Insuring the Uninsured through Association Health Plans

Studies | Health

No. 259
Wednesday, April 30, 2003
by Donald L. Westerfield, Ph.D.


Executive Summary

The American health care system consists largely of employer-based group health insurance. After World War II, employers offered health care plans in order to attract employees. As the numbers of employer-provided health plans grew, the federal government and the states regulated them heavily.

One of the unintended consequences of increasing government regulation was to increase the numbers of people without health insurance. The high cost of complying with different state regulations has raised the cost of employer-sponsored health plans, leading many small businesses to drop coverage altogether. By the end of 2001, the Census Bureau estimated more than 41 million Americans were uninsured - many of them young, healthy people with modest or low incomes.

Part of the solution to insuring the uninsured is the creation of Association Health Plans (AHPs). These are plans created for individuals and groups who belong to associations that are related to jobs, careers, or hobbies and interests. The potential for growth of this type of insurance is quite large - given a favorable regulatory climate.

Proponents of AHPs argue that they have great potential to insure the uninsured. By uniting many small groups with similar interests across the country, AHPs could take full advantage of economies of scale to lower health care costs for their memberships.

  • There are about 15,000 associations throughout the country.
  • Some six million Americans are insured through associations and the number is growing.

AHPs are applicable to a variety of group memberships. For example:

  • The American Association of Retired People offers supplemental medical insurance to all of the Medicare enrollees among its 35 million dues-paying members.
  • The National Association for the Self-Employed (NASE) makes AHP insurance available to its members throughout the country.
  • The National Restaurant Association could offer AHP insurance to restaurant employees in all 50 states, and the National Rifle Association could offer insurance to its members.

Perhaps the most important argument for AHPs is that millions of people who are not covered because of high costs or lack of availability would be able to obtain affordable coverage.

  • A Congressional Budget Office (CBO) analysis of legislation pending in Congress estimates that small businesses can expect to reap savings averaging between 9 percent and 25 percent of the cost of their health insurance premiums.
  • As a result, the CBO estimates that 330,000 - and potentially as many as 2 million - of the currently uninsured would obtain health insurance.
  • CONSAD Research Corporation estimates that expanding AHPs could result in an increase in employer-sponsored insurance coverage of approximately 2.3 million workers and 2.2 million dependents.

Most of the uninsured are connected to the workplace, and most uninsured workers are employees of small businesses that are especially burdened by the lack of competition and by unwise regulations. Among the unwise regulations are mandated benefits, which are estimated to be responsible for as many as one in every four uninsured persons.

Many of the uninsured are healthy and can afford to purchase health insurance. The principal reason they are uninsured is that the premiums charged are too high relative to the value they place on being insured. The most important key to inducing them to buy insurance is to lower its price.

A barrier to low-cost health insurance is the lack of uniform regulations in all states. If small firms could buy AHP insurance with guaranteed uniform regulation, they could enjoy the same lower administrative costs now available to large company health plans that are federally regulated. AHPs would also be able to avoid mandated benefits and other complex, cost-increasing regulations that are imposed in different states.

In most of the United States, a few large firms dominate the health insurance marketplace and offer limited products to employers, their employees, individuals and the self-employed. These products meet the needs of some customers but not of many others. Given the size and diversity of the market, it is surprising how little diversity there is among insurance products.

Critics of AHPs would like to curtail their growth rather than expand it - principally by subjecting AHP insurance to the state regulations that apply to all other commercial health insurance. However, the answer to insuring the uninsured is not to limit competition, but to increase it. By making AHPs more competitive, we can lower the cost of insurance to small employers, their employees and the self-employed.


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