How Replacing Obamacare Would Affect Small Businesses

Some small-business owners burdened with high health care costs would get a break from an obscure provision in the Senate health bill. It offers less regulation, more bargaining power and better prices.

But those benefits could come at a cost to others.

The clause — in the proposal advanced by Senate Majority Leader Mitch McConnell (R-Ky.) last month — would exempt insurance sold through “associations” from most Affordable Care Act mandates and state regulations. That means the plans could offer lower-cost coverage that does not include a broad range of medical services or sets premiums based on the health of the businesses’ employees.

In these plans, small businesses can join an association — which may be loosely based on certain types of professional, trade or interest groups — that offers insurance to members.

“Our members are clamoring for more control and more affordable options,” said Kevin Kuhlman, director of government relations for the National Federation of Independent Business, which has long opposed the ACA and supports association plans. The idea also has the backing of the National Restaurant Association.

Critics counter that the provision creates two markets, a lightly regulated one with skimpier and less expensive coverage that would attract businesses with younger or healthier workers and a second market left with mainly older, sicker consumers and rapidly rising premiums.

The Senate plan — along with other GOP proposals that would loosen ACA requirements for some policies — could damage both the small-group and individual markets if it leads to cheaper plans siphoning off the healthiest consumers.

State insurance commissioners warned in a letter Wednesday that the Senate proposal would strip regulators’ authority “to preserve important consumer protections, effectively oversee the plans or ensure a level playing field.” While encouraging the idea of more insurance options, the National Association of Insurance Commissioners said the proposal as written “would lead to significant disruptions in the small group marketplace and higher premiums and fewer coverage choices for many small businesses.”

It would create “an unlevel playing field” that “is likely to lead to cherry-picking, adverse selection and increased costs for sicker individuals,” the American Academy of Actuaries warned in a June 30 letter.

The Senate bill’s language is similar to legislation adopted in March by the House. Previous legislation passed the House in 2003 but never won approval in the Senate.

Association health plans have been around for decades, but some had solvency problems and went bankrupt, leaving consumers on the hook with unpaid medical bills. In several states, regulators investigated whether the plans were advertising that they had comprehensive coverage when, in fact, they provided little or no coverage for such things as chemotherapy or doctor office visits.

The ACA, passed in 2010, still allows the plans but requires them to follow state rules for small-group coverage. That cemented authority in the states to oversee association plans.

The Senate proposal was drafted by longtime proponent Sen. Mike Enzi (R-Wyo.). It would classify association plans as large-group plans, like those offered by major employers to their workers. The large-group plans face far fewer ACA rules and are generally overseen by the federal government.

Large-group plans don’t have to offer the ACA’s 10 “essential health benefits,” and insurers can base their premiums on the health of those covered, although the employer must charge both sick and healthy workers the same amounts. Additionally, most traditional large-employer plans tend to be more generous than the ACA requires. Association plans, by contrast, are not generally as comprehensive as large-employer coverage.

Despite the Senate’s previous rejection of similar legislative language, the idea may have more legs now. After all, some GOP lawmakers appear to be embracing a similar proposal by Sen. Ted Cruz (R-Texas). It aims to allow insurers to sell individual policies that don’t meet all the requirements of the ACA, so long as they sell at least one type of policy that does.

Support for either Cruz’s plan or the association proposal will run up against opposition from state regulators, actuaries and some small-business owners.

Insurers, they say, would be able to provide minimal benefits, charge small businesses based on the relative health of their workers, or both. That could be a boon for some companies, including some restaurants or other franchise operations that employ mainly younger, healthier workers. Self-employed individuals who are healthy might also be able to join associations and qualify for the cheaper policies. But as those consumers are siphoned off, insurers would raise rates on their other plans, which must follow more stringent consumer protection rules, including those left in the ACA.

“Some small businesses might be able to move into these plans and save money, but that will cause rates to go up for others [with older or sicker workers],” said David Chase, vice president of national outreach for the Small Business Majority, which supports the ACA.

If enough healthy small groups opt for the association health plans, siphoning off those consumers, “the small-group market will go into a death spiral if only employers with sicker and older workers participate,” said Mila Kofman, the former Maine insurance commissioner who now heads the DC Health Benefit Exchange Authority.

Insurance commissioners and actuaries have made similar dire predictions about the effects of splitting the market. Those concerns are overblown, say supporters of association health plans.

Said Kuhlman at NFIB: “The existing marketplace [premium costs] may go up a percentage point or two, but other [small businesses] would have a more affordable plan.”

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

Kaiser Health News, a nonprofit health newsroom whose stories appear in news outlets nationwide, is an editorially independent part of the Kaiser Family Foundation.