NCPA - National Center for Policy Analysis

Bush Proposal for Association Health Plans

October 8, 2002

President Bush has proposed health care reforms to allow business and professional associations to offer health benefits to members through the creation of Association Health Plans (AHPs). AHPs would allow small employers and individuals to take advantage of the economies of scale in group buying. They would also be permitted to self-insure-- something only large companies are able to do today -- and avoid many costly state regulations.

Advocates say AHPs would improve access and help control rising health care costs. Under the current system, many small businesses and individuals cannot afford health insurance premiums. The Employee Benefits Research Institute (EBRI) reports that the number of uninsured is directly correlated with the size of the firm they work for. [See Figure I.]

  • In the small group and individual insurance market, one-fourth to one-third of every premium dollar is spent on administrative costs; large, self-funded employers are exempt from many of these costs and can reduce them to as little as 10 percent or even 5 percent.
  • A recent Kaiser Family Foundation (KFF) survey found that fully insured plan premiums rose by 61.3 percent over the last five years, while self-funded plan premium equivalents rose 42.5 percent. [See Figure II.]
  • By contrast, the medical inflation rate was about 4 percent per year over the same period.
  • PricewaterhouseCoopers (PWC) says state mandated benefits, additional federal mandates, duplicative and confusing regulations, a growth in litigation, and fraud and abuse account for more than one-fourth of the recent run-up in premiums.

President Bush's proposal would allow AHPs either to fund their own benefits or to buy fully insured coverage and be regulated by the U.S. Department of Labor, much as larger employers are today.

Source: Greg Scandlen, "Association Health Plans -- Part One: Lowering Small Group Costs," and "Association Health Plans -- Part Two: Answering the Critics," Brief Analyses No. 419 and 420, October 8, 2002, National Center for Policy Analysis.

For BA 419 text

For BA 420 text


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