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Study: AHP Legislation "A License to Steal"

JULY 21, 2005 — Legislation that would make it easier for small businesses to band together to purchase insurance and bypass state mandates is "a license to steal," says a study released Thursday.

"The consequences are predictable: bankruptcy, delayed or forgone medical care, and loss of coverage for America's businesses and workers," said report author Mila Kofman, an assistant research professor at Georgetown University's Health Policy Institute.

The report is referring to a bill (HR 525)—expected to pass the House next week—that would allow association health plans (AHPs) to bypass state regulation in areas such as mandating insurance coverage for specific treatments and procedures. Exempting AHPs from state laws, advocates say, would make it easier for small businesses to join forces and cut better deals with insurers when purchasing health care coverage for employees.

But Kofman said that the lack of state regulation of AHPs creates an easy opportunity for scam artists to come in, get their money and go out of business. "In law enforcement circles, these are called 'cash cows,'" she said at a press conference.

The legislation would prohibit state regulators from shutting down fraudulent AHPs and would stop states from making it illegal to sell phony insurance to federal AHPs, Kofman said.

The bill would require the Department of Labor to monitor AHPs, a responsibility the agency cannot handle, Kofman said. And the bill would rely too heavily on self-reporting and self-regulation by the plans. "Crooks won't be notifying the feds of lying, cheating, and stealing," she said.

Between 2000 and 2002, fraudulent AHP-like plans affected more than 200,000 policyholders and left businesses and workers responsible for $252 million in medical bills, Kofman said. While the states shut down 41 illegal operations selling coverage through phony and real associations, the U.S. Labor Department shut down just three, Kofman found.

Rep. Sam Johnson, R-Texas, the leading sponsor of the House AHP bill, said such plans "protect people and increase the insured. The last time I checked, the Department of Labor has done a tremendous job monitoring the health plans of big business. I'd like to see small business have that same advantage—and their employees insured," he said in a statement.

Groups such as the U.S. Chamber of Commerce, the National Federation of Independent Business, and the National Association of Manufacturers are pressuring Congress to pass the AHP legislation. They say such plans would help reduce the number of uninsured Americans by giving smaller employers the same market clout that larger businesses now enjoy when they purchase health coverage for their workers.

While the legislation has passed the House several times and is expected to do so again, it faces more opposition in the Senate, where Sen. Olympia J. Snowe, R-Maine, has introduced a similar bill (S 406).

Kate Sullivan Hare, executive director of health care policy for the U.S. Chamber of Commerce, said the AHP measure includes a number of licensing and solvency requirements to help prevent fraudulent companies from offering coverage. Hare also said the Department of Labor would add staff to help monitor the AHPs if the legislation became law.

"There's nothing any of us can do about the scam operators—it's buyer beware," Hare said. "They're out there now."

Jill and Brent Burgess, who attended the press conference with Kofman, were the victims of one of those fraudulent operators. The couple, which operated their own business, lost their health care coverage for themselves and their three children when the company they bought insurance from was shut down for operating illegally, Jill Burgess said. Saddled with $30,000 in unpaid medical bills, her family had to file bankruptcy. "There was no other way out of this nightmare," she said.

Kansas Commissioner of Insurance Sandy Praeger said there will be more victims like the Burgess family if Congress approves the AHP bill. "Simply put, allowing federal AHPs to operate outside the authority of state regulators will expose consumers to more fraud and insurance scams," she said.

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