Which is worse: thinking you have health insurance coverage — when it’s actually inadequate or non-existent — or being among the 45 million American workers who don’t have coverage?

A measure now before the U.S. Senate would make health coverage more accessible, say supporters, by allowing small business and trade associations to form national insurance pools. Opponents, however, say the proposed remedy would hurt businesses and result in even more people becoming uninsured.

Less than four years ago, the Iowa Insurance Division issued an emergency cease-and-desist order to stop Carson City, Nev.-based Employers Mutual LLC from selling phony health insurance policies in Iowa, after people who had purchased policies through employer associations were left holding the bag for millions of dollars in uncovered medical bills. Now, state regulators say the Small Business Health Fairness Act, if passed by Congress, would make it harder for them to protect Iowa businesses from similar scams in the future.

Iowa Insurance Commissioner Susan Voss, along with the National Association of Insurance Commissioners, is among a broad coalition of government agencies and business associations that oppose HR 535/S 406, which they say would result in higher costs and increased fraud by exempting these types of insurance arrangements from state oversight.

“We are concerned for small employers and their efforts to find affordable health care,” Voss said. “However, this legislation will do little to address the health-care costs that all consumers face.” One of the primary reasons, Voss said, is that 85 percent of premium dollars go to pay medical expenses, leaving little room for cost savings without adjusting overall health-care spending.

As health-care costs continue to skyrocket, an equally vocal contingent of business groups says that allowing association health plans to cross state lines will enable small employers to increase their purchasing power by joining purchasing pools with similar industry groups or trade associations across the country.

According to a 2004 survey of employer health benefits by the Kaiser Family Foundation, 61 percent of U.S. workers received health-care coverage through their employers last year, down from 65 percent in 2001. During that period, businesses saw four consecutive double-digit increases in annual health-care premiums, with employers paying an average of $7,300 of the nearly $10,000 needed to provide family coverage for one employee.

The association health plan bill, which has strong support from the Bush Administration, passed the U.S. House on July 26 on a 263-165 vote, with 36 Democrats voting for the measure. Rep. Leonard Boswell, a Democrat, was the only Iowa representative to vote against it. The question remains whether the Senate, which has failed to pass similar bills in the past, will pass the measure this time around.

Among the bill’s biggest advocates is the National Federation of Independent Business, whose Iowa chapter supports broadening association health plans by a wide majority, said David Brasher, NFIB’s state director for Iowa.

“We’re trying to find any way to make (health insurance) more affordable,” said Brasher, who said the passage of the association health plan bill is the NFIB’s top priority this year. “We don’t know how beneficial it would be pricewise, but we would hope it would knock a few percentage points off of the cost.”

In Central Iowa, the Greater Des Moines Partnership and Wellmark Blue Cross and Blue Shield are among the organizations that oppose the change.

“From an insurance standpoint, it would dismantle the infrastructure for regulating the market for these types of products,” said Cliff Gold, Wellmark’s group vice president of marketing and external relations. “Association health plans strike at the heart of (sound insurance policy) by creating these pools of employers that are unrelated to each other in any meaningful way, and creating federal regulation with little or no oversight. … When those pools go bankrupt, a lot of people are left without coverage and have no place else to go.”

In several instances in the 1990s, Wellmark stepped in to bail out associations that had become insolvent, he said.

The potential for increased fraud is the primary reason the Partnership opposes the expansion of association health plans, said Jay Byers, the Partnership’s senior vice president for public policy. The Partnership’s position, which runs contrary to the U.S. Chamber of Commerce’s support of the bill, was one of the points the Partnership emphasized to the state’s congressional delegation during its annual trip to Washington, D.C., in June.

“We don’t have a problem with association health plans; we’ve supported them in the past,” said Byers, noting that finding ways to increase access to affordable health insurance is a “huge issue” for the organization. “The problem is that this legislation exempts them from state regulation.”

Not all multiple-employer trusts or associations are inherently bad, Gold said.

“We acknowledge that multiple employer pools that are put together where all the members have a common association often are a good way to pool risk, if they are appropriately regulated, backed and funded,” he said. Two good examples in Iowa, Gold said, are self-funded plans offered by the Iowa Bankers Insurance & Services and the Iowa Automobile Dealers Association, both of which are administered by Wellmark.

The Iowa Automobile Dealers Association, whose statewide association health plan covers more than 10,000 dealership employees and their family members, would like the ability to join with other state auto dealers association health plans to try to reduce premiums, said Martha Martell, the association’s general counsel.

“The idea was that groups of small employers that were receiving their health care through legitimate trade associations, that it would be helpful to be able to organize them under federal regulations the way large employers or trade unions can organize them under the (federal) ERISA rules. The advantage is that they could do this across state lines, so for instance, the Iowa auto dealers association could join with the Nebraska association to perhaps get better rates because it’s a larger group.”

With regard to fraud concerns, a number of safeguards have been built into the federal legislation to mitigate that risk, Martell said. Among those are requirements that the plans must be sponsored by established trade associations, that they must adhere to minimum reserve requirements, and that they must employ stop-loss provisions in which insurance losses are backed by reinsurance agreements.

However, opponents argue that unlike state regulators, federal regulators would have to file suit against the associations to stop illegal actions, leaving scam artists free to operate while cases are being adjudicated.

One of the biggest misconceptions surrounding association health plans is that more members covered will mean lower rates, Gold said. “While it’s true that the bigger the group, the more predictable the risk, just adding more people doesn’t make the pool cheaper; it just makes the risk more predictable,” he said. “If I put more high-risk people together, I can be more certain that their rates will be higher.”

Additionally, because Iowa has among the lowest health insurance costs in the nation, Iowa business associations probably wouldn’t benefit from being in a pool with their counterparts in other states because it would make the average rate increase, Gold said.

Study: Fraud would increase

A study released last month by the Georgetown University Health Policy Institute concluded that the Small Business Health Fairness Act, designed to authorize the use of association health plans across state lines, would have “the unintended consequence of widespread fraud threatening the coverage and financial security of millions.”

Fraudulent association health plans have become a prevalent way to sell phony insurance, according to Mila Kofman, an assistant research professor at the institute and the author of the study. From 2000 to 2002, a total of 144 unlicensed plans, many offered through associations, sold coverage to at least 15,000 employers, which were subsequently left responsible for $252 million in unpaid medical claims, according to a study released last year by the U.S. Government Accountability Office.

The text of the study can be accessed at www.protectyourhealthcare.org, which also contains a list of organizations that oppose the Small Business Health Fairness Act. To see who supports the bill, visit www.ahpsnow.org.