write_parts.c-54 : failed to open = [/local/etc/httpd/cgi-lis/txt_templates/compr_reg_crumb.txt]

Committee Reports

108th Congress (2003-2004)

House Report 108-156

Committee Reports for the 108th Congress
House Report 108-156 1 of 1
Search Results  > House Report 108-156
New Search Help  |  Contact Us
This Report: To Accompany H.R.660     Printer Friendly: HTML  |  PDF


{link: 'http://www.congress.gov:80/cgi-bin/cpquery?',title: 'THOMAS - Committee Report - House Report 108-156' }

SMALL BUSINESS HEALTH FAIRNESS ACT OF 2003

19-006

108TH CONGRESS

REPORT

HOUSE OF REPRESENTATIVES

1st Session

108-156
SMALL BUSINESS HEALTH FAIRNESS ACT OF 2003

JUNE 16, 2003- Committed to the Committee of the Whole House on the State of the Union and ordered to be printed
Mr. BOEHNER, from the Committee on Education and the Workforce, submitted the following
R E P O R T
together with
MINORITY VIEWS
[To accompany H.R. 660]
[Including cost estimate of the Congressional Budget Office]

The Committee on Education and the Workforce, to whom was referred the bill (H.R. 660) to amend title I of the Employee Retirement Income Security Act of 1974 to improve access and choice for entrepreneurs with small businesses with respect to medical care for their employees, having considered the same, report favorably thereon with an amendment and recommend that the bill as amended do pass.

The amendment is as follows:

Strike all after the enacting clause and insert the following:

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

Sec. 1. Short title and table of contents.
Sec. 2. Rules governing association health plans.
`Part 8--Rules Governing Association Health Plans
`Sec. 801. Association health plans.
`Sec. 802. Certification of association health plans.
`Sec. 803. Requirements relating to sponsors and boards of trustees.
`Sec. 804. Participation and coverage requirements.
`Sec. 805. Other requirements relating to plan documents, contribution rates, and benefit options.
`Sec. 806. Maintenance of reserves and provisions for solvency for plans providing health benefits in addition to health insurance coverage.
`Sec. 807. Requirements for application and related requirements.
`Sec. 808. Notice requirements for voluntary termination.
`Sec. 809. Corrective actions and mandatory termination.
`Sec. 810. Trusteeship by the Secretary of insolvent association health plans providing health benefits in addition to health insurance coverage.
`Sec. 811. State assessment authority.
`Sec. 812. Definitions and rules of construction.
Sec. 3. Clarification of treatment of single employer arrangements.
Sec. 4. Enforcement provisions relating to association health plans.
Sec. 5. Cooperation between Federal and State authorities.
Sec. 6. Effective date and transitional and other rules.

SEC. 2. RULES GOVERNING ASSOCIATION HEALTH PLANS.

`PART 8--RULES GOVERNING ASSOCIATION HEALTH PLANS

`SEC. 801. ASSOCIATION HEALTH PLANS.

`SEC. 802. CERTIFICATION OF ASSOCIATION HEALTH PLANS.

`SEC. 803. REQUIREMENTS RELATING TO SPONSORS AND BOARDS OF TRUSTEES.

`SEC. 804. PARTICIPATION AND COVERAGE REQUIREMENTS.

`SEC. 805. OTHER REQUIREMENTS RELATING TO PLAN DOCUMENTS, CONTRIBUTION RATES, AND BENEFIT OPTIONS.

`SEC. 806. MAINTENANCE OF RESERVES AND PROVISIONS FOR SOLVENCY FOR PLANS PROVIDING HEALTH BENEFITS IN ADDITION TO HEALTH INSURANCE COVERAGE.

`SEC. 807. REQUIREMENTS FOR APPLICATION AND RELATED REQUIREMENTS.

`SEC. 808. NOTICE REQUIREMENTS FOR VOLUNTARY TERMINATION.

`SEC. 809. CORRECTIVE ACTIONS AND MANDATORY TERMINATION.

`SEC. 810. TRUSTEESHIP BY THE SECRETARY OF INSOLVENT ASSOCIATION HEALTH PLANS PROVIDING HEALTH BENEFITS IN ADDITION TO HEALTH INSURANCE COVERAGE.

or where any asset of the plan is situated. A district court in which such action is brought may issue process with respect to such action in any other judicial district.

`SEC. 811. STATE ASSESSMENT AUTHORITY.

`SEC. 812. DEFINITIONS AND RULES OF CONSTRUCTION.

or have the effect of precluding, a health insurance issuer from offering health insurance coverage in connection with an association health plan which is certified under part 8.

`Part 8--Rules Governing Association Health Plans
`Sec. 801. Association health plans.
`Sec. 802. Certification of association health plans.
`Sec. 803. Requirements relating to sponsors and boards of trustees.
`Sec. 804. Participation and coverage requirements.
`Sec. 805. Other requirements relating to plan documents, contribution rates, and benefit options.
`Sec. 806. Maintenance of reserves and provisions for solvency for plans providing health benefits in addition to health insurance coverage.
`Sec. 807. Requirements for application and related requirements.
`Sec. 808. Notice requirements for voluntary termination.
`Sec. 809. Corrective actions and mandatory termination.
`Sec. 810. Trusteeship by the Secretary of insolvent association health plans providing health benefits in addition to health insurance coverage.
`Sec. 811. State assessment authority.
`Sec. 812. Definitions and rules of construction.'.

SEC. 3. CLARIFICATION OF TREATMENT OF SINGLE EMPLOYER ARRANGEMENTS.

SEC. 4. ENFORCEMENT PROVISIONS RELATING TO ASSOCIATION HEALTH PLANS.

bargaining described in section 8(d) of the National Labor Relations Act (29 U.S.C. 158(d)) or paragraph Fourth of section 2 of the Railway Labor Act (45 U.S.C. 152, paragraph Fourth) or which are reached pursuant to labor-management negotiations under similar provisions of State public employee relations laws; or

SEC. 5. COOPERATION BETWEEN FEDERAL AND STATE AUTHORITIES.

SEC. 6. EFFECTIVE DATE AND TRANSITIONAL AND OTHER RULES.

PURPOSE

The purpose of H.R. 660 is to reduce the ranks of the uninsured by improving access to health care for uninsured working families, particularly those who are employed in small businesses. The bill would create association health plans (`AHPs') that would allow small businesses to join together through bona-fide trade associations, thus enjoying larger economies of scale presently enjoyed by many large corporations and unions, to purchase health insurance for their workers at a lower cost than they are presently experiencing. H.R. 660 would increase small businesses' bargaining power with health care providers, give them freedom from costly state mandated benefit packages, and lower overhead costs that would better enable them to offer health care coverage for their workers.

COMMITTEE ACTION

Representative Ernie Fletcher (R-KY) introduced H.R. 660 on February 11, 2003 along with 70 bi-partisan original co-sponsors including Education and the Workforce Committee Chairman John Boehner and Subcommittee on Employer-Employee Relations Chairman Sam Johnson; the number of bi-partisan co-sponsors rose to 156 by the time the bill was reported by the Committee to the full House of Representatives. The bill is the culmination of legislative activity started by the Committee in the 104th Congress through the present 108th Congress. This activity included bill introductions, hearings, mark-ups, floor consideration, and House Senate Conference activity that had the goal of expanding health coverage through the sponsorship of health plans by bona fide trade associations.

104TH CONGRESS

In the 104th Congress, the Subcommittee on Employer-Employee Relations held an oversight hearing `Health Insurance Reform--The ERISA Title I Framework: A 20-Year Success Story' on February 14, 1995. Testimony was received from: Representative Pat Williams; Former Representative John Erlenborn; Frank Cummings, Esq., LeBoeuf, Lamb, Greene & MacRae; Randal Johnson, Director of Benefits Planning, Motorola, Inc.; Ralph Brennan, President, Mr. B.'s Inc.; William Goodrich, President, United Agribusiness League; and Brian Atchinson, Vice President, National Association of Insurance Commissioners, Superintendent, Bureau of Insurance, State of Maine.

On February 21, 1995, H.R. 995, The ERISA Targeted Health Insurance Reform Act was introduced by then Chairman of the Subcommittee on Employer-Employee Relations, Rep. Harris Fawell with 15 original cosponsors that rose to 50 bi-partisan cosponsors. The Subcommittee on Employer-Employee Relations held a hearing on this bill on March 10, 1995. Witnesses at the hearing were: Jack Faris, President National Federation of Independent Business; Jerry Jasinowski, President National Association of Manufacturers; Sean Sullivan, President and CEO, National Business Coalition on Health; Timothy Flaherty, American Medical Association; Charles Masten, Inspector General, Department of Labor; Gerald McGeehan, Graphic Arts Benefits Corp; Kala Ladenheim, Intergovernmental Health Policy Project, George Washington University; and Judith Waxman, Director of Government Affairs of Families, USA. A third hearing was held on March 28, 1995 during which the Subcommittee continued its review of H.R. 995. Testimony was presented by: Richard Lesher, President, U.S. Chamber of Commerce; Keith Richman, President, Medco Associates, Inc.; Jon Reiker, Vice President, Benefits, General Mills Restaurants, Inc.; Frank Cummings, Esq., LeBoeuf, Lamb, Greene & MacRae; and Lee Douglas, Insurance Commissioner of Arkansas, President, National Association of Insurance Commissioners.

The Committee on Economic and Educational Opportunities (the previous name of the Education and the Workforce Committee) on March 6, 1996 discharged H.R. 995 from the Subcommittee on Employer-Employee Relations, approved H.R. 995, as amended, on voice vote, and, by a roll call vote of 24 ayes to 18 nays, ordered the bill favorably reported to the House of Representatives. However, the bill was not considered by the full body before the conclusion of the 104th Congress.

105TH CONGRESS

On May 1, 1997 H.R. 1515, the Expansion of Portability and Health Insurance Coverage Act of 1997 (`EPHIC') was introduced by Representative Harris Fawell with 136 bi-partisan original cosponsors that rose to 157 bi-partisan cosponsors.

The Subcommittee on Employer-Employee Relations held a legislative hearing on EPHIC on May 8, 1997. Testimony was received from: the Honorable James P. Moran (D-VA,); Jack Faris, President and CEO, National Federation of Independent Business; Mary Castro, Vice President, Employee Benefits, Independent Grocers Alliance, Inc., Chicago, IL; Cathy Hurwit, Deputy Director, Citizen Action; Kathleen Sebelius, Commissioner of Insurance, State of Kansas; Donald Dressler, President of Insurance Services, Western Growers Association, on behalf of The Association Healthcare Coalition, Newport Beach, CA; and Jeffrey H. Joseph, Vice President, Domestic Policy, U.S. Chamber of Commerce.

On Wednesday, June 11, 1997, the Committee on Education and the Workforce discharged H.R. 1515 from the Subcommittee on Employer-Employee Relations and then followed on Thursday June 12, 1997, with full Committee approval of it, as amended, on a voice vote, and, by a vote of 24 ayes to 20 nays, ordered the bill favorably reported and incorporated into subtitle D of the reconciliation package transmitted to the Budget Committee and ordered reported the bill, as amended, to the House of Representatives. It became part of H.R. 2015, the Balanced Budget Act of 1997, which passed the House of Representatives on June 25, 1967 on a vote of 270 yeas to 162 nays; however, the association health plan provisions were deleted from the Conference agreement that was eventually signed into law. A version of the association health plan provisions of the bill were then incorporated into H.R. 4250, the Patient Protection Act of 1998, which was introduced by Representative Newt Gingrich, the then Speaker of the House of Representatives, on July 16, 1998. On July 24, 1998, the House of Representatives passed the bill, including a version of the provisions of H.R. 1515, on a vote of 216 yeas to 210 nays; however, on October 9, 1998 the U.S. Senate tabled consideration of the measure on a vote of 50 yeas to 47 nays where it remained until the conclusion of the 105th Congress.

106TH CONGRESS

At the commencement of the 106th Congress, Representative John A. Boehner (R-OH) succeeded the retired Representative Harris Fawell as the Chairman of the Subcommittee on Employer-Employee Relations. On March 25, 1999, the Subcommittee on Employer-Employee Relations held a hearing on `Expanding Affordable Health Care Coverage: Benefits and Consequences of Association Health Plans'. Witnesses at the hearing were: Ms. Mary Nell Lehnhard, Senior Vice President Policy and Representation, BlueCross BlueShield Association, Washington, DC; Ms. Victoria Caldeira, Manager of Legislation Affairs, National Federation of Independent Business, Washington, DC; Mr. Donald G. Dressler, CAE President for Insurance Services, Western Growers Association, Newport Beach, CA; Mr. Steven B. Larsen, Commissioner of Insurance State of Maryland, Baltimore, MD, testifying on behalf of National Association of Insurance Commissioners.

On April 20, 1999, Representative Jim Talent (R-MO) introduced H.R. 1496 the Small Business Access and Choice for Entrepreneurs Act of 1999 with 13 bi-partisan original cosponsors that rose to 47 bi-partisan cosponsors. This bill was then incorporated into H.R. 2990 introduced by Rep. Talent on September 30, 1999 and passed by the House of Representatives on a vote of 227 yeas to 205 nays on October 6, 1999. After passage of a similar bill, S. 1344, a Conference was held between the House of Representatives and the Senate but it did not conclude by the end of the 106th Congress.

107TH CONGRESS

At the commencement of the 107th Congress, Representative John A. Boehner (R-OH) succeeded the retired Representative William Goodling as the Chairman of the Committee on Education and the Workforce; Representative Sam Johnson (R-TX) then succeeded Representative Boehner as the Chairman of the Subcommittee on Employer-Employee Relations. Representative Ernie Fletcher (R-KY) introduced H.R. 1774, the Small Business Health Fairness Act of 2001, on May 9, 2001 with 46 bi-partisan original cosponsors that rose to 111 bi-partisan cosponsors.

On June 18, 2002, the Subcommittee on Employer Employee Relations held a hearing on `The Rising Cost of Health Care: How are Employers and Employees Responding?' Witnesses at the hearing were: Dr. Paul Ginsburg, President, Center for Studying Health System Change, Washington, DC; Ms S.Catherine Longley, Commissioner, Maine Department of Professional and Financial Regulation, Augusta, ME; Dr. Henry Simmons, President, National Coalition on Health Care, Washington, DC; Mr. Patrick McGinnis, CEO, Trover Solutions, Louisville, KY; Ms Carol Miller, Frontier Education Center, Santa Fe, NM; Ms Cathy A. Streker, Director of Employee Benefits and Planning, Textron, Inc., Providence, RI.

Following the June hearing, on July 9, 2002, the Subcommittee on Employer Relations held a hearing entitled `Expanding Access to Quality Health Care: Solutions for Uninsured Americans'. Testimony at the hearing was received from: Representative Ernie Fletcher (R-KY), and Representative John Tierney (D-MA), U.S. House of Representatives; Dr. Mark B. McClellan, Member, Council of Economic Advisors, Washington, D.C.; Mr. Harry Kraemer, Jr., Chairman and Chief Executive Officer, Baxter International Inc., Deerfield, IL, testifying on Behalf of The Healthcare Leadership Council; Mr. Joseph Rossman, Vice President of Fringe Benefits, Associated Builders and Contractors, Rosslyn, VA, testifying on Behalf of the Association Health Plan Coalition; and Mr. Ron Pollack, Executive Director, Families USA, Washington, D.C.

On July 19, 2001, Representative Greg Ganske (R-IA) introduced HR 2563. When the House of Representatives passed H.R. 2563 on August 2, 2001, by a vote of 226 ayes to 203 nays, it contained H.R. 1774, the Small Business Health Fairness Act of 2001, as an amendment. The bill was not taken up by the Senate before the conclusion of the 107th Congress.

