Whatever your political persuasion on the issue of health care reform (Obama Care…that !#@ law…or…change at last, change at last), nothing seems to breed suspicion and controversy like association health plans which persist in providing insurance plans tailored to membership needs. Senate Bill 5605 would bar the Washington Insurance Commissioner from ruling on the issue of the status of association plans as single employer plans under ERISA. The legislation would require the Commissioner to treat the association as a large group until federal agencies required otherwise. The legislation also imposes standards upon such plans that prohibit discrimination based upon health conditions. The measure passed the Senate Health Care Committee in amended form, fbecoming Substitute Senate Bill 5605. The bill was referred to the Senate Ways and Means Committee because of the Insurance Commissioner’s report (fiscal note) on the potentially ruinous loss of premium tax revenue (see “I’m shocked…“). The Ways and Means Committee will consider this impact in contemplating referral of the measure to the full Senate.

Folks outside of the political environment asked a lot of questions about the fiscal impact of the legislation on the state budget. Some wondered why a fiscal note isn’t being prepared for the impact of health care reform itself on the price of coverage and what this might do to sales and subsequent revenues. Others asked if fiscal notes had been prepared in the past which measured the loss of insurance sales and premium tax revenues if a bill were to be adopted. Still others wondered why maintaining the status quo would require nearly a million dollars in new spending by the agency.

In response, I provide two sets of facts. First, the fiscal note was revised to remove the Washington State Health Care Authority from the analysis since it reported no fiscal impact on the agency in the original note. Although, the Insurance Commissioner still anticipates a great burden ($758,120 over two years), the burden is his alone.  Second, I provide additional information to assure those who have expressed alarm that perhaps the Commissioner (OIC) mixed up his reports. The following information from the OIC starts with a quote from the fiscal note (labeled as such for your convenience) followed by quotes from the independent consultant report upon which the OIC relies (these quotes were inadvertently omitted from the fiscal note) and ending with quotes from two other reports by the OIC to the Legislature on the nature of the uninsured problem in Washington’s health care market. I apologize in advance that you must read so much.

Fiscal Note:

“This bill establishes a new safe harbor for health plans provided to small employer groups through associations or member-governed groups, to be treated as large groups as long as the association/group entity operates only within Washington, has only Washington employers as members, does not health underwrite individuals and does not base eligibility on health factors.”

“The safe harbor status 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. The justification for this projection can be found in small enrollment data filed by the insurance carriers since 2006 and the Mathematica report requested by the legislature in 2010.” [That report is coming up next]

“Data from these sources show that, although overall small group AHP enrollment in Washington state has increased by 21% since 2006, the overall small group market has declined by 25% because the community rated small group pool enrollment fell 53%. The vast majority of the coverage losses were from employers with less than 25 employees. This market dynamic exists because associations currently have a safe harbor from small group community rating requirements. The measure seeks to perpetuate this dynamic, which otherwise will end beginning in 2014 when association plans that do not meet federal requirements for large groups must be community rated, offer the essential health benefits, and contribute to the federal risk adjustment programs.”

“Based on this history and, in particular, the most recent enrollment years’ data, 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.” [Gasp! What will happen if people can’t afford the more generous benefits in a reformed market?]

Pretty scary stuff. Let’s see how the Mathematica report explained the devastation caused by association health plans. The report relied upon data collected from insurers for the years 2005 through 2008 (five years ago). Report investigators warned of this weakness in the executive summary – “the information must be much more current than was required for this study, which looks back eight years and captures information only as recently as 2008.” [page xi]

The OIC fiscal note fails to mention that the report also found that other reasons existed to explain price differences between Washington’s community rated small group market and association plans:

Mathematica Report

“It is possible that much lower unadjusted average premiums for AHP small groups were related to generally narrower benefit designs (with, for example, lower limits on covered benefits or much higher cost sharing) than were available in the community-rated small group market. However, it seems more likely that lower average AHP premiums reflected better risk selection as well as the larger average size of AHP small groups compared with community-rated small groups.” [page ix]

The fiscal note misses this Mathematica finding:

From 2005 to 2008, premiums increased at a faster average rate for AHP small groups than for community-rated small groups, but remained lower for AHP small groups in all years. In both AHPs and community-rated small group plans, medical cost (defined as carrier payments for incurred claims) increased faster than premiums, but it increased fastest for small groups in AHPs.” [page ix]

And this one:

“The faster growth of average medical cost increased insurers’ average medical loss ratios (calculated as total medical cost divided by total premiums) for both large and small groups in AHPs, as well as for community-rated small groups. However, in all years, the medical loss ratio for small groups in AHPs exceeded that in community-rated small groups, consistent with the larger average size of AHP small groups. By 2008, the average medical loss ratio for small and large groups in AHPs had risen to 0.87, compared with 0.84 for community-rated small groups.” [page x]

