Erin Miller

Brief #1 from the course: Private Health Insurance and Public Policy
“If Associated Health Plans were introduced, how would you recommend that they be regulated?”

The federal government should be responsible for regulating Association Health Plans (AHPs), if they are introduced. However, the federal government should strengthen solvency requirements and states should be mandated to investigate consumer complaints and fraud. A specific federal department should be given a mandate to monitor the AHPs.

Providing cheaper insurance options for healthier individuals is important in a healthcare system in which every individual is not automatically part of a government plan or required to purchase personal health insurance. It is necessary to provide cheaper options in order to prevent healthier individuals from opting out of the market completely. AHPs provide such an option for healthy individuals who are willing to accept more limited benefits, smaller provider pools, and higher deductibles.[1]

In order to capitalize in the cost-saving potential of the plans, AHPs must fall under federal regulation, which would allow the plans to be less expensive and more efficient than possible under current state regulatory requirements. Regulating the plans federally would decrease the cost of the plans by allowing plans to offer benefit packages that are more limited with higher premiums and by increasing efficiency in the process of plan approval. AHPs must be exempt from state legislative requirements such as those mandating minimum benefit standards[2] and premium rules in order to lower costs.[3] Additionally, federal regulation would allow the insurers to pay lower premium taxes.[4] AHPs could also increase efficiency by centralizing plan approval requirements for all states in a single agency, preventing plans from having to seek approval in multiple states.[5]

Successful implementation of AHPs would require the federal government to strengthen its solvency requirements, even if this requirement increased the costs of the plans. Federally regulated self-insured associations, such as multiple-employer welfare arrangements, have a “sordid history” of financial instability.[6] Unlike the self-insured plans under the federal Employee Retirement Income Security Act (ERISA), AHPs may not have the assets necessary to cover expensive illnesses and should be required to have financing available to cover those costs.[7] Particularly in the current economic climate, it is important for federal solvency standards of AHPs to be strengthened to prevent individuals from being responsible for the potentially high cost of covered services if an AHP goes out of business.

Despite the federal regulation of the plans, states should be mandated to investigate consumer complaints and instances of fraud because states can be more effective in this role than federal agencies. Under ERISA, the Department of Labor has “neither the mandate nor the resources to investigate complaints involving benefit disputes between plans and individuals.”[8] However, “states have an array of tools” enabling them to find and shut down fraudulent or phony health plans[9] and they should maintain responsibility for this work.

Further discussion is necessary regarding which specific federal agency would be responsible for setting the basic requirements for health plans and approving plans. The Department of Labor is currently responsible for this action under ERISA, and is the proposed department in the AHP legislation. However, currently, the Department of Labor “does not review plans for compliance with the law.”[10] Therefore, it may be worth considering which agency should be responsible for determining that plans conform to basic legislative requirements. The Department of Labor could assume the responsibility of determining the legality of the plans, or a different federal agency could be given this role.

In order to keep costs down, the federal government must be responsible for regulating AHPs. However, the successful implementation of the program will require the federal government to increase the solvency requirements surrounding the plans. In addition, states should maintain responsibility for investigating consumer complaints and reports of fraud. Finally, a federal agency must be required to determine that the plans are in compliance with the law.

Works Cited

California Healthcare Foundation, Issue Brief. Insurance Markets: What would
Association Health Plans Mean for California? Oakland, CA: California Healthcare
Foundation, 2004.

Hall, Mark A. “The Geography of Health Insurance Regulation: A guide to identifying, exploiting, and policing market boundaries.” Health Affairs 19, no. 2, March-April 2000: 173-184

Polzer, Karl and Patricia A. Butler. “Employee Health Plan Protections Under ERISA:
How well are consumers protected under managed care and “self-insured” employer insurance plans?” Health Affairs 16 no. 5, September-October 1997: 93-102