108TH CONGRESS

On February 11, 2003, Representative Ernie Fletcher introduced H.R. 660, the `Small Business Health Fairness Act of 2003' with 70 bi-partisan original cosponsors that rose to 156 bi-partisan cosponsors. The Subcommittee on Employer-Employee Relations held a hearing on H.R. 660 on March 13, 2003. Witnesses at the hearing presenting testimony were: Hon. Ann L. Combs, Assistant Secretary of Labor, Employee Benefits Security Administration, Washington DC; Ms. Phyllis Burlage, Burlage Associates, PA, Millersville, MD, testifying on behalf of the National Federation of Independent Business; Alice Weiss, Esq., Director of Health Policy, National Partnership for Families, Washington DC; and Mr. Greg Scandlen, Director, Center for Consumer Driven Health Care, The Galen Institute, Alexandria, VA.

The Subcommittee on Employer-Employee Relations marked-up, approved and reported H.R. 660 to the full Committee on Education and the Workforce by a bi-partisan vote of 13 yeas to 8 nays on April 8, 2003. On June 12, 2003, the Committee on Education and the Workforce ordered reported, as amended, H.R. 660 to the full House of Representatives by a vote of 26-21.

SUMMARY

The Small Business Health Fairness Act (H.R. 660) addresses both the access and cost issues at the heart of the health care reform debate. The bipartisan bill, introduced by a bipartisan group of legislators led by Employer-Employee Relations Subcommittee Chairman Sam Johnson (R-TX), Representatives Ernie Fletcher (R-KY), Nydia Velazquez (D-NY), and Cal Dooley (D-CA), would improve access to quality health care for uninsured families. Specifically, it would create association health plans (AHPs) to allow small businesses to join together through bona-fide trade associations to purchase health insurance for their workers at a lower cost. The measure would increase small businesses' bargaining power with health care providers, give them freedom from costly state-mandated benefit packages, and lower their overhead costs by as much as 30 percent--benefits that many large corporations and unions already enjoy because of their larger economies of scale.

The bill has more than 150 cosponsors, including House Speaker Dennis Hastert (R-IL), Small Business Committee Chairman Don Manzullo (R-IL), Representatives Brad Carson (D-OK), Jerry Costello (D-IL), and Johnny Isakson (R-GA). A broad and diverse coalition of more than 100 groups have endorsed the bill, including the U.S. Chamber of Commerce, the National Federation of Independent Business, the American Farm Bureau Federation, the Associated Builders and Contractors, The Latino Coalition, National Black Chamber of Commerce, the National Association of Women Business Owners, and the National Restaurant Association. Sen. Olympia Snowe (R-ME introduced companion legislation in the Senate (S. 545).

The bill establishes that an association health plan (AHP) is a group health plan that offers fully-insured and/or self-insured medical benefits, has been certified by the Labor Department, and is operated by a board of trustees with complete fiscal control and responsibility for all operations. The association sponsoring the plan must have been in existence for at least three years for substantial purposes other than providing health insurance coverage.

To be certified by the Labor Department, a `self-insured' AHP must have at least 1,000 participants and beneficiaries. The self-insured AHP must have also offered coverage on the date of enactment, represent a broad cross-section of trades, or represent one or more trades with average or above health insurance risk.

The bill requires all employers participating in the AHP to be members or affiliated members of the sponsor. All individuals under the plan must be active or retired employees, owners, officers, directors, partners, or their beneficiaries.

The measure expressly prohibits discrimination by requiring that all employers that are association members are eligible for participation, all geographically available coverage options are made available upon request to eligible employers, and eligible individuals cannot be excluded from enrolling because of health status. The bill prohibits AHPs from charging higher rates for sicker individuals or groups within the plan, except to the extent already allowed under the relevant state rating law.

H.R. 660 makes clear that AHPs must comply with the Health Insurance Portability and Accountability Act (HIPAA), which prohibits group health plans from excluding high-risk individuals with high claims experience. Thus, it will not be possible for AHPs to `cherry pick' because sick or high risk groups or individuals cannot be denied coverage. State-licensed health insurance agents must be used to distribute health insurance coverage provided to small employers under an AHP and must also be used to distribute self-insured benefits to small employers through an AHP.

The bill includes solvency standards that are similar or stronger than standards enacted by states for association plans. These new solvency protections go far beyond what is required of single employer and labor union plans under current law. H.R. 660 requires self-insured AHPs to maintain reserves that are sufficient for unearned contribution, benefit liabilities, expected administrative costs, and any other obligations. A qualified actuary who is a member of the American Academy of Actuaries must recommend these reserve levels.

AHPs must also obtain aggregate and specific stop-loss insurance; indemnification insurance for any claims if the plan is terminated; and must also make annual payments to an Association Health Plan Fund. In addition, an AHP must maintain surplus reserves of between $500,000 and $2 million. If an AHP is unable to provide benefits when due or is otherwise in a financially troubled condition, the Labor Secretary must act as a trustee to administer the plan for the duration of the insolvency. A certified AHP may terminate only if the trustees provide 60 days advance written notice to participants and beneficiaries and submit a plan for timely payment of all benefit obligations. The measure establishes a Solvency Standards Working Group within 90 days after enactment to recommend initial regulations.

The bill gives certified AHPs freedom from costly state-mandated benefit packages by exempting them from state benefit mandates, except that AHPs must comply with any state laws that require coverage of specific diseases. The measure clarifies that states may regulate self-insured multiple employer welfare arrangements providing medical care which do not elect to meet the certification requirements for AHPs.

H.R. 660 requires the Labor Secretary to consult with the states about the regulation of AHPs located in their state. It establishes criminal penalties for willful misrepresentation as a certified AHP or collectively bargained status; authorizes the Department to issue cease activity orders against fraudulent health plans; and outlines the responsibility of the board of trustees for meeting required claims procedures. The Labor Secretary must report to Congress no later than January 1, 2008, on the impact of AHPs on reducing the number of uninsured.

COMMITTEE STATEMENT AND VIEWS

A. BACKGROUND AND NEED FOR LEGISLATION

Strengths of our Nation's Employer-Provided Health Care System

When the Employee Retirement Income Security Act (ERISA) 1

[Footnote] was enacted in 1974, the Congress found that employee benefit plans, including employer provided health benefits, directly impacted the continued well being and security of millions of employees and their dependents. 2

[Footnote] The well being of these workers and their families was of such national importance that Congress, through the enactment of ERISA, preempted the states' regulatory role in order to assure uniform federal standards. It is the belief of the Committee on Education and the Workforce (hereinafter the `Committee'), that the ability to utilize uniform standards is the cornerstone of our nation's successful employer-provided health care system.

[Footnote 1: 29 U.S.C. Sec. 1001, et seq.]

[Footnote 2: 29 U.S.C. Sec. 1001(a).]

When Congress enacted ERISA, much of the dialogue about employer-sponsored benefits pertained to pension plans. Today, more than 131 million Americans obtain their health insurance coverage through an employer-sponsored health plan covered under ERISA. This

means that more Americans receive health benefits voluntarily provided by their employer than any other form of health care insurance including Medicare and Medicaid.

The Committee believes our nation's employer-provided health care system to be an enormous success story. Indeed, the Committee views its task with regard to this system to be to protect it from federal proscriptions, such as increased federal mandates, that cause the provision of health care insurance to become more costly, thereby making it more difficult for employers to offer health coverage to their employees.

It is the view of the Committee that ERISA's preemption of state mandates and regulation has provided a stable framework by which employers have been able to offer health plans to workers and their families.

An April 2002 study by PriceWaterhouseCoopers notes that state mandates have increased 25-fold over the time period from 1970-1996. 3

[Footnote] Thus, during the three decades since ERISA was enacted, self-insured employers offering health plans would have seen their regulatory and administrative burden increase accordingly, were it not for ERISA's preemption.

[Footnote 3: PriceWaterhouseCoopers, The Factors Fueling Rising Health Care Costs, April 2002.]

Under ERISA, employers and unions offering health insurance products to their employees must comply with state regulation for these health policies. This is the result of the Supreme Court's ruling in Metropolitan Life Insurance Co. v. Massachusetts, 471 U.S. 724 (1985). In that decision, the court held that if an employer's health plan purchases a fully insured product offered by an insurer regulated by the states, then such insurance regulation may include imposing requirements that specific benefits be included in the products sold to the plan. 4

[Footnote] These state laws then fall within the jurisdiction of Section 514(b)(2)(A) of ERISA, which saves any law of any state that regulates insurance from being preempted by ERISA. 5

[Footnote]

[Footnote 4: Metropolitan Life Insurance Co. v. Massachusetts, 471 U.S. 724 (1985).]

[Footnote 5: 29 U.S. C Sec. 1144(b)(2)(A).]

However, when an employer or union self-funds the health benefits it provides to workers (i.e. taking on the risk of insurable events), ERISA ensures that the employer or union cannot be deemed to be in the business of insurance. 6

[Footnote]

[Footnote 6: 29 U.S.C. Sec. 1144(b)(2)(B).]

Thus, those employers and unions who self-fund or self-insure their benefits are able to take advantage of ERISA's preemption of state regulation to offer a uniform health benefit package that can be offered to individuals across state lines. 67 million of the 131 million Americans who obtain their health insurance from their employer receive benefits through a self-funded plan.

The preemption of state benefit mandates well serves employers, unions, and employees. PriceWaterhouseCoopers estimates that the 1500 state benefit mandates make up 15 percent of the increased cost of health insurance for 2002. 7

[Footnote] These costs might well price many employers out of the business of offering insurance were it not for the opportunity to self-fund their health care under ERISA.

[Footnote 7: Ibid.]

However, rather than use the preemption of state benefit mandates to offer inferior health care to workers, unions and self-insured large employers offer rich benefit packages to their workers. As cited in a 1996 GAO study, a KPMG study found that self-funded plans are more likely to offer benefits and services that are most commonly mandated by states than fully insured plans. 8

[Footnote] This pattern holds true for other benefits that are not typically mandated.

[Footnote 8: US GAO `Health Insurance Regulation--Varying State Requirements Affect Cost of Insurance, August 1996.]

Uniformity also provides for lower administrative costs. A 2002 Robert Wood Johnson Research Synthesis Report cites the fact that administrative costs make up only 12 percent of health care costs for large employers. This is compared to the administrative costs for smaller employers that make up 40 percent of overall health costs. 9

[Footnote]

[Footnote 9: Robert Wood Johnson Foundation, `Are Health Insurance Premiums Higher for Small Firms?' September 2002.]

Employees surveyed about their health benefits conclude in wide majorities that they are pleased with their employer-sponsored coverage and that they are not willing to risk losing this coverage in order to obtain additional mandated benefits. 10

[Footnote]

[Footnote 10: 2002 Health Confidence Survey, September 2002; Kaiser Family Foundation/Harvard School of Public Health, `National Survey on Consumer Experiences With and Attitudes Toward Health Plans: Key Findings,' August, 2001.]

However, though the Committee views the history of employer-sponsored health benefits since the enactment of ERISA as a success story, the Committee acknowledges that the employer sponsored health care system faces challenges. In particular, the Committee is concerned about the issue of rising health care costs and the extent to which these health care costs result in less coverage.

Challenges to Employer-Provided Health Care

Estimates for 2001 show that for the average employer, the cost of providing health care increased by 11 percent. Though 2002 premium increases have not yet been released, experts expect the increase to be in the area of 13 percent. At a hearing before the Subcommittee on Employer-Employee Relations in June of 2002, Paul Ginsburg, President of the Center for Studying Health System Change, testified about the threat these increases pose to the employer-sponsored health care system:

Rising health costs affect people's ability to afford health insurance. When insurance premiums rise faster than workers' wages, fewer people obtain employment-based health insurance. This happens through small employers deciding not to provide coverage to their employees and employees deciding not to take up employer coverage because the employee contribution is too high. If health care costs trends continue to exceed

increases in wage rates by a large margin, this could result in substantial loss of employer-based health insurance. 11

[Footnote]

[Footnote 11: Hearing on `The Rising Costs of Health Care: How are Employers and Employees Responding?' before the Subcommittee on Employer Employee Relations, Committee on Education and the Workforce, U.S. House of Representatives, 107th Congress, Second Session, June 18, 2002.]

Catherine Longley, Commissioner of Professional and Financial Regulation, State of Maine, agreed with Ginsburg's testimony and shared these insights about the situation Maine employers face:

In the State of Maine, we are facing a health care cost crisis. Although health care costs have increased dramatically across the country, they have increased even faster in Maine. Nationally, from 1990-1998, the per capital expenditures for personal health care increased an average of 53.3%; in Maine, the increase was 80.4% for the same period of time* * * Maine employers are faced with difficult choices--do they continue existing policies at a significant increase in cost and shift more of the cost of the health insurance to employees; do they retain coverage but offer higher deductible policies; do they forego increasing employee salaries to maintain coverage; or do they drop coverage altogether? 12

[Footnote]

[Footnote 12: Hearing on `The Rising Costs of Health Care: How are Employers and Employees Responding?' Subcommittee on Employer-Employee Relations, Committee on Education and the Workforce, U.S. House of Representatives, 107th Congress, Second Session, June 18, 2002.]

Commissioner Longley testified that the State of Maine and Independent Governor Angus King, have recognized that state imposed benefit mandates impose significant costs on employers and have taken dramatic steps to address this:

For example, in 1995, Governor King signed a progressive mental health parity law that required health insurance coverage for 7 specific biologically based mental illnesses in policies held by employer groups of 20 or more. Since that time, the King Administration has grown more and more concerned about the dramatic increases in health care costs and effect of public policy on those increases. As a result, in 2002 the Administration adopted a presumption against further mandates, which only the most compelling of arguments should overturn. Given the circumstances this year, Governor King felt that he could no longer support additional mandates and accordingly, vetoed LD 1627, `An Act to Ensure Equality in Mental Health Coverage,' the only health insurance mandate vetoed during his nearly eight years as governor. * * * it was felt that Maine could ill afford any new mandate that would further increase costs. As Governor King stated in his April 11, 2002 veto message to the Maine Legislature, `When you are in a hole, the first rule is not to dig any deeper.' 13

[Footnote]

[Footnote 13: Hearing on `The Rising Costs of Health Care: How are Employers and Employees Responding?' Subcommittee on Employer-Employee Relations, Committee on Education and the Workforce, U.S. House of Representatives, 107th Congress, Second Session, June 18, 2002.]

Challenges to small employers

Nowhere is the threat to employer-sponsored health care more apparent than in the situation regarding small businesses. For those small employers who can afford health insurance for their employees, a fully insured plan is often their only available option. The net effect of the Metropolitan Life decision has been to subject these smaller employers that fully insure to the burdens of costly state mandates, thereby making health insurance for their employees even less affordable than it is for larger employers who are not subject to state mandates.

Because of their size and limited resources, self-insuring is not a viable option for small firms, and thus they must purchase fully insured health products that are subject to state benefit mandates. In fact, firms with fewer than 100 employees offered self-insured plans at just 11 percent of all work sites in 2000. 14

[Footnote] This means that small firms bear the entire state regulatory burden--and the increased costs that accompany it--that their larger employer and union counterparts are able to avoid.

[Footnote 14: Medical Expenditure Panel Survey from Agency for Healthcare Research and Quality as cited by NovaRest Consulting, `New York State Mandated Health Insurance Benefits, May 2003.']