The OIC skipped over the report’s warning about drawing cause and effect conclusions:

“Update to 2010
Responding to new reporting requirements in March 2011, carriers in Washington State reported lower levels of enrollment in either AHPs or in community-rated small group plans in 2010 than they had reported for 2008, in response to the OIC data call. While inferences drawn from comparison of separate data sources should always be considered with caution, the data reported for 2010 appear to indicate a continuation of some trends observed from 2005 to 2008. These changes occurred in the context of a significant drop in total insured group coverage, which in all states has been an important result of the economic recession.” [page 17]

O.K. let’s leave Mathematica alone and move to the two other OIC reports to the Legislature. In his December 2011 report to the Legislature on the number of people in Washington without health insurance, the words AHP and association were never even used [well, except for the National Association of Insurance Commissioners]. Here’s how the numbers were reported and the conclusions drawn:

“As can be seen in the chart below, the number of Washingtonians without health coverage has grown dramatically since 2008, and is likely to continue to grow through 2013.”

Key factors in this increase, we believe, include stagnant incomes, continued high unemployment, and health care costs that continue to outpace inflation. Much of the sharp growth from 2008 through 2010 was driven by the nation’s economic free fall. During that time, the number of uninsured in Washington grew by 180,000. In addition, a secondary cause amplified the problem. Employers, facing economic pressures of their own, are increasingly pushing health insurance costs to employees. According to the federal Medical Expenditure Panel Survey (MEPS), for example, families’ share of premiums among private employers rose 13 percent in Washington state from 2008 to 2010. Their deductibles rose 40 percent and co-pays rose 15 percent.”

Private employers requiring no premiums for employees, meanwhile, decreased from 30 percent to 20 percent, according to MEPS. With wages flatlining, a larger percentage of employees have clearly made the decision that they cannot afford coverage. The percentage of employees eligible for coverage who chose not to take the coverage rose from 15 percent in 2008 to 21 percent in 2010. That 6 percent difference represents 98,750 employees, plus in many cases their dependents.”

The difference was especially startling in the part-time employee group, where the percentage of eligible employees with health coverage dropped from 70 percent to 53 percent. Even among full-time employees, however, the percentage dropped by about 5 percent. A major driver from now until 2014 – when the federal Affordable Care Act’s major provisions take effect – will continue to be the cost of insurance, which is rising faster than incomes.” [page 2]

From this, I can only conclude that association plans are to blame. Especially given the next finding:

“In Washington, about half of those without health insurance are employed. All told, there are about 470,000 full- and part-time workers in Washington state who have no health insurance. The picture is particularly bleak for part-time employees, fewer than 38 percent of whom are even eligible to purchase employer-provided health insurance.” [page 6] [I don’t think health care reform requires small employer coverage for part-time workers. I believe these employees must buy it themselves or face tax penalties. But let’s count them anyway since it’s a better story.]

Fast forward to May 2012 when the OIC issued it’s breathless report called “What’s at Stake” – “The Affordable Care Act in Washington state: A county-by-county analysis.” Again no mention of AHPs.

Of Washington’s nearly 1.1 million uninsured by the end of 2013, we calculate that 805,400 will be eligible for either Medicaid or subsidies under the ACA, as follows:
• Medicaid: 328,000 people
• Subsidies: 477,400 people

“So the U.S. Supreme Court’s ruling could have profound consequences. If the entire act is thrown out, many of those 805,400 Washingtonians will face the same problem they and their families do today: living one bad diagnosis away from medical bankruptcy.”

“In the absence of meaningful alternative reforms, existing health‐care trends – ever‐higher premiums, growing numbers of uninsured, and ever‐higher amounts of charity care and bad debt – would likely continue.” [page 3] [Just the kind of impartial analysis we were looking for. Without Supreme Court approval – Fire in the streets, riots, plague, and doom to follow all the days of our lives.]

Seriously though, I think I have put your mind at ease. A fiscal note is just part of the grand legislative debate in which a fiscal note and revenue losses simply reflect the passionate support of a cause. As noted above 805,400 uninsured people will be buying from the state exchange and not from AHPs since subsidies only come in the exchange.

Here’s an alternative view. If association health plans are allowed to continue, small employers might save some money and might enjoy the services of seasoned insurance producers who won’t be appearing in the new and improved and coming to your neighborhood soon HEALTH CARE EXCHANGE where coverage is cheap, benefits are grand, and money is free. Amen.

Consider that my fiscal note.