, which it seems to me now that the market does require

that, to make sure that we have physicals and coverage for

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wellness benefits, that in all probability you are going to see association health plans do that type of thing voluntarily.

Ms. VELA ́ZQUEZ. So what you are telling me is that in order to

be competitive that we will do that at the expense of how many

breast exams a woman can have under this legislation?

Mr. ROSSMANN. No, ma’am. I said they would include those in

order to be competitive with the rest of the insurance industry. I

didn’t mean to say that would exclude it. I meant they would include it just as we have it included today.

Ms. GAGNE. I think the Boys & Girls Clubs operates in 42 States.

Without exception, every time a State has mandated a benefit that

made good sense, whether it was the coverage of mammograms or

coverage of reconstruction surgery after a breast cancer, they have

adopted those things.

I can’t speak across the board for all association health plans.

There are probably health plans out there to which that coverage

is not that important. If it is not that important, it is probably also

not that expensive. Those aren’t the things that are stopping association health plans from growing and from being in existence

today. It is state-by-state warfare against self-assured association

health plans.

Ms. MILLENDER-MCDONALD. Why is that? Why is there a war?

Ms. GAGNE. Well, I think the reasons are very complex, but there

seems to be a strong desire to keep the small-employer business in

the State and to not allow—for instance, for the Boys & Girls Clubs

to go into the State of Missouri and insure four Boys & Girls Clubs

in that State for some reason seems to threaten—and Ms.

Lehnhard has expressed that, that we are somehow deteriorating

the small-employer group pool there.

I don’t understand that argument very well either. It doesn’t

make any sense to me. We are providing insurance there, and that

would seem to me to be a mainstay and a goal of the State of Missouri.

Ms. MILLENDER-MCDONALD. Ms. Gagne, do you have data and

statistics to show that you have a large percentage of high-risk people in the AHPs?

Ms. GAGNE. I can speak to our AHPs. We have all risks. We have

never denied anybody or walked away from anybody. We have insured premature twins 2 years ago who both ran close to a million

dollars apiece, and they are still on the plan today. We haven’t

been able to preclude coverage to anybody based on health risk status.

But in order to compete, if I started to do that under any pretense to select my risk, the Boys & Girls Clubs, whom I serve,

would quickly say that is not a plan I would support. I don’t trust

that plan. That plan is not going to be the one that I need. I am

going to find the rock solid insurance coverage that I need to protect my employees.

Ms. MILLENDER-MCDONALD. Ms. Lehnhard, your concerns are

what? Can you outline to me your concerns to the AHPs?

Ms. LEHNHARD. We think AHPs are a good thing. You have

heard that they are very successful. They are regulated right now

by the states, and they meet the state-mandated benefits. And we

think that is—it is appropriate.

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Our concern is if you start to run a dual system that says you

can choose, you can choose whether to be under the state-insured

market and you have to provide—it is not the hair transplants—

it is mental health and substance abuse. Those are significant benefits.

And you can choose whether you want to have that or a plan

that doesn’t have any of the State-mandated benefits, you are going

to get a skewing of the market so that the people who need those

benefits are in the State-insured pool, and those who don’t need it

move out, and it is not a sustainable business.

Our plans have said we can’t manage a pool of people who by

definition need these mandated benefits, particularly when in the

year that they don’t need them they can go into the association

health plan. Under HIPAA, we have to take them right away. We

can’t refuse anybody, and they can move back and forth very freely.

Ms. MILLENDER-MCDONALD. I keep hearing you cannot refuse,

and yet you are saying, Ms. Gagne, she is saying, Ms. Lehnhard

is saying you cannot refuse people period. But what she is saying

as I am hearing, that there are some AHPs that do not have the

high-risk people, therefore leaving them in the larger pool in the

State as opposed to—and siphoning off the ones who are low risk

who can afford to go to an AHP and get better services.

Ms. GAGNE. I don’t think that there is any experience of that

happening. What Ms. Lehnhard has said is that BlueCross and

BlueShield across the country actually insure a large number of

AHPs. The majority of them have their insurance and their claims

administration done there. They cannot alienate people under

those plans any more than they can under any other plan.

Ms. MILLENDER-MCDONALD. So the difference you are suggesting

is that the Department of Labor should not be the one to oversee

AHPs as opposed to the State?

Ms. LEHNHARD. That is the other issue. The associations represented at this table are legitimate associations. Their products

are regulated by the state now. We are talking about a sea change

where the entities, essentially insurance companies that are behind

the AHPs running the product, are not going to be regulated by the

State. They are going to be regulated by DOL, which means no regulation.

Ms. MILLENDER-MCDONALD. Are you suggesting that?

Ms. LEHNHARD. That is what the legislation does.

Chairman TALENT. The legislation permits the DOL to give the

job to the State of doing the regulation if the DOL feels they can’t

do it. There are 140 million people covered by ERISA plans regulated by the Department of Labor. If they are not regulating them,

I think we need to know that for purposes far beyond this bill.

Ms. LEHNHARD. A large employer is very different than a collection of small employers which is essentially running an insurance

company because you have all of the issues that an insurance company has. When you are insuring groups of small businesses, that

is an insurance company function.

Ms. MILLENDER-MCDONALD. Not to be gender biased, but I suppose I am at this juncture, Ms. Neese, Ms. Lehnhard, and Ms.

Gagne, are you locally located where I can get back and talk with

you three perhaps at another time?

35

Ms. NEESE. I am in the District about 2 weeks out of every

month.

Ms. MILLENDER-MCDONALD. I want to see how this falls on the

side of women.

Ms. GAGNE. I am not local, but the Boys & Girls Workers Association is in full support of this bill and would make me available.

Ms. MILLENDER-MCDONALD. Thank you, Mr. Chairman.

Chairman TALENT. Does the gentlewoman from New York have

any other questions?

Ms. VELA ́ZQUEZ. No.

Chairman TALENT. I want to work with people on this mandate

issue. I am a big believer that ERISA ought to cover basic, good

quality care. I don’t think that is the basic issue here. In fact, I

think if we create these things nationally, we are going to see on

balance the sicker people tending to go into these plans.

So the mandate, I believe, is a discrete issue that we can deal

with. We ought to be able to draw this law so we can have some

reasonable mandates in here without including everything that

drives up cost without achieving much, and I am happy to work

with anybody who wants to try to do that.

I am reminded that I should without objection keep the record

open for 10 days of additional questions or statements that members of the Committee would like to make. I thank the gentlewoman from New York and appreciate all of the witnesses, especially those who came a long way for this. Thank you.

[Whereupon, at 1:30 p.m., the committee was adjourned.]

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