Small businesses also suffer from greater variability in claims costs. In a firm with very few employees, a sick employee will have a greater impact on health care premiums, and these rising premiums sometimes price these firms out of insurance altogether. By contrast, because the employer pool is larger, sick employees in a larger group are less likely to cause premiums to rise as the healthy employees balance out the sicker individuals.

In July of 2002, the Subcommittee on Employer-Employee Relations held a hearing on the problem of the uninsured. At the hearing, Joe Rossmann, Vice President of Fringe Benefits, Associated Builders and Contractors (ABC) testified to the increases in costs that ABC's member companies, most of which are smaller employers, are experiencing:

For example, in Houston, Texas, Acoustical Concepts, Inc. was forced to accept a premium increase of 47% this year, even though they had no significant claims. Moreover, their insurance company, Blue Cross/Blue Shield, has informed them that in 1-2 years, the 87 employees at this company will be offered only catastrophic coverage. 15

[Footnote]

[Footnote 15: Hearing on `Expanding Access to Quality Health Care: Solutions for Uninsured Americans' Subcommittee on Employer-Employee Relations, Committee on Education and the Workforce, U.S. House of Representatives, 107th Congress, Second Session, July 9, 2002.]

He went on to say that, `Indeed, massive premium increases of 40 percent, 50 percent and higher, and/or benefit reductions, are typical of what small businesses throughout the nation are experiencing today.' 16

[Footnote]

[Footnote 16: Ibid.]

At a later hearing on H.R. 660, the Small Business Health Fairness Act, Phyllis Burlage, President, Burlage Associates, shared her experience:

`My rate hike this year is 45% with our health maintenance organization (HMO). This is real money since I absorb all the cost increases for my employees. Since 1996,

my company has experienced a 226% increase in premiums--how can any business survive with these types of increases over just a few years?' 17

[Footnote]

[Footnote 17: Hearing on `H.R. 660, the Small Business Health Fairness Act,' Subcommittee on Employer-Employee Relations, Committee on Education and the Workforce, U.S. House of Representatives, 108th Congress, First Session, March 13, 2003.]

There is ample evidence to indicate that small employers face greater challenges than larger employers or unions in providing health coverage--putting workers in small businesses at a greater risk of being uninsured.

High costs for small employers means workers in small businesses are uninsured

The increase in costs for small employers means that workers in small businesses are not offered health care insurance or are at risk of losing their health insurance. According to figures released by the U.S. Census Bureau in September 2002, the number of Americans who have no health insurance increased to more than 41 million. Declining coverage in the employer based market accounts for the increase in the uninsured. Significantly, the reduction in employer-sponsored coverage comes almost totally from a decrease in the number of individuals covered by small employers.

Over 50 percent of the 41 million uninsured Americans either work in a small business or are a dependent of a small business worker. 18

[Footnote] The cost of insurance is the most significant barrier to insurance coverage for workers and their families. 19

[Footnote]

[Footnote 18: Department of Labor estimates of working families' health insurance status, based on the Census Bureau's annual March Current Population Survey.]

[Footnote 19: Testimony of Harry M. J. Kraemer, Jr., Chairman and CEO, Baxter International, Inc., on behalf of the Healthcare Leadership Council, at Subcommittee on Employer-Employee Relations Hearing on `Expanding Access to Quality Health Care: Solutions for Uninsured Americans' Committee on Education and the Workforce, U.S. House of Representatives, 107th Congress, Second Session, July 9, 2002.]

Indeed, the cost of health coverage is the most important factor employers cite in their decision whether to offer health care to their employees and their families. A 1997 survey by the Henry J. Kaiser Family Foundation indicated that small firms are extremely price sensitive. This survey found that even a 5 percent decrease in price would result in a 10-15 percent increase in the likelihood of purchasing a plan.

Testimony from Ann L. Combs, Assistant Secretary for Employee Benefits Security, U.S. Department of Labor, explains some of the barriers to coverage that small firms face:

Cost is clearly the biggest barrier for small employers that want to provide health insurance. For a variety of reasons, insurers typically charge small firms more per employee than large firms for comparable coverage. Small company premiums are 20 percent to 30 percent higher than those of large self-insured companies with similar claims per covered employee. Cost drivers include small businesses administrative overhead, insurance company marketing and underwriting expenses, adverse selection, and state regulatory burdens. Small firms are likely to offer less generous benefits and more of their premiums are consumed by administrative costs. 20

[Footnote]

[Footnote 20: Hearing on `H.R. 660, the Small Business Health Fairness Act,' Subcommittee on Employer-Employee Relations, Committee on Education and the Workforce, U.S. House of Representatives, 108th Congress, First Session, March 13, 2003.]

Though the primary barrier to health coverage for small businesses is cost, other factors also deter small firms from offering coverage. Testimony from Harry M. J. Kraemer, Jr., Chairman and CEO, Baxter International, Inc., on behalf of the Healthcare Leadership Council, provides additional reasons that small firms are less likely to offer health care coverage:

In an April 2002 survey by the Kaiser Family Foundation, over one third of small businesses not offering coverage said that administrative hassle was a very important reason * * * A 2000 focus group of the California Health Care Foundation found that a lack of unbiased, easily understood information on health insurance was a major barrier in acquiring coverage. Many small business owners do not fully understand the health insurance market and are skeptical of information from insurance companies, the focus group report stated. This lack of credible information could be leading to inaction on the part of employers * * *An EBRI 2000 Small Employer Health Benefits Survey found that many small employers make decisions about whether to offer health benefits to their workers without being fully aware of the tax advantages that can make this benefit more affordable. This survey found that 57 percent of small employers do not know that health insurance premiums are 100 percent tax deductible. 21

[Footnote]

[Footnote 21: Subcommittee on Employer-Employee Relations Hearing on `Expanding Access to Quality Health Care: Solutions for Uninsured Americans' Committee on Education and the Workforce, U.S. House of Representatives, 107th Congress, Second Session, July 9, 2002.]

These factors, administrative costs, necessity of information about health insurance, and tax structure, are easily borne by larger employers. Taken together, however, they add to the difficulties that small employers face in offering health care coverage to their employees.

Solutions for our Nation's uninsured--the Small Business Health Fairness Act, H.R. 660

It is the strong belief of the Committee that solutions to the growing problem of the uninsured, particularly in small businesses, can only be found by utilizing the strengths of the employer-based health care system. Harry Kraemer's testimony puts it this way:

In all of our research, the single most important point that cannot be ignored is that the uninsured issue is a workplace issue, with millions of wage-earning households representing the lion's share of the uninsured population. It then stands to reason that our most effective solutions must be found within the existing private employer-based health care system. 22

[Footnote]

[Footnote 22: Subcommittee on Employer-Employee Relations Hearing on `Expanding Access to Quality Health Care: Solutions for Uninsured Americans' Committee on Education and the Workforce, U.S. House of Representatives, 107th Congress, Second Session, July 9, 2002.]

The Committee believes that if smaller employers were able to band together to become larger purchasers of health insurance, that this would give small businesses greater economies of scale, allowing them to bargain for health insurance with the clout of much larger businesses. In addition, if small businesses were able to self-fund their health plans, they would relieve the regulatory burden of state mandated benefit laws. The Committee believes that these two factors would combine to significantly lower the costs of health insurance, making it possible for very small firms to offer insurance.

The Small Business Health Fairness Act, H.R. 660, introduced by Representatives. Ernie Fletcher (R-KY), Subcommittee on Employer-Employee Relations Chairman Sam Johnson (R-TX), Nydia Velazquez (D-NY) and Cal Dooley (D-CA) amends ERISA to allow the establishment of Association Health Plans (AHPs). AHPs allow small businesses to join together under the umbrella of bona fide trade associations to become larger purchasers of health insurance. In addition, AHPs make it possible for small employers to self-insure, thereby avoiding costly state benefit mandates. The Committee expects that this will lower costs for small employers by 15-30 percent, making it possible for small firms to offer health insurance to workers and their families, many of whom are uninsured. Because of this, the Committee expects that AHPs will reduce the number of the uninsured by millions.

The Association Health Plan (AHP) bill is not new to the Committee on Education and the Workforce. AHP provisions were first included in H.R. 995, the ERISA Targeted Health Insurance Reform Act of 1995, introduced by then Subcommittee on Employer-Employee Relations Chairman Harris Fawell (R-IL) on February 21, 1995.

During the 105th Congress, Representative Fawell introduced the AHP bill as the Expansion of Portability and Health Insurance Coverage Act of 1997. This bill was added to the Balanced Budget Act and approved by the House of Representatives in July of 1998, however a House-Senate Conference Committee again dropped the provisions from the final report. In 1998, the AHP bill was included in broader Patients' Bill of Rights legislation that passed the House of Representative in July of 1998

During the 106th Congress, Representative Jim Talent (R-MO) introduced the bill as the Small Business Access and Choice for Entrepreneurs Act of 1999, H.R. 1496. The provisions of this bill passed the House of Representatives in October of 1999 with a bipartisan vote of 227-205.

Representative Ernie Fletcher introduced the AHP bill in the 107th as the Small Business Health Fairness Act, H.R. 1774. The bill was added to broader Patients' Bill of Rights legislation and passed the House of Representatives in August of 2001 by a vote of 226-203.

AHPs have been a companion of Patients' Bill of Rights legislation because they offer the most basic patient protection of all, access to health care. However, because of the inherent controversy of patients' rights legislation, the issue of access to health care has remained dormant while Congress debated the controversial provisions, which expand liability for health care coverage provided by employers.

It is the strong belief of the Committee that Congress can no longer wait to provide access to health care to our nation's uninsured, particularly those employed by small businesses. Thus, the Committee again moves forward with the AHP bill, hoping that this time it will be considered by the House of Representatives without the accompaniment of controversial patients' rights legislation.

Benefits of Association Health Plans

As discussed supra, the preemption of state mandates is an integral aspect of ERISA. Because most small employers do not have the resources to take on the risk of self-insurance, they have been foreclosed from ERISA's federal preemption, and are held captive instead to the states' regulation of fully insured health products. Thus, small employers are not on a level playing field with large employers and unions.

Representative Bill Archer (R-TX) predicted this dynamic at ERISA's passage:

I think it is interesting to note that here we are trying to permit small employers to compete with big business, and that this * * * will have just the reverse effect; the large corporations and the unions have been basically excepted by this bill. But the small employer * * * will no longer be able to compete, in many instances, with the big corporations. 23

[Footnote]

[Footnote 23: Debate on H.R. 2, the Welfare and Pension Plans Disclosure Act, U.S. House of Representatives, February 27, 1974.]

AHPs will solve many of these problems for small employers. Testimony from Ann L. Combs, Assistant Secretary for Employee Benefits Security, U.S. Department of Labor, at a March 2003 Subcommittee on Employer-Employee Relations Hearing on H.R. 660, discusses the benefits of AHPs for small businesses:

In an AHP, the current market and financial barriers that face small businesses would be reduced or eliminated. Small businesses would enjoy greater bargaining power, economies of scale, administrative efficiencies, and the benefits of a uniform regulatory structure, giving them more access to affordable coverage. 24

[Footnote]

[Footnote 24: Hearing on H.R. 660, the Small Business Health Fairness Act, Subcommittee on Employer-Employee Relations, Committee on Education and the Workforce, U.S. House of Representatives, 108th Congress, First Session, March 13, 2003]

Joe Rossmann, Vice President of Fringe Benefits, Associated Builders and Contractors (ABC) describes the experience of the association health plan offered by ABC before it was forced to discontinue its health coverage due to overlapping, inconsistent and incompatible state laws:

We estimate that AHPs * * * can reduce the cost of health benefits by 15-30 percent for small business workers. We know this because association plans have already proven they can deliver savings compared with the cost of small employers purchasing directly from an insurance company. For example, the AHP sponsored by ABC for more than 40 years, which operated nationally, had total administrative expenses of 13 1/2 cents (13.5 percent) for every dollar of premium. These costs included all marketing, administration, insurance company risk, claim payment expenses and state premium taxes. Alternatively, small employers who purchase coverage directly from an insurance company can experience total expenses of 25 to 35 cents (25-35 percent) for every dollar of premium. 25

[Footnote]

[Footnote 25: Subcommittee on Employer-Employee Relations Hearing on `Expanding Access to Quality Health Care: Solutions for Uninsured Americans' Committee on Education and the Workforce, U.S. House of Representatives, 107th Congress, Second Session, July 9, 2002.]

By utilizing the time-tested feature of federal preemption contained in ERISA, AHPs build upon the successes produced by private sector innovation and market competition. Rather than creating a new federal law, H.R. 660 builds on the current successful ERISA framework upon which plan sponsors have relied for almost thirty years. The enactment of AHP legislation would put the nation well on its way to closing the gap in health insurance coverage by offering millions of uninsured workers, their spouses and their children, the opportunity to access more affordable health coverage.

Unfortunately, the smallest employers have not shared in the advantages of ERISA. AHPs build on ERISA to give smaller employers the same economies of scale and freedom to offer affordable coverage that larger employers and unions enjoy. In short, the bill clears the way for market forces to bring small employers costs down.

Why current ERISA law needs changes to clarify the status of association health plans under Federal and State law

Allowing small employers to join together to form multiple employer plans is the most efficient means to deliver affordable health coverage to employees, particularly for smaller employers and employees who work in industries with high job mobility or above-average insurance risk. However, current law has not achieved the twin goals of preserving self-insurance as an option for multiple employer plans of legitimate business and industry associations while keeping `bogus unions' and fraudulent insurance schemes from using ERISA's federal preemption clause as a shield against state regulation of their abusive health insurance practices.

Under ERISA, a multiple employer welfare arrangement (MEWA) is defined as a plan or other `non-plan' arrangement established to offer or provide ERISA welfare benefits (e.g., health benefits) to the employees of two or more employers. 26

[Footnote] Under current law, the breadth of this definition should be read to sweep in the following types of entities: (1) large employer plans that include employees of entities outside the `control group' of the employer; (2) `church plans' and governmental plans currently exempt from ERISA; (3) multiple employer entities, such as those maintained by legitimate trade, industry and professional associations, which meet the definition under ERISA of an `employee benefit plan'; and (4) other multiple employer welfare arrangements which do not meet the definition under ERISA of an `employee benefit plan'. 27

[Footnote]

[Footnote 26: The statute expressly excludes from the MEWA definition plans or other arrangements which are established or maintained--(i) under or pursuant to one or more agreements which the Secretary (of Labor) finds to be collective bargaining agreements, (ii) by a rural electric cooperative, or (iii) by a rural telephone cooperative association.' The Department issued a regulation establishing standards and procedures for determinations as to whether a plan or other arrangement would be treated as established or maintained under or pursuant to one or more collective bargaining agreements for purposes of the above noted exception under ERISA section 3(40)(A)(i). See 20 C.F.R. Sec. 2510.3-40.]

[Footnote 27: 29 U.S.C. Sec. 1003(40).]

In general, ERISA's federal preemption provisions allow states to regulate insurance products that employee benefit plans purchase, but preclude states from applying state insurance law directly to ERISA-covered employee benefit plans. 28

[Footnote] As originally enacted, this broad preemption included self-insured multiple employer entities that met ERISA's definition of `employee benefit plan.'

[Footnote 28: This concept is incorporated in ERISA section 514 as the so-called `deemer clause' prohibiting states from deeming ERISA plans to be an insurance company or engaged in the business of insurance for purposes of any state law purporting to regulate insurance. 29 U.S.C. Sec. 1144(b)(2)(B).]

