Politics & Policy

The Promise of Association Health Plans

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Trump’s order could pave the way to affordable insurance for small businesses.

President Trump has signed an executive order aiming to clear a regulatory path for association health plans (AHPs). That’s really exciting news for American health-care consumers, and especially for small businesses and their employees.

I know a lot about AHPs. I learned about them when I chaired the House Small Business Committee in the 1990s. The vexing problem small businesses faced, then as now, was lack of access to affordable business health insurance.

In both the House and Senate, I was the primary sponsor of legislation to permit small-business trade associations to create AHPs. My legislation passed in the House a number of times (with a substantial amount of Democratic support each time), and I managed to get a version of the bill onto the Senate floor about twelve years ago — where, unfortunately, it was filibustered to death.

What would AHP reform do? It would simply allow small businesses to buy health insurance through their national trade or professional associations, and thereby get insurance for their employees in the same way as big national companies already get it for their employees.

Let’s suppose you owned a small bar and grill, like my brother did for 20 years. You’d like to buy health insurance for your employees, because then your restaurant could offer more attractive compensation to lure good employees, and also because then you, as an employee of the company, could get health insurance for yourself and your family through the business.

But you have only a half-dozen or so employees. Your workplace is a very small pool and not a very enticing customer for the insurance companies. You don’t have much bargaining power or many options, and the options you do have are quite expensive. In addition, to buy health insurance, you have to assume a lot of responsibility for negotiating and administering it; those are not subjects you are familiar with, and as a small-business owner it’s not like you have a lot of extra time to become an expert. And even if you can find an acceptable arrangement, you will be constantly, and rightly, afraid that somehow the insurance company, with all its resources, will shaft you or your employees or drop coverage if anyone ever has a serious claim.

So you don’t buy the insurance, and instead give your employees as high a wage as you can and try to buy insurance for yourself on the individual market.

That’s what my brother did.

But let’s suppose the National Restaurant Association could negotiate insurance contracts for the employees of its members. Now you could join the association and become part of a huge national pool — big enough that it wouldn’t affect your rates if you hired someone who had a history of health problems. You wouldn’t have to negotiate or administer the insurance yourself; the association would function as your employee-benefit section. It would have expertise and enormous clout, and it would tailor the insurance offerings to meet the specific needs of restaurant employees; and if there was a problem with coverage, the association would fight for you.

For the purpose of health insurance, it would be like your little business had become a small division of a big company.

The cost of insurance for your little restaurant would go down, and the attractiveness of buying it would go up. So you would be much more likely to buy it for your employees. And the trade associations — or the larger ones anyway — would jump at the chance to form AHPs; even if an AHP didn’t operate at a profit, it would be a tremendous recruiting tool, a way to get small businesses to join the association.

AHPs are very flexible. The Farm Bureau could form an AHP for farmers and their employees. Self-employed professionals — like my sister, who is a psychologist and was at one time in private practice — could join one of the umbrella business organizations, like the Chamber of Commerce or the National Federation of Independent Businesses, and get good health insurance that way.

At the time I was working on AHP legislation, we estimated that millions of uninsured people — working people, usually middle aged and middle income — would become covered if their employers could join an AHP. Those were precisely the people who had the biggest problem with the existing health-insurance market, because they were too old to go without insurance, too young for Medicare, and too middle income for Medicaid — and because they happened to be working at a small business rather than driving a truck for Federal Express.

AHPs aren’t a welfare program and, unlike Obamacare exchanges, don’t depend on government subsidies.

And the legislation wouldn’t have cost the taxpayers a dime. AHPs aren’t a welfare program and, unlike Obamacare exchanges, don’t depend on government subsidies.

So why aren’t AHPs forming already? Because they are national pools, and without the protection of federal law, they would be subject to the insurance regulations of every state. You can’t set up or run a national insurance program that is subject to 50 vastly different regulatory schemes.

AHPs would of course be overseen by government. But they would be regulated in the same way that health insurance at Google or Microsoft or General Motors is regulated: by one set of federal rules from the Department of Labor. In fact, AHP legislation is a perfect example of the commerce clause in action: the federal government removing constraints on trade by individual states to the benefit of the consumer and the national economy.

As I said above, the AHP legislation had bipartisan support. Republicans saw it as a form of regulatory reform, which it was. Democrats saw it as a way for the little guy to get equal bargaining power with big insurance companies, which it also was. And what was the downside of the legislation? What would happen if AHPs didn’t reduce the cost and risk of health insurance to small business? Few people would join them. The idea would have failed, but no one would be worse off than they already were.

Contrast that with the effects of Obamacare.

But I believed that AHPs would be very attractive to small businesses and their employees. I believed that largely because of the groups that opposed them most strongly: the big insurance companies, which didn’t want the competition; the state insurance commissioners, who knew they would lose a lot of regulatory turf; and the ideologues (on both the left and the right) who didn’t like the employer-based health-care system and were afraid that AHPs would make that system so attractive that they would never be able to get rid of it.

Opponents didn’t fight the AHP concept because they thought it wouldn’t work, but because they knew it would.

Those opponents didn’t fight the AHP concept because they thought it wouldn’t work, but because they knew it would.

Critics of the president’s order are already saying that AHPs would provide only low-quality health-insurance options. But why? Do large companies, which are regulated the same way AHPs would be regulated, provide poor health insurance? Are small-business owners, who actually have to work alongside their employees, less likely than the Mark Zuckerbergs of the world to offer good health insurance to their workers if they can get it on affordable terms?

I don’t as yet know the details of the administration’s plans. It may be that regulatory reform alone can’t pave the way for AHPs. Congressional action may be necessary. But if it is, it should happen, and happen quickly. (AHPs were included in the Obamacare-reform legislation, and were one of the really good features of that bill.) In the meantime, the Trump administration deserves a lot of credit for reviving an idea whose time has come — in fact, an idea whose time came long ago.


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Jim Talent, as a former U.S. senator from Missouri, chaired the Seapower Subcommittee. He is currently the chairman of the National Leadership Council at the Reagan Institute.


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