Today the Washington State Senate held public hearings on Senate Bill 5605 that would permit Washington’s dominant association health plan market to continue until or unless the federal government shut it down. At issue is the Insurance Commissioner’s authority to determine for himself whether an association health plan qualifies as a “bona fide” association under ERISA, thereby permitting the plan to continue as a large group plan rather than a bunch of small group plans subject to the coming rate and plan “reforms.” Here is the Senate Bill Report.

One of the games played by government agencies (and political parties) involves the breathless speculation on the devastating financial impact of proposed legislation found to be objectionable. Alternatively, those in support see an endless flow of revenue to the state, unbridled economic opportunity and unicorns.

Well, I for one am shocked…shocked to discover that the Insurance Commissioner (OIC) filed a fiscal impact report detailing the state financial ruin if legislators support SB 5605. As those who are old like me know, this same shock was aptly demonstrated in Casablanca :

Rick Blaine: How can you close me up? On what grounds?
Capt. Louis Renault: I’m shocked … shocked to find that gambling is going on in here.
[A croupier hands Renault a pile of money]
Croupier: Your winnings, sir.
Capt. Louis Renault: Oh, thank you … very much. Everybody out at once!

Essentially, the Commissioner argues that Washington State will lose over $10 million in revenue and incur costs of nearly $1 million dollars if association plans were permitted to continue as large group plans as they are now. Why? Let the Commissioner explain:

The [legislation] results in a competitive advantage for these types of small group health plans against the community rated marketplace. The anticipated result is a drop in enrollment, which is the basis for the OIC projection that these actions will result in a loss of premium tax income to the state general fund.

OIC projects that this legislation will result in a loss of approximately 21,500 enrollees in the small group community rated market in CY 2014 while the AHPs will gain about 5,400 enrollees. Assuming no inflation and using the 2011 differential in health premiums between the AHP and community rate markets, this would result in $83.5 million less in collected premiums for CY 2014 and, therefore, $1,670,000 million less per year in general fund income from the 2% insurance premium tax. In subsequent years, OIC projects that the small community rated market enrollment will continue its decline, with smaller AHP counterbalancing enrollment gains, resulting in general fund losses of $2,998,000 in FY 2016, $4,025,000 in FY 2017, $4,792,000 in FY2018, and $5,346,000 in FY2019.

Let’s see…carry the one, multiple by two thousand, less unanticipated earnings, plus the override…the state will lose tax revenue because AHP plans are cheaper and will be even cheaper next year.

According to the OIC, if the status quo is maintained for AHPs when health care reform kicks in and premium subsidies are provided for the mandated purchase of “essential health benefits” in the new exchange, people will stop buying insurance because it costs too much. As result, the state won’t get as much tax revenue and thousands of people will go without insurance. I’m shocked…shocked to hear of these developments.

So why will it cost the OIC another million to do what the OIC does already? Let’s ask:

In order to determine whether the association qualifies for the safe harbor from community rating requirements required under the measure, the OIC will need to review whether the association meets the four part test set forth in the bill.

The new review must be completely different from the review by the OIC for the last four months and the demand that associations come and meet with OIC to prove that the United States Department of Labor (DOL) would agree with an OIC view as to the bona fide status of the association (a task the OIC would no longer have under the Senate bill).

So what other costs will be incurred?

  1. The bill does not define “health underwriting by individual”; because it is unclear exactly what is prohibited, rulemaking would be required to establish a definition of this term that would make this prohibition effective.
  2. The national SERFF filing system does not currently support the additional information that would need to be filed under the bill’s provisions to justify treating a given AHP as a large group plan; this will also require additional rulemaking.
  3. In order to determine whether this legislation is preempted by the Federal laws, OIC’s legal staff must complete a preemption analysis and continue to work on the legal aspects of this preemption question. The NAIC has gathered a work group for the preemption analysis and Legal will need to participate actively if this bill is enacted.

Here’s a thought – how about the OIC doing nothing different. Continue to review and approve association plans as negotiated, large group filings; continue to allow small businesses to choose how they want to buy and pay for health insurance for employees; continue to let DOL do its own job; and let the state see if reform attracts employers away from associations.

I forgot, that’s exactly the way it is right now. Washington has long had a modified community rated market with mandated benefits competing against large group associations. But, I’m shocked…shocked to discover that reform won’t work unless employers who buy their coverage through associations leave to join the reformed market and pay more.