Unfortunately, illegitimate schemes (which did not rise to the level of ERISA `employee benefit plans') promoted by `bogus unions' and others were able to delay and thwart legitimate state enforcement efforts by claiming ERISA preemption. To remedy this, ERISA was amended in 1983 in an attempt to clarify the ability of states to regulate the non-ERISA-plan entities as well as legitimate self-insured ERISA multiple employer plans (but the regulation by the states of the latter was conditional, i.e., regulation is permitted only `to the extent not inconsistent with the provisions' * * * of ERISA Title I). 29

[Footnote] This later clause was intended to facilitate state regulation of all self-insured benefit arrangements by allowing responsible state regulation of self-insured multiple employer ERISA plans. It was not expected that states would use this authority to terminate legitimate self-insured plans solely because they were not licensed under state laws designed to regulate commercial insurance companies.

[Footnote 29: U.S.C. Sec. 1144.]

Unfortunately, the 1983 amendment to ERISA did not achieve its intended objective. While a few states have enacted specific statutes regulating legitimate self-insured multiple employer plans, others have outlawed all self-insured multiple employer benefit arrangements, even legitimate self-insured ERISA plans. Some state actions have been selective in nature and have not followed any consistent basis either within a state or among states.

Neither did the 1983 amendment achieve the objective of stemming the number of illegitimate enterprises that continue to bilk the public under arrangements that are not legitimate ERISA `employee benefit plans'.

H.R. 660 will meet these dual objectives by enabling legitimate associations to maintain or establish multiple employer plans by voluntarily seeking licensure in the few states permitting this or to seek federal certification. Entities that do not have either a state or federal certification will be fully subject to state law. Therefore the states, as they choose, may force them to meet any insurance or multiple employer plan licensing requirements or shut them down. Under the

bill, all such entities must register with DOL and the states and are subject to the criminal penalties under ERISA for failure to do so (illegitimate entities will become criminal enterprises). In addition, the Department of Labor is given `cease and desist' authority to curtail the activities of any such illegitimate entities.

The above-described changes are necessary to clarify ERISA preemption and the role of the states and the federal government in relation to MEWAs.

These clarifications of ERISA preemption relating to MEWAs will free substantial federal resources that have been spent to stop health insurance fraud and abuse. Moreover, the considerable state resources involved in stopping MEWA fraud will be released for more productive purposes. Additional resources of the federal government can also be redirected more productively in administering the new law and helping expand more affordable health coverage.

As described in more detail below, the bill will require self-insured AHPs to meet solvency, fiduciary, and other necessary standards. The fact is that, under the bill, legitimate association self-insured arrangements will be subject to greater solvency regulation than union-sponsored multiemployer plans and the self-insured single-employer plans of even the largest employers.

Conclusion

H.R. 660 will open up the health insurance market to the millions of American workers and their families who today do not have access to or cannot afford private health insurance. It does so by removing the structural barriers that prevent some employers from voluntarily providing health insurance to their employees, either on their own or as part of an association health plan.

The bill employs Title I of ERISA to provide a twenty-first-Century model of freedom for employees and employers to negotiate benefits, letting market forces help reduce health care costs, thus making health insurance coverage more available and affordable for the American worker.

It is long overdue that cost-conscious small employers be given the same opportunity to achieve the economies of scale and freedom from excessive government regulation that large employers and unions already enjoy. Removing barriers and allowing small employers to pool together to voluntarily form ERISA multiple employer health plans can effectively address the problems of uninsured workers and their families.

AHPs build on what is already working in our employer-based health care system; and the increased health plan competition that results will mean improved access to more affordable coverage for millions of employees, particularly those uninsured individuals and their families who work for small businesses.

In conclusion, the only way major strides in expanding access to health coverage for the uninsured can be achieved in a voluntary market is to make reforms that bring down the cost of providing health coverage to employers, particularly small employers. Health care reform that is effective in expanding access and based on free market principles is possible. It is in the grasp of this Congress in the form of AHPs. It is the strong belief of the Committee that H.R. 660 presents this Congress with perhaps its best opportunity since the passage of ERISA to expand access to affordable health insurance for the many American families who are currently uninsured.

B. LEGISLATION

As described supra, providing access to affordable health care coverage for American workers and their families has been the subject of considerable Committee attention during the current and past Congresses. H.R. 660, the Small Business Health Fairness Act, will do just that.

H.R. 660's rules governing establishment of association health plans

H.R. 660 amends Subtitle B of Title I of ERISA to add a new Part 8 that sets forth rules governing the establishment of AHPs. AHPs are defined as group health plans whose sponsors are bona fide trade, industry or professional associations or bona fide chambers of commerce. These organizations must be organized and maintained in good faith for a continuous period of not less than three years with purposes other than that of obtaining or providing medical care. They must be established as permanent entities, receiving the active support of members and requiring for membership payment on a periodic basis of dues or payments necessary to maintain eligibility for membership in the sponsor. These bona fide organizations must not condition membership, dues or payments, or coverage under the association health plan on the basis of health-status related factors. In addition to the associations described above, franchise networks are eligible to seek certification as AHPs.

Opponents of H.R. 660 have charged that the bill will result in a segmented small group market, i.e. that associations will form AHPs in order to select or `cherry pick' healthy individuals away from state small group markets. Indeed, under current law, sham `unions' and other fraudulent insurance organizations have claimed ERISA preemption in order to evade state regulation. Not all states have statutes dealing with MEWA's and many states suffer from insufficient resources and ineffective enforcement of regulations, leaving these fraudulent insurance schemes unchallenged

The Committee intends the bill's requirements that only allow bona fide trade and professional associations, such as National Federation of Independent Business and the National Restaurant Association, to offer AHPs to protect against `cherry picking,' or selection of lower risk individuals into AHPs. This ensures that AHPs will not be formed in order to select healthy individuals; rather, associations must have a larger purpose in order to form or establish an AHP. Additional protections against `cherry picking' will be discussed later.

H.R. 660's procedures and conditions for certification for AHPs

H.R. 660 establishes procedures for the certification of AHPs. In the case of a self-insured AHP, the Department of Labor (DOL) shall grant certification only if all of the requirements of the newly established Part 8 are met, or will be met upon the date on which the plan is to commence

operations. Self-insured association health plans must have at least 1,000 participants and beneficiaries and may only be certified if they are one of the following:

In addition to the requirement that only bona fide trade and industry associations may offer AHPs, the Committee believes that these requirements, allowing only multi-industry associations, or trade associations with average risk to self-insure, will be a further protection against `cherry picking.'

In the case of AHPs that offer fully insured health products, the Secretary shall establish a class certification procedure. Because of the states role in regulating insurance, the Committee envisions the class certification process to involve the appropriate state regulatory authorities. For example, as state insurance commissioners will continue to govern the solvency of fully insured health insurance products offered by AHPs, the Committee intends the Department of Labor to consult with state insurance commissioners to ensure that issuers offering products to AHPs meet appropriate solvency standards. The Committee expects that this consultation would be maintained on an ongoing basis to ensure that certified AHPs offering fully insured health products continue to meet appropriate state standards.

All AHPs must be operated, pursuant to a trust agreement, by a `board of trustees' which has fiscal control and which is responsible for all operations of the plan. The board of trustees must develop rules of operation and financial control based on a three-year plan of operation, which is adequate to carry out the terms of the plan and to meet all applicable requirements of Title I of ERISA. The board of trustees must consist of individuals who are owners, officers, directors or employees of the employers who participate in the plan. Instruments governing the AHP must provide that the board of trustees serves as the named fiduciary and plan administrator, that the sponsor serves as plan sponsor, and that certain reserve requirements are met.

AHPs must meet all of ERISA's fiduciary rules requiring that the assets of an employee benefit plan be held in trust for the exclusive benefit of plan participants and their beneficiaries, and for defraying reasonable expenses of administering the plan. Part 4 of Title I of ERISA explains the fundamental duties of fiduciaries to employee benefit plans. In short, fiduciaries are to act solely in the interest of participants and beneficiaries with care, skill, prudence and diligence. 30

[Footnote] The Committee believes that the fiduciary duty of loyalty--the highest duty of loyalty known to the law--is the ultimate protection to participants and beneficiaries in ERISA plans. 31

[Footnote]

Accordingly, the Committee believes that the employers and employees who participate in AHPs will be well-protected.

[Footnote 30: 29 U.S.C. Sec. 1104.]

[Footnote 31: See, e.g., Donovan v. Bierwith, 680 F.2d 263, 272 n.8 (2d Cir. 1982).]

Additional certification criteria include the filing of a complete application; a filing fee of $5,000; financial, actuarial, reporting, and participation requirements; and such other requirements as may be specified by the Secretary as a condition of the certification. In addition, the application must include the following: (1) identifying information about the arrangement and the states in which it will operate; (2) evidence that ERISA's bonding requirements will be met; (3) copies of all plan documents and agreements with service providers; (4) a funding report indicating that the reserve requirements will be met, that contribution rates will be adequate to cover obligations, and that a qualified actuary who is a member in good standing of the American Academy of Actuaries has issued an opinion with respect to the arrangement's assets, liabilities, and projected costs; and (5) any other information prescribed by the Secretary. Certified AHPs must notify the applicable authority of any material changes in this information at any time, must file annual reports with the Secretary, and must engage a qualified actuary.

AHPs are also required to file their certification with the applicable state authority of each state in which at least 25% of the participants and beneficiaries under the plan are located.

H.R. 660's Protections Against Discrimination

H.R. 660 prohibits discrimination against eligible employers and employees by requiring that all employers who are association members must be eligible for participation under the terms of the plan and informed of all benefit options available. In addition, H.R. 660 requires that all eligible individuals of such participating employers may not be excluded from enrolling in the plan because of health status.

Despite these protections, opponents of H.R. 660 have criticized it as allowing anti-selection with respect to the small group market. The Committee notes that requiring all employers who are members of the bona fide association to be eligible for the AHP is equal to or greater than any state law governing insurers.

In addition, employers participating in the AHP are forbidden from selectively providing sick individuals with coverage in the individual health insurance market. The Committee intends this prohibition to be an additional protection against `cherry picking' by ensuring that AHPs may not in effect select against sick individuals by allowing their employers to provide coverage to these workers outside of the AHP.

H.R. 660 allows AHPs to include minimum participation, contribution, and size requirements to the extent that they meet the nondiscrimination and other rules under sections 701, 702, and 703 of ERISA. 32

[Footnote]

[Footnote 32: 29 U.S.C. Sec. 1171, 1172, 1173.]

AHPs are specifically prohibited from denying or conditioning health insurance for individuals on the basis of health status. Specifically, the bill requires AHPs to follow the same rules on portability, pre-existing conditions, nondiscrimination and renewability that large employers and insurance companies must follow under the 1996 Health Insurance Portability, Accessibility and Accountability Act (HIPAA).

In addition to H.R. 660's protections for individuals, the bill also requires that the contribution rates for any particular employer must be nondiscriminatory. This means that contribution rates for employers cannot vary on the basis of any health status-related factor with respect to employees of particular employers or on the type of business or industry in which the employer is engaged--unless the state where that small employer is located would specifically allow such a variation, and then, only to the extent that the state would allow.

During full Committee consideration of the bill, the Committee considered and rejected two amendments that would have prohibited AHPs from varying rates for small employers even if the state law allowed such a variance. The Committee has included many protections in the bill in order to prevent the practice of `cherry picking' by AHPs. The Committee believes that it is important to note that if H.R. 660 did not allow AHPs to vary contribution rates for small employers in a state to the extent that the state law would allow, it would be likely that health insurance issuers would `cherry pick' the healthier small employer groups out of the AHP.

Some would propose that AHPs should be required to `community rate' or average the claims of all participating employers in the AHP and charge each an equivalent contribution rate. They assert that group pooling is all that is needed to lower health insurance costs and thus avoid the `cherry picking' of healthier groups by health insurance issuers.

Though the Committee believes that pooling of risk will indeed lower costs, in some cases, it would not be enough to prevent the `cherry picking' of healthy groups by health insurance issuers. For example, the State of Illinois allows issuers to vary rates for small employers on the basis of medical information. Thus, an issuer might attempt to draw healthier groups away from the AHP by offering a rate that could be 67% lower than a sick group. While economies of scale will lower the health insurance costs of the employers participating in an AHP, it is unlikely that they will be lowered by 67%. Thus, in the Illinois case, it is obvious that the AHP may need to have the same flexibility as other state regulated products to attract a broad cross section of its membership versus only the unhealthy groups.

The Committee also notes that almost every state allows rates for small employers to vary by some factors, such as age, gender or geography. Only two states, New York and Vermont, have gone so far as to require strict `community rating' in the small group market. Allowing issuers to vary rates while requiring community rating for AHPs would virtually ensure that issuers have an advantage over AHPs in the marketplace, thereby resulting in adverse selection against AHPs.

Another argument that has been used to support the contention that H.R. 660 will allow `cherry-picking' is the assertion that state insurance rating rules will not apply to fully insured health products offered by AHPs. It is the view of the Committee that in the case of AHPs that offer fully insured health coverage, H.R. 660 does not generally preempt state laws that govern the rating of insurance products offered by associations except in the cases discussed below.

The Committee intends H.R. 660 to preempt state insurance rating laws for fully insured plans to the extent that they would prohibit AHPs from setting premiums on the basis of the claims of the AHP plan. For example, some state laws require that claims for all small employers in the state (those in and out of the AHP) be averaged to determine a general average for premium setting purposes. In those states, these laws would be preempted.

Importantly, should a state attempt to regulate federally certified AHPs more strictly with regard to allowable rating practices than other non-AHP associations offering coverage in a state, H.R. 660 would preempt these laws as well.

In contrast to the situation for AHPs that offer fully insured health products, self-insured AHPs, like self-insured union and employer plans, will not be subject to state rating laws because they are not in the business of insurance. ERISA sets no federal requirements for self-insured plans--it does not require that large employers or unions `community rate' their plans. These plans can and do vary their rates for employees, particularly on geography. Nothing in federal law prohibits a union or large employer from varying rates for a group of their similarly situated individuals. For example, a different collective bargaining unit, a different employer in a multi-employer plan, or a set of employees located in a different geographic location, could have different rates.

It is the intention of the Committee that self-insured AHPs be allowed to vary rates on geography, age, family composition, gender or other criteria, as is the case for other self-insured plans.

During full Committee consideration of the bill, there was discussion about the interplay of ERISA and the rights and protections of individuals under Title VII of the Civil Rights Act. As the AHP bill is simply an amendment to ERISA, it does not change the relationship of these two laws. Because of this, protections for individuals under the Title VII of the Civil Rights Act will be the same for workers participating in AHPs as they are for workers who receive health coverage under ERISA plans today.

H.R. 660's preemption of State mandates

H.R. 660 allows AHPs to exercise sole discretion in selecting specific items and services to be covered under the plan. This rule is true for both AHPs that offer fully insured health products as well as AHPs that self-insure. As such, the bill preempts any state law that would specify items or services to be covered under the plan.

Clearly, AHPs that self-insure would be exempt from state laws that require specific items or services as they are not in the business of insurance. However, preemption is also granted in the case of fully insured health products. As the bill specifically requires that a self-insured AHP have at least 1000 participants, in order for smaller associations to take advantage of the

preemption from benefit mandates, they must also be preempted on the fully insured side. However, the bill does not preempt state laws that require health plans to cover individuals with specific diseases, such as diabetes, or AIDS, in the state where the AHP is domiciled.

During Committee consideration of the bill, the Committee rejected amendment after amendment that would have allowed general preemption of state benefit mandates with specific exceptions. The Committee feels strongly that (1) many individuals who receive coverage through AHPs would otherwise have had no health care coverage, and (2) coverage offered by AHPs will be high quality, covering most if not all of the benefits that are typically mandated by the states.

