Association Health Plans Explained:

Association Health Plans are not that new, but current legislation on the floor of Congress is pushing them into the spotlight again. Many people feel that AHP's are a viable way for small businesses to save money on group health insurance plans, while opponents are less than enthused on the prospects.

First, let's take a look at what AHP's are and how they work. An association health plan is similar to a group plan for business owners who need group plans for their employees. In the simplest terms, it is an association of business owners who have a group plan for their group plans.

This is done to pass on savings to small business owners by banding them together under one large group policy, which then issues small group policies to individual members and their employees. Sounds like it would work perfectly, doesn't it?

Unfortunately, this has not been the case. AHP's are currently bound by state insurance regulations, unlike union and corporate health plans. This hampers association health plans and makes it more difficult to pass on the savings that were intended for small business owners.

The Small Business Health Fairness Act is working to change this by removing these regulations for association health plans. However, they are meeting strong opposition to this change. The reasons for this opposition are rooted in skyrocketing health care costs and premiums for small businesses.

Medical associations and insurance companies have gotten together to block this legislation, while small business owners and trade organizations are lobbying hard for its approval. This has created an unstable situation rife with conflict for many people.

The medical associations and insurance companies are worried that removing these regulations for association health plans will result in chaos, and allow AHP's to gouge their customers by forcing them to pay higher premiums. In addition, opponents are worried that AHP's, if not regulated, would cater only to the low-risk market, removing the possibility of affordable health insurance for many small businesses. The biggest opponents are concerned that de-regulation would in fact de-stabilize the entire health care industry.

While this prospect is extreme, many analysts are not certain that the de-regulation would result in the proposed savings for small businesses. Many business owners are expecting to save 15 to 30% on their health care premiums should de-regulation occur. However, this may be wishful thinking.

Past members of AHP's have been weighing in on the issue and have reported that instead of saving money they have been forced to pay higher premiums for less coverage, and that what coverage they did have was modified or cancelled with very little notice.

Insurance companies have typically been leery of offering AHP's simply because the market is not stable enough to justify the expense. Enrollment in AHP's is subject to fluctuation, and many insurance companies have decided that they are better off without offering this option for small businesses.

Small business owners are not convinced and continue to hope that de-regulation will pass. In the case of businesses with less than 20 employees, de-regulation means a chance to stay competitive and prevent disaster should an employee become ill. In a regular situation, one employee with a major illness could spell a huge increase in plan premiums.

Congress certainly has its work cut out for it with this issue. Both sides are vehemently backing their ideals and it will take some time to sort out their differences so that real savings can be passed on where it belongs - the small business owner.

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