NEW YORK-- Association Health Plan (AHP) legislation proposed by President Bush to level the playing field for small employers seeking health insurance may instead cause significant disruption, according to a special report published by Fitch Ratings.

The proposed bill, known as the 'Small Business Health Fairness Act', would enable small businesses to join together to create a national AHP, ostensibly gaining better access to more affordable health insurance. The legislation highlights existing inequities in the health regulatory environment, which contributes to higher costs and reduced insurance access.

Fitch is concerned about the potential negative impact of the proposed AHP legislation on existing individual and small group health insurers, which face potential risk pool deterioration due to anti-selection and a loss in membership due to the inability to match an AHP's reduced benefit products with lower price points.

'If the state regulatory environment is the problem, as the AHP legislation implies, the passage of legislation that allows state insurance regulation to be circumvented does not seem to be the best solution,' said Glenn Schuermann, Director, Fitch Ratings. 'Reforming existing state insurance regulation would be the more logical approach in reducing the uninsured population.'

The proposed AHP legislation would call for federally certified AHPs to be monitored by the Department of Labor's (DOL) Employee Benefits Program. However, federally certified AHPs would be exempt from certain state insurance regulation, rating restrictions and stricter solvency requirements, making it more difficult for the DOL to adequately regulate an AHP, and in the process, stretching the DOL's resources.

Based on the current wording of the proposed legislation, health insurers are precluded from forming or becoming an AHP. Fitch believes that AHPs would likely partner with existing health insurers or third party administrators (TPAs), a scenario that poses both benefits and risks depending on the insurer. 'AHPs lack the necessary infrastructure, expertise, capital and distribution capabilities to proceed on their own. So while health insurers with competitive scale and provider networks would be well-positioned to partner with an AHP, smaller health insurers that lack adequate scale and local market share would be more susceptible to the increasing competition,' said Schuermann.

Fitch believes that potential passage of AHP legislation in 2004 is far from certain, and will likely be subject to revisions, which could mitigate some of Fitch's concerns.


Source: Fitch Ratings


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