Because of this, the Committee confidently rejected the need to micromanage the provision of health care by AHPs, instead giving them the freedom that large employers and unions already enjoy, to select the benefit packages that most serve their employees. The Committee also notes that for many workers, passage of AHPs will mean the difference between access to coverage and no health care coverage at all. Though state laws may guarantee particular benefits when coverage is offered, in general, state laws do not require that health coverage be offered. Therefore for those many individuals who are not offered health insurance by their employer, the coverage their employer is able to access through the AHP, with or without particular state mandates, will provide health benefits the individual would not otherwise have.

Opponents of the bill have suggested that the bill's preemption from state benefit mandates also preempts laws such as those that regulate solvency, external review and prompt payment of claims. Asst. Sec. Ann Combs and Subcommittee Chairman Johnson clarified during both hearings on the bill and its consideration by the Subcommittee that this is not the case, and that it is the intent of the Committee that state laws such as those that govern external review and prompt payment of claims will apply to AHPs that offer fully insured health coverage. Since these laws do not impact `the selection of specific items or services consisting of medical care,' these laws are not preempted. Though the Committee believes that the bill as introduced did not preempt these laws, during Committee consideration of the bill, two amendments were adopted to clarify the application of these laws. The Subcommittee Chairman's mark added language that amended Section 514 of ERISA to clarify that the preceding amendments to 514 should not be construed to supersede or impair the law of any State with respect to issuers or health insurance coverage, that provides solvency standards. During full Committee consideration, the Committee amended this section to clarify that laws relating to prompt payment of claims were also not superseded.

During Committee consideration of the bill, the Committee also rejected amendments that would have subjected AHPs to federal mandates. The Committee believes that adding federal benefit mandates to ERISA is an issue separate and apart from the decision to create AHPs. Should Congress decide to establish additional federal patient protections, the Committee believes that they should be applied to all plans equally.

H.R. 660's solvency requirements

Health insurance issuers that offer fully insured coverage to AHPs will continue to be subject to state laws regarding solvency as discussed above. In addition, the Committee expects that the Department of Labor would condition its class certification of fully insured AHPs on the issuers, satisfaction of state solvency and other insurance regulations.

With respect to self-insured AHPs, H.R. 660 sets forth strict solvency requirements. Solvency provisions are as follows:

The Committee notes that these requirements are much stronger than current law for employers or unions who self-insure, as ERISA contains no solvency standards for these entities. Further, the Committee notes that these standards are generally analogous to state solvency standards for health insurance issuers.

H.R. 660 also grants authority to the Secretary to make payments to stop loss or indemnification insurers in any case in which the Secretary determines that an AHP is failing or will fail to meet the federal solvency requirements or will terminate. During consideration of the bill at Subcommittee, H.R. 660 was strengthened by requiring that the issuers of stop loss and indemnification insurance for self-insured AHPs notify the Secretary of Labor if the AHP fails to make a payment that would result in the cancellation of the insurance policy. This provision is intended to ensure that the Secretary of Labor maintains insurance products if necessary, so that in the event of an AHP failure, the insured products meet plan losses and satisfy workers' claims.

The Committee also grants authority to the Secretary to permit an association health plan to substitute, for all or part of the reserves required, such security, guarantee, hold-harmless arrangements, insurance, or other financial arrangement as the Secretary determines to be adequate to enable the plan to fully satisfy all benefit liabilities on a timely basis. Such an alternative must not be less protective than the basic provisions for which it is substituted.

H.R. 660 also requires a self-insured AHP to meet the reserve requirements even if its certification is no longer in effect.

In any case where an AHP notifies the Secretary that it has failed to meet the reserve requirements and corrective action has not restored compliance, and the Secretary determines that there is a reasonable expectation that the plan will continue to fail to meet the applicable requirements, the Secretary may direct the board to terminate the arrangement.

H.R 660 provides that an AHP may also voluntarily terminate only if the board of trustees provides 60 days advance written notice to participants and beneficiaries and submits to the Secretary a plan providing for timely payment of all benefit obligations.

Whenever the Secretary determines an AHP won't be able to provide benefits, or is otherwise in financial distress, the Secretary shall apply to the appropriate United States district court for appointment as trustee to administer the termination of the plan.

H.R. 660's State assessment authority

H.R. 660 specifically allows a state to assess self-insured AHPs with a contribution tax to the same extent the state taxes health insurance plans that offer coverage to fully insured AHPs. Such tax must be computed by subtracting the amount of any tax or assessment otherwise imposed by the state on other insured products maintained by the self-insured AHP.

H.R. 660's amendments to ERISA's preemption rules

H.R. 660 adds a new subsection 514(d) of ERISA (current subsection (d) is redesignated as (e)) to clarify the ability of health insurance issuers to offer health insurance coverage under AHPs. The Committee intends this change to be one of the most important provisions of the bill. Should states attempt to preclude AHPs from operating by passing laws that preclude them from doing so or have this effect, these laws will be preempted under ERISA. For example, should a state law refuse to license health insurance issuers that intend to provide health coverage to an AHP, the Committee intends this law to be preempted by the bill. The Committee intends this language to serve as a warning to state regulators that their ability to regulate fully insured health products provided by AHPs stops at the point where they attempt to prevent AHPs from operating.

H.R. 660 also makes two changes to ERISA's preemption laws regarding MEWAs. First, paragraph (6) of section 514(b) is made inapplicable with respect to any state law in the case of a certified AHP. Second, the bill removes the current restriction on state regulation of self-insured multiple employer welfare arrangements providing medical care (which do not elect to meet the certification requirements for AHPs) under section 514(b)(6)(A)(ii) by eliminating the requirement that such state laws otherwise `be consistent with the provisions of ERISA Title I.' As discussed supra, H.R. 660 provides that legitimate associations may choose to either remain subject to the few state multiple plan laws or to apply for a federal certification. The legislation draws bright lines regarding state and federal authority regarding self-insured multiple employer plans. Current law is confusing regarding the responsibility of the states and the Department of Labor under ERISA. Under the bill, MEWAs have two choices, apply for and become a certified AHP, or be regulated entirely by the states.

H.R. 660 includes two other important changes: (1) It clarifies the ability of any health insurance issuer to offer health insurance coverage of the same policy type as offered in connection with a particular AHP to eligible employers, regardless of whether such employers choose or do not choose to become members of the particular association; and (2) It clarifies that health insurance coverage policy forms filed and approved in a particular state in connection with an insurer's offering under an association health plan are deemed to be approved in any other state in which such coverage is offered when the insurer provides a complete filing in the same form and manner to the authority in the other state. The Committee intends the preemption amendment with regard to the filing of policy forms in other states to remedy the administrative burden of filing differing policy forms in different states, and to speed the process of approval, as once the policy form is approved in one state, it is deemed to be approved in every other state.

Section 514 of ERISA is also amended to include a cross-reference to the newly created section 805(b) (relating to the ability of AHPs and health insurance issuers to design association health insurance options) and to section 805(a)(2)(B) (relating to the ability of AHPs and health insurance issuers to base contribution rates on the experience of such plans). As discussed above, during Committee consideration, two other changes were made to the bill's preemption language regarding the solvency of fully insured health products or health insurance issuers and the prompt payment of claims by health insurers providing to an AHP.

H.R. 660's enforcement provisions relating to AHPs and MEWAs

H.R. 660 amends ERISA to establish enforcement provisions relating to AHPs and MEWAs. Specifically, the bill establishes that: (1) willful misrepresentation that an entity is a certified AHP or collectively-bargained arrangement may result in criminal penalties; (2) Section 502 of ERISA is amended to allow for cease activity orders for arrangements found to be neither licensed, registered, or otherwise approved under State insurance law, or operating in accordance with the terms of the certification granted by the Secretary under Part 8; and (3) Section 503 of ERISA is amended to require the named fiduciary or board of trustees of an AHP to comply with the required claims procedure under ERISA.

H.R. 660's cooperation between Federal and State authorities

H.R. 660 amends section 506 of ERISA (relating to coordination and responsibility of agencies enforcing ERISA and related laws) to require the Secretary of Labor to consult with state insurance departments with regard to the Secretary's authority under section 502 and 504 to

enforce provisions applicable to certified AHPs. In the case of AHPs offering fully insured health coverage, the Secretary shall consult with the state in which filing and approval of a policy type offered by the plan was initially obtained. In all other cases, the Secretary shall take into account the places of residence of the participants and beneficiaries under the plan and the state in which the trust is maintained in determining which state is the state with which consultation is required.

H.R. 660's effective date

In general, the amendments made by H.R. 660 are effective one year after enactment of the Act. In addition, the Secretary is required to issue all regulations needed to carry out the amendments within one year after enactment of the Act. In addition, the Secretary shall report to Congress AHPs effect on reducing the number of uninsured workers after five years.

SECTION BY SECTION

Section 1--Short title and table of contents.

Section 2(a) creates a new Part 8 under ERISA (as described below).

Section 801 outlines that a sponsor of an AHP must be a bona fide association established for substantial purposes other than that of obtaining or providing medical care. The association must charge dues to its small business members and must not condition membership, dues or coverage under the health plan on the basis of health status.

Section 802 establishes a procedure for the certification of Association Health Plans as prescribed by the Secretary of Labor. For AHPs that purchase health insurance from an insurance company, the Secretary will establish a class certification. For those that will offer a self-insured health benefit, the bill establishes several criteria in order to insure that the businesses covered will be of average health risk, to avoid pulling only healthy individuals from the small employer market (`cherry-picking').

Section 803 establishes additional eligibility requirements for AHPs. Applicants must demonstrate that the arrangement's sponsor has been in existence for a continuous period of at least three years for substantial purposes other than providing coverage under a group health plan. AHPs must be operated, pursuant to a trust agreement, by a `board of trustees' which has complete fiscal control and which is responsible for all operations of the plan. The board of trustees must consist of individuals who are owners, officers, directors or employees of the employers who participate in the plan.

Section 804 prohibits discrimination against eligible employers and employees by requiring that, (1) all employers who are association members be eligible for participation under the terms of the plan, (2) that eligible employers be informed of all benefit options available, and (3) that eligible individuals of such participating employers not be excluded from enrolling in the plan because of health status. The bill also stipulates that no participating employer may exclude an employee from enrollment under an AHP by purchasing an individual policy of health insurance coverage for such person based on his or her health status.

Section 805 requires that contribution rates for any particular employer must be nondiscriminatory--they cannot vary on the health status of the particular employer or on the type of business or industry in which the employer is engaged, unless the state in which the employer is located would specifically allow such a variance, and then, only to the degree allowed in the state. In the case of AHPs offering fully insured health coverage, state rating laws that prevent an AHP from setting contribution rates based on the claims experience of the plan or that regulate a federally certified AHP more strictly than other associations offering fully insured coverage shall also be preempted. In addition, this section outlines that association health plans must be allowed to design benefit options. Specifically, the bill mandates that no provision of state law shall preclude an AHP or health insurance issuer from exercising its sole discretion in designing the items and services of medical care to be included as health insurance coverage under the plan.

Section 806 establishes capital reserve requirements for self-insured AHPs and requires them to obtain stop loss and indemnification insurance. In addition, the AHP must maintain minimum surplus reserves of $500,000 or such greater amount (up to $2,000,000) as the Secretary of Labor may prescribe. Any person issuing stop loss or indemnification insurance to a plan is required to notify the Secretary of Labor of any failure of premium payment meriting cancellation of the policy. The bill also establishes an `Association Health Plan Fund' which is to be managed by the Department of Labor for the purpose of making payments to cover any outstanding benefit claims which are not fulfilled in accord with the solvency standards described above. All certified AHPs would be required to pay $5,000 into the fund annually. The bill also establishes a `Solvency Standards Working Group' for the purpose of providing input to the Secretary with respect to solvency requirements for AHPs certified under the Act. The bill grants authority to the Secretary to permit an association health plan to substitute, for all or part of the reserves required, such security, guarantee, hold-harmless arrangements, insurance, or other financial arrangement as the Secretary determines to be adequate to enable the plan to fully satisfy all benefit liabilities on a timely basis. Such an alternative must not be less protective than the basic provisions for which it is substituted. If the Secretary determines that there will be a failure or termination of an AHP, the bill grants the Secretary authority to make payments to insurers in order to maintain in force the stop loss or indemnification insurance.

Section 807 sets forth additional criteria which association health plans must meet to qualify for certification. The Secretary shall grant certification to a plan only if: (1) a

complete application has been filed, accompanied by the filing fee of $5,000; and (2) all other terms of the certification are met (including financial, actuarial, reporting, participation, and such other requirements as may be specified as a condition of the certification). AHPs are also required to file their certification with the applicable state authority of each state in which at least 25% of the participants and beneficiaries under the plan are located.

Section 808 requires that, except as provided in section 809, an AHP may voluntarily terminate only if the board of trustees provides 60 days advance written notice to participants and beneficiaries and submits to the applicable authority a plan providing for timely payment of all benefit obligations.

Section 809 requires that the board of trustees of a self-insured AHP must determine quarterly whether the reserve requirements of section 806 are being met and, if they are not, must, in consultation with the qualified actuary, develop a plan to ensure compliance and report such information to the Secretary. In any case where an AHP notifies the Secretary that it has failed to meet the reserve requirements and corrective action has not restored compliance, and the Secretary determines that there is a reasonable expectation that the plan will continue to fail to meet the requirements applicable to the AHPs; the Secretary may direct the board to terminate the arrangement.

Section 810 sets forth procedures whereby the Secretary may become the trustee of insolvent AHPs. Whenever the Secretary determines an AHP won't be able to provide benefits, or is otherwise in financial distress, the Secretary shall apply for appointment as trustee to administer the termination of the plan.

Section 811 allows a state to assess newly certified AHPs with a contribution tax to the same extent they tax health insurance plans. Such tax must be computed by subtracting the amount of any tax or assessment otherwise imposed by the state on other insured products maintained by the self-insured AHP.

Section 812 defines the following terms: group health plan, medical care, health insurance coverage, health insurance issuer, applicable authority, health status-related factor, individual market, treatment of very small groups, participating employer, applicable state authority, qualified actuary, affiliated member, large employer, and small employer.

Section 2(b) includes other conforming amendments to ERISA with regard to state preemption--The bill makes conforming amendments to ERISA to clarify the treatment of ERISA's preemption rules with regard to AHPs. For certified AHPs, state law is preempted to the extent that it would preclude an AHP from existing in a state. In addition, state law is also preempted in order to allow health insurance issuers to offer health insurance coverage of the same policy type as offered in connection with a particular AHP to eligible employers, regardless of whether such employers are members of the particular association. Health insurance coverage policy forms filed and approved in a particular state in connection with an insurer's offering under an AHP are deemed to be approved in any other state in which such coverage is offered when the insurer provides a complete filing in the same form and manner to the authority in the other state. The bill also makes two changes to ERISA's preemption laws regarding MEWAs. First, paragraph (6) of section 514(b) is made inapplicable with respect to any state law in the case of a certified AHP. Second, the bill removes the current restriction on state regulation of self-insured multiple employer welfare arrangements providing medical care (which do not elect to meet the certification requirements for AHPs) under section 514(b)(6)(A)(ii) by eliminating the requirement that such state laws otherwise `be consistent with the provisions of ERISA Title I.' The bill also amends Section 514 to clarify that the preceding amendments to 514 should not be construed to supersede or impair the law of any State with respect to issuers or health insurance coverage, that provides solvency standards. During full Committee consideration, the Committee amended this section to clarify that laws relating to prompt payment of claims were also not superseded.

