Small-Business Health Bill Causes Controversy: Not Subject to State Regulations

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Washington -- As Congress returns from its summer recess, debate is beginning to heat up again about a bill that could have a profound effect on physician payments.

The Small Business Health Fairness Act of 2003 (H.R. 660) would allow small businesses to band together to offer health insurance. But unlike similar arrangements, such as multiple employer welfare associations, association health plans (AHPs) could include businesses from different states.

As a result, AHPs would not be subject to state regulations regarding mandated benefits, rate-setting for sicker patients, or--the area of most concern to many state medical societies--prompt payment. Instead, they would be regulated by the U.S. Department of Labor, which has no such rules.

"We fought hard for and did pass [prompt payment and patient protection legislation] in Missouri, and we would not like to see those laws overridden," said C.C. Swarens, executive vice president of the Missouri State Medical Association. "Since we passed prompt payment 2 years ago, it has greatly improved payment time frames." The MSMA is one of several state medical societies that oppose the bill.

The American Medical Association has not weighed in on the measure, but it did pass a resolution on AHPs at its annual meeting in June. The AMA should "work with federal legislators to ensure that any AHP program safeguard state and federal patient protection laws, including ... state regulations regarding fiscal soundness and prompt payment."

That language is now appended to previous AMA policy on AHPs, which encourages legislation allowing AHPs to be exempt from state laws on mandated benefits and premium rating.

Proponents of AHPs say that they would provide coverage for many small business employees who otherwise would not get it. "AHPs could save small businesses an estimated 15%-30%, compared with the cost of purchasing coverage directly from an insurance company," the National Federation of Independent Business (NFIB), one of the bill's biggest backers, said in a statement. "AHPs could also help many small employers who are now struggling to offer coverage."

But critics say AHPs would severely damage the small-business health insurance market. "Proponents say this is an answer for the uninsured, but what will happen is exactly the opposite," said John Parker, spokesman for the BlueCross BlueSheild Association. "It's going to create more uninsured and will raise health care costs." That's because healthier people would migrate to the AHPs, leaving the more expensive state-regulated plans with the sicker patients. "You end up creating a pool of sicker individuals ... and you're going to see increases across the board."

Mr. Parker acknowledged that Blues plans would be competing against AHPs to insure small businesses, but he added that that was not the only reason the association opposed the bill. …