Section 3 of the bill clarifies the treatment of single employer arrangements.

Section 4 amends ERISA to establish enforcement provisions relating to AHPs and multiple employer welfare arrangements (MEWAs): (1) willful misrepresentation that an entity is an exempted AHP or collectively-bargained arrangement may result in criminal penalties; (2) the section provides for cease activity orders for arrangements found to be neither licensed, registered, or otherwise approved under State insurance law, or operating in accordance with the terms of the certification granted by the Secretary under Part 8; and (3) the section provides for the responsibility of the named fiduciary or board of trustees of an AHP to comply with the required claims procedure under ERISA.

Section 5 amends section 506 of ERISA (relating to coordination and responsibility of agencies enforcing ERISA and related laws) to require the Secretary of Labor to consult with state insurance departments with regard to the Secretary's authority under sections 502 and 504 to enforce provisions applicable to certified AHPs.

Section 6. In general, the amendments made by the Act will be effective one year after enactment of the Act. In addition, the Secretary will be required to issue all regulations needed to carry out the amendments within one year after enactment of the Act.

EXPLANATION OF AMENDMENTS

The provisions of the substitute are explained in this report.

Insert offset folio 048 here HR156.001

Insert offset folio 049 here HR156.002

Insert offset folio 050 here HR156.003

Insert offset folio 051 here HR156.004

Insert offset folio 052 here HR156.005

Insert offset folio 053 here HR156.006

Insert offset folio 054 here HR156.007

Insert offset folio 055 here HR156.008

Insert offset folio 056 here HR156.009

Insert offset folio 057 here HR156.010

Insert offset folio 058 here HR156.011

Insert offset folio 059 here HR156.012

Insert offset folio 060 here HR156.013

Insert offset folio 061 here HR156.014

Insert offset folio 062 here HR156.015

Insert offset folio 063 here HR156.016

Insert offset folio 064 here HR156.017

Insert offset folio 065 here HR156.018

Insert offset folio 066 here HR156.019

Insert offset folio 067 here HR156.020

CORRESPONDENCE

Congress of the United States,

House of Representatives,

Washington, DC, June 12, 2003.

Hon. JOHN BOEHNER,
Chairman, Committee on Education and the Workforce,
Rayburn House Office Building, Washington, DC.

DEAR MR. CHAIRMAN: Due to other legislative duties, I was unavoidably detained during Committee consideration of H.R. 660, the `Small Business Health Fairness Act of 2003.' Consequently, I missed roll call number three on the fourth amendment offered by Representative Carolyn McCarthy. Had I been present, I would have voted against the amendment.

I would appreciate your including this letter in the Committee Report to accompany H.R. 660. Thank you for your attention to this matter.

Sincerely,

Michael N. Castle,

Member of Congress.

-

Congress of the United States,

House of Representatives,

Washington, DC, June 12, 2003.

Hon. JOHN BOEHNER,
Chairman, Committee on Education and the Workforce,
Rayburn House Office Building, Washington, DC.

DEAR MR. CHAIRMAN: Due to other legislative duties, I was unavoidably detained during Committee consideration of H.R. 660, the `Small Business Health Fairness Act of 2003.' Consequently, I missed roll call number one on the second amendment offered by Representative Ron Kind. Had I been present, I would have voted NO.

I would appreciate your including this letter in the Committee Report to accompany H.R. 660. Thank you for your attention to this matter.

Sincerely,

Jon C. Porter,

Member of Congress.

APPLICATION OF LAW TO THE LEGISLATIVE BRANCH

Section 102(b)(3) of Public Law 104-1 requires a description of the application of this bill to the legislative branch. This bill reduces the ranks of the uninsured by improving access to health care for uninsured working families, particularly those who are employed in small businesses. The bill would create association health plans (`AHPs') that would allow small businesses to join together through bona-fide trade associations, thus enjoying larger economies of scale presently enjoyed by many large corporations and unions, to purchase health insurance for their workers at a lower cost than they are presently experiencing. H.R. 660 would increase small businesses' bargaining power with health care providers, give them freedom from costly state mandated benefit packages, and lower overhead costs that would better enable them to offer health care coverage for their workers. Since ERISA excludes governmental plans, the bill does not apply to legislative branch employees. As public employees, legislative branch employees are eligible to participate in the healthcare offered through federal arrangements with private insurers.

STATEMENT OF OVERSIGHT FINDINGS AND RECOMMENDATIONS OF THE COMMITTEE

In compliance with clause 3(c)(1) of rule XIII and clause (2)(b)(1) of rule X of the Rules of the House of Representatives, the Committee's oversight findings and recommendations are reflected in the body of this report.

UNFUNDED MANDATE STATEMENT

Section 423 of the Congressional Budget and Impoundment Control Act (as amended by Section 101(a)(2) of the Unfunded Mandates Reform Act, P.L. 104-4) requires a statement of whether the provisions of the reported bill include unfunded mandates. This bill reduces the ranks of the uninsured by improving access to health care for uninsured working families, particularly those who are employed in small businesses. The bill would create association health plans (`AHPs' that would allow small businesses to join together through bona-fide trade associations, thus enjoying larger economies of scale presently enjoyed by many large corporations and unions, to purchase health insurance for their workers at a lower cost than they are presently experiencing. H.R. 660 would increase small businesses' bargaining power with health care providers, give them freedom from costly state mandated benefit packages, and lower overhead costs that would better enable them to offer health care coverage for their workers. In compliance with this requirement, the Committee has received a letter from the Congressional Budget Office included herein.

BUDGET AUTHORITY AND CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

With respect to the requirements of clause 3(c)(2) of rule XIII of the House of Representatives and section 308(a) of the Congressional Budget Act of 1974 and with respect to requirements of 3(c)(3) of rule XIII of the House of Representatives and section 402 of the Congressional Budget Act of 1974, the Committee has received the following cost estimate for H.R. 660 from the Director of the Congressional Budget Office:

U.S. Congress,

Congressional Budget Office,

Washington, DC, June 16, 2003.

Hon. JOHN A. BOEHNER,
Chairman, Committee on Education and the Workforce,
House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has estimated the effect on revenues of H.R. 660, the Small Business Health Fairness Act of 2003, as ordered reported by the Committee on Education and the Workforce on June 11, 2003. However, CBO has not yet completed the estimate of the effect of the bill on federal spending for Medicaid. We expect to provide you with a complete estimate shortly.

H.R. 660 would establish a certification process and regulatory structure for association health plans (AHPs). These entities, which would be regulated by the Department of Labor, could provide health plans to employers under different sets of rules than apply to insurers or other health plan arrangements that fall under state insurance regulation.

If H.R. 660 is enacted, CBO would expect a small net increase in total spending by employers on employer-sponsored health insurance. Such spending would increase as otherwise uninsured employees became insured through the new entities. Spending also would increase for those employers who continued to offer traditional, state-regulated plans because of a disproportionate tendency for higher-cost groups to remain with state-regulated plans, which are typically subject to rules that compress the range of premiums that can be charged across firms. Those spending increases would be partially offset by reduced spending among employers who found less expensive plans in the AHP market and chose to shift to those new plans instead of purchasing insurance in the traditional, state-regulated market, and among employers who responded to higher premiums for policies in the traditional market by dropping coverage. Thus, the composition of the total compensation packages of employees would shift toward non-taxable health benefits and away from taxable wages and salaries. CBO estimates that, as a result, total federal revenues would decrease by $3 million in 2004, by $60 million over the 2004-2008 period, and by $280 million over the 2004-2013 period. Of those amounts, Social Security payroll taxes, which are off-budget, account for about $1 million in 2004, $20 million over the 2004-2008 period, and $80 million over the 2004-2013 period.

CBO estimates that enacting H.R. 600 would result in a net increase of about 600,000 people with employment-based health insurance coverage by 2008. As a result, we expect that fewer people would be covered by Medicaid, and that Medicaid spending would decline. CBO has not yet estimated the effect of the bill on federal spending for Medicaid, but the amount of the outlay savings could approach or exceed the amount of the estimated revenue loss.

The Department of Labor would incur the costs of overseeing and regulating these plans. CBO has not completed an estimate of those costs, which would be subject to appropriation.

H.R. 660 would preempt a number of state laws that regulate health coverage and that would impose taxes on existing entities that become certified as AHPs. Those preemptions would be intergovernmental mandates as defined in the Unfunded Mandates Reform Act (UMRA). The preemptions of state regulatory laws would not result in additional costs to state, local, or tribal governments. Limitations on state taxing authority, however, would result in a net decrease in state revenues of up to about $20 million in 2004. But, as a greater number of the uninsured became insured through association plans, states would realize a net increase of about $15 million in revenues from other taxes on such plans in 2008. The losses that states would face in the early years would not exceed the statutory threshold established in UMRA ($59 million in 2003, adjusted annually for inflation). H.R. 660 contains no private-sector mandates as defined in UMRA.

If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contacts are Alexis Ahlstrom (for changes in revenues); Leo Lex (for the state and local impact); and Stuart Hagen (for the private-sector impact).

Sincerely,

DOUGLAS HOLTZ-EAKIN,

Director.

STATEMENT OF GENERAL PERFORMANCE GOALS AND OBJECTIVES

In accordance with Clause (3)(c) of House rule XIII, the goals of H.R. 660 to reduce the ranks of the uninsured by improving access to health care for uninsured working families, particularly those who are employed in small businesses. The bill would create association health plans (`AHPs') that would allow small businesses to join together through bona-fide trade associations, thus enjoying larger economies of scale presently enjoyed by many large corporations and unions, to purchase health insurance for their workers at a lower cost than they are presently experiencing. H.R. 660 would increase small businesses' bargaining power with health care providers, give them freedom from costly state mandated benefit packages, and lower overhead costs that would better enable them to offer health care coverage for their workers. The Committee expects the Department of Labor to implement the changes to the law in accordance with these stated goals.

CONSTITUTIONAL AUTHORITY STATEMENT

Under clause 3(d)(1) of rule XIII of the Rules of the House of Representatives, the Committee must include a statement citing the specific powers granted to Congress in the Constitution to enact the law proposed by H.R. 660. The Employee Retirement Income Security Act (ERISA) has been determined by the federal courts to be within Congress' Constitutional authority. In Commercial Mortgage Insurance, Inc. v. Citizens National Bank of Dallas, 526 F.Supp. 510 (N.D. Tex. 1981), the court held that Congress legitimately concluded that employee benefit plans so affected interstate commerce as to be within the scope of Congressional powers under Article 1, Section 8, Clause 3 of the Constitution of the United States. In Murphy v. Wal-Mart Associates' Group Health Plan, 928 F.Supp. 700 (E.D. Tex 1996), the court upheld the preemption provisions of ERISA. Because H.R. 660 modifies but does not extend the federal regulation of pensions, the Committee believes that the Act falls within the same scope of Congressional authority as ERISA.

COMMITTEE ESTIMATE

Clause 3(d)(2) of rule XIII of the Rules of the House of Representatives requires an estimate and a comparison by the Committee of the costs that would be incurred in carrying out H.R. 660. However, clause 3(d)(3)(B) of that rule provides that this requirement does not apply when the Committee has included in its report a timely submitted cost estimate of the bill prepared by the Director of the Congressional Budget Office under section 402 of the Congressional Budget Act.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974

* * * * * * *

TABLE OF CONTENTS
Sec. 1. Short title and table of contents.
* * * * * * *
TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS
* * * * * * *
Subtitle B--Regulatory Provisions
* * * * * * *
Part 8--Rules Governing Association Health Plans
Sec. 801. Association health plans.
Sec. 802. Certification of association health plans.
Sec. 803. Requirements relating to sponsors and boards of trustees.
Sec. 804. Participation and coverage requirements.
Sec. 805. Other requirements relating to plan documents, contribution rates, and benefit options.
Sec. 806. Maintenance of reserves and provisions for solvency for plans providing health benefits in addition to health insurance coverage.
Sec. 807. Requirements for application and related requirements.
Sec. 808. Notice requirements for voluntary termination.
Sec. 809. Corrective actions and mandatory termination.
Sec. 810. Trusteeship by the Secretary of insolvent association health plans providing health benefits in addition to health insurance coverage.
Sec. 811. State assessment authority.
Sec. 812. Definitions and rules of construction.

* * * * * * *

TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS

SUBTITLE A--GENERAL PROVISIONS

* * * * * * *

DEFINITIONS

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

SUBTITLE B--REGULATORY PROVISIONS

PART 1--REPORTING AND DISCLOSURE101--1

* * * * * * *

SUMMARY PLAN DESCRIPTION

* * * * * * *

PART 5--ADMINISTRATION AND ENFORCEMENT

CRIMINAL PENALTIES

CIVIL ENFORCEMENT

* * * * * * *

CLAIMS PROCEDURE

* * * * * * *

* * * * * * *

COORDINATION AND RESPONSIBILITY OF AGENCIES ENFORCING EMPLOYEE RETIREMENT INCOME SECURITY ACT AND RELATED FEDERAL LAWS

* * * * * * *

* * * * * * *

EFFECT ON OTHER LAWS

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

* * * * * * *

PART 7--GROUP HEALTH PLAN REQUIREMENTS

* * * * * * *

SUBPART C--GENERAL PROVISIONS

SEC. 731. PREEMPTION; STATE FLEXIBILITY; CONSTRUCTION.

* * * * * * *

* * * * * * *

PART 8--RULES GOVERNING ASSOCIATION HEALTH PLANS

SEC. 801. ASSOCIATION HEALTH PLANS.

SEC. 802. CERTIFICATION OF ASSOCIATION HEALTH PLANS.

SEC. 803. REQUIREMENTS RELATING TO SPONSORS AND BOARDS OF TRUSTEES.

SEC. 804. PARTICIPATION AND COVERAGE REQUIREMENTS.

SEC. 805. OTHER REQUIREMENTS RELATING TO PLAN DOCUMENTS, CONTRIBUTION RATES, AND BENEFIT OPTIONS.

SEC. 806. MAINTENANCE OF RESERVES AND PROVISIONS FOR SOLVENCY FOR PLANS PROVIDING HEALTH BENEFITS IN ADDITION TO HEALTH INSURANCE COVERAGE.

SEC. 807. REQUIREMENTS FOR APPLICATION AND RELATED REQUIREMENTS.

available in the case of the Secretary, to the extent provided in appropriation Acts, for the sole purpose of administering the certification procedures applicable with respect to association health plans.

SEC. 808. NOTICE REQUIREMENTS FOR VOLUNTARY TERMINATION.

SEC. 809. CORRECTIVE ACTIONS AND MANDATORY TERMINATION.

SEC. 810. TRUSTEESHIP BY THE SECRETARY OF INSOLVENT ASSOCIATION HEALTH PLANS PROVIDING HEALTH BENEFITS IN ADDITION TO HEALTH INSURANCE COVERAGE.

SEC. 811. STATE ASSESSMENT AUTHORITY.

SEC. 812. DEFINITIONS AND RULES OF CONSTRUCTION.

* * * * * * *

MINORITY VIEWS

Once again the majority proposes legislation it claims is in the interest of working families, but in fact undermines their workplace benefits. Rather than addressing real solutions for getting vital health coverage for uninsured Americans, this legislation will cut health benefits for 4.5 million workers who currently have coverage, and will make coverage more expensive for four out of five small businesses. The proposed AHPs would be almost entirely exempt from oversight by state regulators, undermining coverage for serious diseases, and increasing consumer's vulnerability to fraud and insolvencies.

Sixty million Americans lack health coverage for some part of a year and are looking to Congress for help. Approximately half of those Americans work for or are family members of someone who works for a small employer. Many small employers lack the financial resources to afford health insurance coverage. These employers, and the workers and family members who depend upon them, need solutions that will provide an expanded pool for affordable coverage and subsidize the costs of low wage workers. H.R. 660 not only fails to deliver help, it actually will reduce health care coverage and raise health insurance costs for millions of Americans.

The independent Congressional Budget Office analyzed the impact of this bill:

Under the most likely scenario for AHPs * * * the Congressional Budget office estimates that approximately 4.6 million of those people might obtain their coverage through the proposed new insurance arrangements. But overall enrollment in employer-sponsored health insurance would increase by only about 330,000 people. Because most firms purchasing coverage through an AHP would be switching from traditional insurance coverage--that is, insurance plans subject to the full array of state insurance regulations.

CBO also warns us that far from reducing health expenses, this bill will increase health costs, because it will allow cherry picking of the most desirable employees, leaving the more expensive employers in the current system. CBO concluded that AHPs primarily will compete by offering less generous benefit packages and thus, reducing coverage for over 4.5 million workers and families. And those who remain covered by non-AHP insurance will pay increased costs to compensate for those who are siphoned off into AHPs.

A new study by Mercer Consultants, commissioned by National Business United, made even more dire predictions. Mercer found that H.R. 660 would increase the number of the uninsured by 1 million as employers in the non-AHP market dropped coverage due to premium increases. Health insurance premiums in the non-AHP market were estimated to rise 23% due to the exodus of healthier firms to non-regulated AHPs.

Rather than expanding health coverage and health services; it is going to lead to the reduction of health coverage for 4.6 million Americans who will lose the right to urgently needed medical coverage like OB/GYN and pediatrician services, cervical, colon, mammography and prostate cancer screening and treatment, maternity benefits and well-care child services, and diabetes treatment.

That is why over 500 local and national organizations oppose this bill, including the National Governors Association, the Republicans Governors Associations, Democratic Governors Association, 41 state Attorneys General, the National Association of Insurance Commissioners, National Small Business United, Blue Cross and Blue Shield, and the Health Insurance Association of America, and well as dozens and dozens of labor, consumer, and business groups (see attached list).

H.R. 660 Allows and Encourages Employers to Dump their Existing Plans, More Generous Health Plans in Order to Avoid State Regulation

Although the proponents of the bill contend that the purpose of the bill is to encourage employers who currently offer no insurance to provide such coverage, the bill does nothing to prohibit existing employers from dumping their current, more generous insurance plans and join an AHP. In fact, as we've noted above, the CBO and Mercer study predict that the vast majority of AHP participants will be those who simply dropped their existing coverage. Representative Miller offered an amendment to prohibit employers from dumping their existing, more generous health insurance plans, in order to join the AHP. The Majority rejected this amendment.

H.R. 660 Cuts Benefits For Millions of Workers by Overriding Critical State Consumer Protections Laws

Under H.R. 660, AHPs would have sole discretion to select the specific items and services to be covered, and notwithstanding state laws. AHPs would be exempt from key consumer protection laws, including state laws requiring access to mammography screening, emergency services, maternity care for expectant mothers, well-baby care for infants, and other protections that ensure appropriate access to health care.

This bill would result in a two-tiered small group health insurance marketplace, one tier consisting of those who benefit from preemption of state health mandates, and another tier comprised of those who remain subject to state consumer protections. As Members of Congress, we should be seeking ways to eliminate the gap in health care disparity, not creating a new one.

The Republican Majority contend that given the choice, AHPs will freely choose to provide ample health care coverage. However, history demonstrates that for years businesses provided health coverage without providing basic health care reliability. In the past, access to mammograms, maternity payments for expectant mothers, cancer-screening

procedures, well-baby care, and other preventive health treatment were routinely omitted in health coverage.

States were forced to enact consumer protections because businesses did not insist on providing comprehensive coverage for their employees. Today, nearly all states and the District of Columbia have laws that protect access to mammography screening, emergency services, allow direct access to OBGYNs, diabetic supplies and education, and prompt payment rules.

More than 25 states and the District of Columbia have laws that protect access to prostate cancer screening, cervical cancer screening, and well-baby care. Over 36 states have mental health parity laws and more than 32 states require insurance plans to cover a minimum amount of mental health benefits.

Both CBO and Mercer concluded that AHPs would be driven to compete by limiting covered benefits for the employees of small employers.

We believe, as do hundreds of organizations, public officials, and health care providers that state consumer protection laws represent significant steps toward Congress's goal of improving access to comprehensive health care for all. Our Republican colleagues do not. They would prefer to roll back the protections we have today. Therefore, the Republican Majority rejected each of the 10 amendments offered by Democrats to restore consumer protections lost under this legislation. Among their many dubious arguments, one member of the Republican Majority argued that access to preventive health screening constituted health insurance with `whistles and bells.'

State consumer protections are not `whistles and bells.' They are wellness programs that save lives and billions of dollars in acute health care cost.

H.R. 660 Encourages `Cherry-Picking' or `Skimming' of Younger, Healthier Populations

In addition to eliminating critical consumer protections, the bill permits AHPs to engage in `cherry picking', by skimming off the healthiest consumers and leaving the sickest patients uninsured.

H.R. 660 allows AHPs to offer coverage to specific types of employers, allowing plans to seek memberships with better risk and less costly populations. In addition, AHPs may offer different premiums to each of their member employers. Thus, AHPs may charge lower rates for lower risk persons and charge far more for higher risk persons, forcing them out of the pool. The bill's only restriction is that the difference in premiums cannot be health-status based. But the provision is meaningless because it permits AHPs to accomplish the same goal by `cherry-picking' and varying premiums based on age, sex, race, national origin, or any other key factor of an employer's workforce, including geography and membership.

Unlike the Republican Majority, we are convinced by the independent Congressional Budget Office (CBO) finding that AHP legislation would result in higher premiums for 80 percent of small employers, while as many as 100,000 of the sickest individuals would lose coverage altogether. As noted above, the Mercer Consulting study found that health insurance premiums would substantially increase for small employers that continued to purchase state regulated coverage, and the number of uninsured would increase by over 1 million as a result of coverage losses among workers and their dependents.

During the committee markup, we supported the amendment offered by our colleague Representative Robert Andrews (D-NJ) to preclude AHPs from varying employer contributions or premiums based on the age, race, or religion of the employer's workforce. Amendments also were offered by Representatives Majette and Norwood that would have limited the ability of AHPs to vary premiums among member employers. However, the Republican Majority rejected these amendments, preferring to exacerbate current health disparities in our health care system.

AHPs Would Operate Largely Unregulated

Regulation of insurance and public health has traditionally been the province of the states. H.R. 660 eliminates centuries of state law that established minimum standards for the conduct of the business of insurance, and raises important questions about the future ability of states to regulate health insurance at all.

The bill contains several vaguely drafted provisions that would preempt a wide swath of state laws and will lead to decades of litigation in the courts. During Committee debate, the Majority could not clearly articulate the specific state laws that would be preempted under the bill. For example, the bill preempts state laws `Insofar as they preclude or have the effect of precluding an insurer from offering coverage in connection with an AHP'. The American Law Division of the Congressional Research Service has concluded that the courts will have to determine which laws affect the operation of an AHP and preemption will depend on the applicable state law at issue.

By allowing insurers who sell to AHPs to set up business in a state with very lenient rules and oversight and market to small employers without meeting any state's rules, states would be rendered powerless to take action even where there is obvious risk to consumers. AHPs are permitted to domicile in a single state and operate nationally. For example, the individuals in Florida covered by a Michigan AHP are unlikely to travel to Michigan if they have a problem and Florida will be unable to help them.

We strongly disagree with the provisions of HR 660 that would federalize oversight of AHPs, providing the Department of Labor (DOL) with minimal regulatory authority over AHPs. States are in the business of regulating insurance for good reason. States can shut down fraudulent health plans faster than DOL. States can shut down crooked health plans by issuing emergency cease-and-desist order within

days, while DOL can take several years. Additionally, DOL lacks sufficient staff and budget to regulate AHP plans adequately.

Most state attorneys general, plus state governors, insurance regulators and state insurance legislators also publicly agree sole federal oversight of AHPs would expose small businesses to potentially widespread scams. In a June 11, 2003 press release, the Coalition Against Insurance Fraud stated, `State oversight is a vital part of the safety net our businesses need to help ensure health coverage provides reliable protection, not empty promises.'

Experience with another form of health insurance pooling without adequate accountability already exist; Multiple Employer Welfare Arrangements (MEWAs). We know from past experience that these plans can harm consumers. MEWA fraud and abuse problems have resulted in 400,000 uninsured consumers with over $123 million in upaid medical bills.

During Committee markup, Representative Andrews offered an amendment to preclude any MEWA from operating as an AHP. We supported this amendment because we wanted to ensure that the abysmal failure of MEWAs would not replicate itself under a new name.

During committee markup we supported an amendment offered by Representative Denise Majette (D-GA) to permit state insurance commissioners to retain full authority to protect the residents of thier states covered by AHPs. In addition, that amendment provided that no AHP may offer coverage to residents of a state unless the insurance commissioner of the state of the AHP's domicile agrees to carry out any order or judgment issued by the state insurance commissioner or other duly authorized state official of an aggrieved out-of-state resident.

H.R. 660 Fails to Address Real Problems of Small Business

H.R. 660 does not address the major reasons that small businesses do not offer health insurance coverage--lack of stability, lack of profitability, and generally low wage workforces. A majority of small businesses do not survive their first year of operations and a small minority exist after 3 years of operation. And the majority of small business workforces employ low wage employees. Over half the uninsured earn less than two times the poverty rate. A minimum wage worker earns $1000 a month. An individual health insurance policy costs over $200 a month and a family policy costs over $600 a month. In order for a small business to offer health coverage to a low wage employee, at a 50% employer contribution rate, would mean a 10-30% salary increase for these workers would be necessary. These employers are unlikely to be able to afford such an increase and many of these employees would choose cash over health insurance.

As noted above, CBO analyzed AHP legislation in 2000 and concluded much the same. Of the 42 million uninsured, CBO concluded that only 330,000 would receive coverage under AHPs. CBO concluded that AHPs primarily would cover employers who already have coverage and shift to cheaper AHP plans, potentially 4.5 million individuals.

Does Not Level the Playing Field with Large Employers

AHP supporters claim their bill is simply designed to level the playing field between small and and large employers. However, H.R. 660 actually gives small employers better treatment than exists for large employers. Large employers that provide coverage through insurance are covered by state insurance and consumer protection laws. Further, large employers don't and can't cherry pick. Large employers only vary premiums to their workers based upon family size and geographic location. H.R. 660 would permit AHPs to vary preimums for any and every reason other than health status, including age, race and sex.

By contrast, AHPs would be mostly exempt from these state requirements and protections; self-insured AHPs would be fully exempt from state regulations; and fully insure AHPs would be subject to limited state protections only in the state where the AHP chose to be licensed. Group health insurers and ERISA plans are also subject to rating restrictions that either limit or bar them from charging individuals more based on health-related factors. H.R. 660 would permit AHPs to discriminate against group members, charging them more if they are less health or more likely to use health care services. Far from `leveling the playing field,' AHPs would create grossly unfair competition between these new quasi-insurers and traditional health insurers or ERISA plans.

The Democratic Alternative

During the markup, Representative Ron Kind offered an amendment in the nature of a substitute would direct the Secretary of Labor to create a small employer health pool and plan similar to the Federal Employees Health Benefit Plan (SEHB), without cutting vital health benefits. The substitute provides small businesses the same access and health care coverage that federal employees have. It also authorizes the funds reserved in the FY 2004 budget resolution to DOL to provide subsidies to employers with low wage workforces recognizing the reality that most small employers cannot significantly increase spending for these workers.

The Democratic alternative allows all employers with fewer than 100 employees during the previous calendar to be eligible to apply for coverage under SEHB. Employers must offer coverage to all employees who have completed 3 months of service. Employees working fewer than 30 hours a week are eligible for pro rata coverage. It authorizes the Secretary of Labor to establish an initial open enrollment period and thereafter an annual enrollment period. Small employers currently

providing coverage are provided a one-time election to join SEHB during the initial open enrollment period. The substitute would require the Department of Labor to annually contract with state licensed health insurers to offer health insurance coverage in a state. Participating insurers shall remain subject to state laws applicable to the states in which they cover residents. The plan authorizes up to $10 billion a year to provide small employer health coverage subsidies in fiscal year 2004-2008 (in accordance with the FY 2004 Budget Resolution).

During Committee mark-up a number of other amendments were offered that would have maintained needed state law consumer protections. The Majority rejected all amendments that would have protected consumers.

The Majority also rejected a number of other amendments that would have addressed many of the bill's substantial deficiencies. Representative McCollum offered an amendment to require AHPs to provide maternal and child care coverage; Representatives McCarthy and Woolsey offered an amendment to provide mammography screening coverage; Representative McCarthy also offered an amendment to cover prostate screening; Representative Holt offered an amendment to provide contraceptive coverage; Representative Susan Davis offered an amendment to require compliance with state laws requiring direct access to OB/GYN services; Representatives Kildee and Hinojosa offered an amendment to require coverage of diabetes; Mr. Kind offered an amendment to cover treatment of autism; Representative Holt offered an amendment to require coverage of state mental health and substance abuse laws; Representatives Tierney and Van Hollen offered an amendment to require Association Health Plans to comply with state patients' bill of rights protections, such as prompt payment of claims and independent external review of coverage decisions; and Representative Kucinich offered an amendment to prevent benefit cuts and limit annual out-of-pocket increases for employees.

ORGANIZATIONS AND PUBLIC OFFICIALS OPPOSED TO FEDERAL AHP LEGISLATION

Over 500 organizations have expressed opposition:

STATE OFFICIALS

National Governors Association

Republican Governors Association

Democratic Governors Association

Attorneys General Representing 41 States

National Association of Insurance Commissioners

National Conference of State Legislatures

National Conference of Insurance Legislators

Southeastern Utah Association of Local Governments

CHAMBERS OF COMMERCE

Albuquerque, New Mexico

Black Chamber of Commerce of Greater Kansas City

Boston

Cherry Creek Chamber (Colorado)

Cleveland (COSE)

Denver Metro

Detroit

Draper Chamber of Commerce (Utah)

Florence, Colorado

Greater Akron Chamber (Ohio)

Greater Columbus Chamber (Ohio)

Greater Manchester, New Hampshire

Greater Seattle

Heber Valley Economic Development (Utah)

Lansing Regional Chamber (Michigan)

Metro Jackson, Mississippi

Missouri

New Hampshire Business and Industry Association

Northern Ohio

Oklahoma City

Oklahoma State

Palisade Chamber (Colorado)

Philadelphia

North Park Chamber (Colorado)

Salem Economic Development (Utah)

Springville Economic Development (Utah)

Tulsa, Oklahoma

Washington State (Association of Washington Business)

FARM BUREAUS

Mississippi Farm Bureau

Tennessee Farm Bureau Federation--Tennessee Rural Health

Utah Farm Bureau Federation

Virginia Farm Bureau

SMALL BUSINESS ASSOCIATIONS

Arizona Small Business Association

Indiana Association of Community and Economic Development

Indiana Manufacturers' Association

Ohio/Kentucky Concrete Pavement Association

Mountain States Lumber and Building

Materials Dealers Association (CO, UT)

National Small Business United (Represents over 16 associations)

New Hampshire Business Council

New Hampshire High Tech Council

Professional Musicians of Arizona

LABOR UNIONS

AFL-CIO--American Federation of Labor and Congress of Industrial Organizations

AFSCME--American Federal of State, County and Municipal Employees--With additional letters from: Louisiana Chapter; New Mexico Chapter; Rhode Island Council 94

American Federal of Teachers (AFT)--With additional letters from: Louisiana Chapter; Utah Chapter

Atlanta Labor Council

Cement Masons Local 577 (Colorado)

BEW--Oregon

International Union, United Auto Workers (UAW)

Indiana UAW

Laborers' International Union--Local 149--Aurora, Illinois

Montana Progressive Labor Caucus

National Education Association--Rhode Island Chapter

Providence (Rhode Island) Central Federation of Labor

Service Employees International Union (SEIU)

Teamsters' 190--Montana

United Food and Commercial Workers Union--Washington

Washington State Labor Council

CONSUMER/ADVOCACY GROUPS

National Groups

Alliance for Children and Families

American Association of Pastoral Counselors

American Association of People with Disabilities

American Congress of Community Supports and Employment Services

American Corn Growers Association

American Diabetes Association

American Family Foundation

American Homeowners Grassroots Alliance

Americans for a Balanced Budget

Anxiety Disorders Association of America

Association for the Advancement of Psychology

Bazelon Center for Mental Health Law

Center on Disability and Health

Child Welfare League of America

Children & Adults with Attention-Deficit/Hyperactivity Disorder

Coalition Against Insurance Fraud

Consumer Federation of America

Consumers Union

Depression and Bipolar Support Alliance

Families USA

Federation of Families for Children's Mental Health

Friends Committee on National Legislation

International Certification and Reciprocity Consortium

League of United Latin American Citizens (LULAC)

Maternal and Child Health Coalition for Healthy Families

National Alliance for the Mentally III

National Association for Children's Behavioral Health

National Association for Rural Mental Health

National Association of Anorexia Nervosa and Associated Disorders

National Association of Farmer Elected Committees

National Association of Protection and Advocacy Systems

National Council for Community Behavioral Healthcare

National Council of La Raza

National Foundation for Depressive Illness

National Mental Health Association

National Partnership for Women & Families

National Patient Advocate Foundation

Research Institute for Independent Living

Suicide Prevention Action Network

Tourette Syndrome Association

United Cerebral Palsy Association

USAction

Women Involved in Farm Economics

Local Groups

AIDS Project Rhode Island

AIDS Response Seacoast--New Hampshire

AIDS Survival Project (Georgia)

ARC of Colorado

ARC of Indiana

ARC of Norfolk, Nebraska

ARC of Ohio

ARC of Utah

Access Utah Network

Adoption Options (Colorado)

Allies With Families (Utah)

American Cancer Society--Montana Chapter

Arizona Citizen Action

Association of Community Organizations for Reform Now (California)

Autism Society of Nebraska

Bethpage Omaha

Best Buddies International--Indiana Chapter

Big Brother and Big Sister--Illinois

Bosom Buddies of Georgia, Inc.

Brian Injury Association of Colorado

Buckeye Art Therapy Association of Ohio

California Coalition for Mental Health

California Pan-Ethnic Health Network

Campaign for Better Health Care (Illinois)

Cancer World (Oregon)

Catholic Charities of Colorado

Catholic Charities of Colorado Springs

Catholic Charities of Omaha, Nebraska

Catholic Charities Pueblo (Colorado)

Catholic Conference of Kentucky

Catholic Conference of Minnesota

Center for Policy Analysis (California)

Central Ohio Diabetes Association

Centro Legal (Minnesota Minority Support Group)

Child Connect (Nebraska)

Children's Diabetes Foundation--Denver Chapter

Citizen Action of Illinois

Citizen Action of New York

Coalition for Accountable Government (Utah)

Colorado Classified School Employees Association

Colorado Forum on Community

Colorado Developmental Disabilities Planning Council

Colorado Women's Agenda

Community Connection (Utah)

Community Connections (Nebraska)

Community Harvest Food Bank of Fort Wayne, Indiana

Community Humanitarian Resource Center (Nebraska)

Concerned Christian Americans--Illinois

Congress of California Seniors

Connecticut Citizen Action Group

Damien Center--Indiana

Day At A Time Club (Colorado)

Depression and Bi-Polar Support Alliance of Ohio

Denver, Adams and Arapahoe County (CO) CARES

Eagle Forum (Illinois)

El Comite--Colorado

Electric League (Missouri)

EMPOWER Colorado

Family Counseling Service (Illinois)

Family Ties Adoption Center of Colorado

Federation of Families for Children's Mental Health--Colorado

Gathering Place (Nebraska)

Georgia Abortion and Reproduction Rights Action League (GARAL)

Georgia Rural--Urban Summit

Granite State Independent Living Foundation

Gray Panthers California

Health Action New Mexico

Health Care for All (Massachusetts)

Health Law Advocates (Massachusetts)

Helena Indian Alliance--Montana

Hispanic Community Center (Nebraska)

Illinois Caucus for Adolescent Health

Indiana Association of Area Agencies on Aging

Indiana Coalition on Housing and Homeless Issues

Individual and Family Counseling--Illinois

Insure the Uninsured Project (California)

Interfaith Service Bureau (California)

Iowa Christian Coalition

Iowa citizen Action Network

Jewish Community Relations Council--Indiana

Kentuckians for Health Care Reform

Kentucky Catholic Charities and Diocese

Kentucky Minority Farmers Association

Louisiana Maternal and Children's Health Coalition

Maine Consumers for Affordable Healthcare

Maine Women's Lobby

Maine Women's Policy Center

Marshalltown Cancer Resource Center (Iowa)

Maternal and Children's Health Coalition (Louisiana)

Mental Health Care Associates (Nebraska)

Mental Health Consumer Advocates of Rhode Island

Minnesota Catholic Conference

Minnesota Lawsuit Abuse Watch (M-LAW)

Minnesota State Council on Disability

Montana Coalition for Competitive Choices

Montana Council for Families

Montana Peoples Action

Montana Senior Citizens Association

Multiple Sclerosis Society of Indiana

Mutual Ground--Illinois

National Barter and Commodity Association (Formerly the Colorado Citizens for an Alternative Tax System)

National Kidney Foundation of Georgia

Navajo County Arizona Special Public Health District

Nebraska Arthritis Foundation

Nebraska Tax Research Council

Nebraskans for Equal Taxation

New Mexico Advocates for Children and Families

New Mexico Teen Pregnancy Coalition

New Hampshire Coalition of State Taxpayers

New Hampshire Commission on the Status of Women

Noble/ARC of Greater Indianapolis

Ocean State Action--Rhode Island

Ohio AIDS Coalition

Ohio Advocates for Mental Health

Ohio Citizen Advocates for Chemical Dependency, Prevention and Treatment

Ohioans for Diabetes Control

Planned Parenthood of Georgia

Planned Parenthood of Mid/East Tennessee

Planned Parenthood of Northern New England

People Living Through Cancer--New Mexico

Protectmontanakids.org

Quality Care for Children (Georgia)

Redemptorist Social Services Center (Missouri)

Religious Action Center for Reform Judaism

Rhode Island Kids Count

Safe Kids--Safe Comunities--Montana

Small Business Lobby (Virginia)

Sudden Arrhythmia Death Syndrome (Utah)

United Cerebral Palsy Association--Nebraska

Utah Coalition Against Sexual Assault

Victim Assistance Team of Grand County Colorado

Washington Citizen Action

Wisconsin Citizen Action

Wisdom of Wellness Foundation (Georgia)

WISE Foundation

Women's Association of North Shore Democrats--Louisiana

Women's Policy Group (Georgia)

PHYSICIAN GROUPS

National Groups

American Academy of Child and Adolescent Psychiatry

American Academy of Neurology

American Academy of Pediatrics

American Association for Geriatric Psychiatry

American College of Foot & Ankle Surgeons

American Psychiatric Association--With additional letters from: Louisiana Chapter, New Hampshire Chapter

National Alliance of Medical Researchers and Teaching Physicians

Local Groups

American Academy of Physicians--Nebraska Chapter

Bennett Breast Cancer Center (Maine)

Missouri State Medical Association

Nebraska Academy of Family Physicians

Nebraska Medical Association

New Hampshire Health Care Association

New Mexico State Health Association

Rhode Island Medical Association

Rose Breast Center (Colorado)

Virginia Medical Society

Washington Healthcare Forum

PROVIDER GROUPS

National Groups

American Association for Marriage and Family Therapy

American Association for Psychosocial Rehabilitation

American Association on Mental Retardation

American Chiropractic Association

American Counseling Association

American Group Psychotherapy Association

American Managed Behavioral Healthcare Association

American Mental Health Counselors Association

American Nurses Association

American Optometric Association--With additional letters from: Arkansas Chapter, Indiana Chapter, Kentucky Chapter, New Hampshire Chapter, New Mexico Chapter, Tennessee Chapter, Virginia Chapter

American Podiatric Medical Association

American Psychiatric Nurses Association

American Psychological Association

American Psychotherapy Association

American Society of Clinical Psychopharmacology, Inc.

Association for Ambulatory Behavorial Healthcare

Association of Women's Health, Obstetrics and Neonatal Nurses Clinical Social Work Federation

Employee Assistance Professionals Association

Federation of Behavioral, Psychological and Cognitive Sciences

National Association of County Behavorial Health Directors

National Association of School Psychologists

National Association of Social Workers

National Association of State Mental Health Program Directors

Local Groups

AAC Association (Nebraska)

Action Counseling (Colorado)

Accupuncture Association of Colorado

Acupuncture Association of Utah

Acupuncture Association of Washington

Addiction and Behaviorial Health Center (Nebraska)

AIM Institute (Nebraska)

Alegent Health Psychiatric (Nebraska)

Alzheimer's Association of Utah

Arden Courts (Illinois)

Arkansas Association for Marriage and Family Therapy

Arkansas Chiropractic Legislative Council

Arkansas Independent Living Council

Arkansas Mental Health Counselors Association

Aspen Therapy (Utah)

Association of Community Service Agencies (California)

Avenues to New Horizons (Nebraska)

Avera St. Anthony's Hospital (Nebraska)

A.W.A.R.E. Inc. (Mental Health Provider--Montana)

Bear River Mental Health Services (Utah)

Beaver Valley Hospital (Utah)

Behavioral Health Specialists (Nebraska)

Bergan Mercy Child Development Center

Black River Mental Health Services (Utah)

Boulder County Partners (Colorado)

Bungalow Care Center (Utah)

California Council of Community Mental Health Agencies

California Society for Clinical Social Work

Cedar Springs Behavioral Health (Colorado)

Central District Health Center (Nebraska)

Centennial Mental Health Center (Colorado)

Central Iowa Psychological Services

Collidge Mental Health Center (Nebraska)

Community Adolescent Counseling (Colorado)

Community Counseling Center of Aurora, Illinois

Conway Regional Health Systems (Arkansas)

Counseling Center for the Rockies (Colorado)

Danville Services Corporation (Utah)

Direct Benefits (Minnesota)

First Call For Help (Nebraska)

Franklin County (Ohio) Mental Health Association

Full Circle Alternative Center (Colorado)

Geneva Mental Health (Illinois)

Gordon Memorial Hospital (Nebraska)

Greater Portland (Maine) Pediatric Associates

Healthy Mothers--Healthy Babies (Montana)

Heartland Counseling and Consulting (Nebraska)

Highland Ridge Hospital (Utah)

Holladay Family and Child Guidance Clinic (Utah)

Home Health Services and Staffing Association of New Jersey

Institute for Alcohol Awareness (Fort Collins, Colorado)

Institute for Alcohol Awareness (Greeley, Colorado)

Jane Phillips Nawata Health Center (Oklahoma)

Kane County Hospital (Utah)

Kentucky Dental Association

Kentucky Mental Health Consortium

Leo Pocha Clinic (Montana)

LifeWise Health Plan of Oregon

Lincoln/Lancaster County Human Services Federation (Nebraska)

Louisana Academy of Medical Psychologists

Louisana Alliance for the Mentally III

Louisana Association for Ambulatory Healthcare

Louisana Association for the Advancement of Psychology

Louisana Healthcare Commission

Leukemia Lymphoma Society of Oregon

Maine Association of Mental Health Services

Maine Nurse Practitioners Association

Medical Weight Management (California)

Melham Medical Center (Nebraska)

Mental Health Corporation (Colorado)

Mental Health Liaison Group

Mesability (Colorado)

Minnesota Association of Community Mental Health Programs

Minnesota Council of Health Plans

Missouri Ambulance Association

Montana Council of Community Mental Health Centers

Nemeha County Breast Cancer Support Group (Nebraska)

New Hampshire Mental Health Coalition

New Hampshire Pastoral Psychotherapists Association

New West Health Services (Montana)

Niobrara Valley Hospital (Nebraska)

Northstar Mental Health Services (Nebraska)

Northwest Alzheimer's Association (Nebraska)

Ogallala Counseling Center (Nebraska)

Ohio Ambulatory Healthcare Association

Ohio Association of County Behavioral Health Authorities

Ohio Clinical Social Work Society

Ohio Counseling Association

Ohio Council of Behavioral Healthcare Providers

Ohio Dietetic Association

Old Mill Counseling (Nebraska)

Omni Behavioral Health (Nebraska)

Providence Medical Center (Nebraska)

Rainbow Center (Nebraska)

Rhode Island Association of Health Centers

Rhode Island Autism Project

Rhole Island Council of Community Mental Health Organizations

Rhode Island Dental Society

Rural Counties Program, Spanish Peaks Mental Health Center (Colorado)

Sanpete Valley Hospital (Utah)

Saunders County (Nebraska) Health Services

Serenity Place (Nebraska)

Steiner & Associates, P.C.

Stoney Ridge Day Treatment Center (Nebraska)

Sweetgrass-Stillwater Mental Health Association (Montana)

Swope Parkway Health Center (Missouri)

Tri-County Mental Health Services--Maine

Tulane University Health Sciences Center (Louisiana)

Utah Association of Pathologists

Valley Community Clinic (California)

Wasatch Canyon Mental Health (Utah)

Washington Message Therapy Association

West Holt Memorial Hospital (Nebraska)

Willowbrook Mental Health Center (Nebraska)

HEALTH INSURANCE TRADE ASSOCIATIONS

American Association of Health Plans--With additional letters from: Kentucky Association of Health Plans, New Jersey Association of Health Plans, Ohio Association of Health Plans, Virginia Association of Health Plans, Association of Washington Healthcare Plans, American Republic Insurance Company (Iowa), Association of Health Insurance

Advisors/National Association of Insurance and Financial Advisors--With additional letters from: Maine Chapter, Blue Cross and Blue Shield Association

Delta Dental Plans Association--With additional letters from all 50 state plans

Christiana Care Health Plans

Federation of Iowa Insurers

Health Insurance Association of America

Megellan Health Services

National Association of Health

Underwriters--With additional letters from: Principal Financial Group--with additional letters from: Iowa Office, Tufts Health Plan
George Miller.
Dennis J. Kucinich.
Paul M. Grijalva.
Ron Kind.
Danny K. Davis.
Betty McCollum.
Tim Ryan.
Carolyn McCarthy.
John F. Tierney.
Tim Bishop.
David Wu.
Rush Holt.
Denise L. Majette.
Chris Van Hollen.
Susan Davis.
Ruben Hinojosa.
Lynn C. Woolsey.
Robert E. Andrews.
Donald M. Payne.
Major R. Owens.
Dale E. Kildee.



This Report:     Printer Friendly: HTML  |  PDF
Search Results  > House Report 108-156
New Search Help  |  Contact Us
1 of 1