House Workforce Committee Issues Report on Small Business Health Fairness Act (Part 1 of 2)
Purpose
H.R. 1101, the Small Business Health Fairness Act of 2017, amends the Employee Retirement Income Security Act of 1974 (ERISA)1 to improve access to affordable health coverage options for workers employed by small businesses. The bill amends Title I of ERISA to authorize the creation of association health plans (AHPs). The legislation allows small businesses to band together across state lines through bona fide trade or professional associations to purchase health insurance for their workers, thus increasing their bargaining power with plans and providers and placing them on a more level playing field with larger companies and unions. H.R. 1101 frees small businesses from costly state mandated benefit packages, spreads risk among a larger group, and lowers overhead costs, enabling employers to offer more affordable health care coverage to their workers.
1U.S.C. Sec.
Committee Action
109TH
Introduction of H.R. 525, Small Business Health Fairness Act
On
2H.R. 525, 109th Cong. (2005).
Committee Passes H.R. 525, Small Business Health Fairness Act
On
3H.R. 525, Small Business Health Fairness Act: Markup Before the H. Comm. on Educ. and the Workforce, 109th Cong. (
4H. Rept. 109-41, (2005).
111TH
Full Committee markup of H.R. 3200, America's Affordable Health Choices Act of 2009
Between
5H.R. 3200, 111th Cong. (2009). H.R. 3200 was the House precursor to the law known as the Affordable Care Act (See infra note 8).
Passage of Affordable Health Care for America Act
On
6H.R. 3962, 111th Cong. (2009).
7H. Amend. 510 to H.R. 3962, 111th Cong. (2009).
Passage of the Affordable Care Act
On
8Patient Protection and Affordable Care Act, Pub. L. No. 111-148 (2010).
9Health and Education Reconciliation Act, Pub. L. No. 111-152 (2010).
10Patient Protection and Affordable Care Act, Pub. L. No. 111-148 (2010), and Health and Education Reconciliation Act, Pub. L. No. 111- 152 (2010) [hereinafter Affordable Care Act, Obamacare, or ACA].
112TH
Full Committee hearing on examining The Impact of the Health Care Law on the Economy, Employers, and the Workforce
On
Subcommittee hearing examining The Pressures of Rising Costs on Employer Provided Health Care
On
Subcommittee hearing examining Barriers to Lower Health Care Costs for Workers and Employers
On
113TH
Joint Subcommittee hearing regarding The Employer Mandate: Examining the Delay and Its Effect on Workplaces
On
Subcommittee hearing regarding Health Care Challenges Facing Kentucky's Workers and Job Creators
On
114TH
Subcommittee hearing on Five Years of Broken Promises: How the President's Health Care Law is Affecting America's Workplaces
On
115TH
Full Committee hearing on Rescuing Americans from the Failed Health Care Law and Advancing Patient-Centered Solutions
On
Introduction of H.R. 1101, Small Business Health Fairness Act of 2017
On
11H.R. 1101, 115th Cong. (2017).
Full Committee hearing on Legislative Proposals to Improve Health Care Coverage and Provide Lower Costs for Families
On
Committee passes H.R. 1101, Small Business Health Fairness Act of 2017
On
12H.R. 1101, Small Business Health Fairness Act of 2017: Markup Before the H. Comm. on Educ. and the Workforce, 115th Cong. (
Summary
On
More specifically, H.R. 1101 relieves small businesses that form AHPs from costly state-mandated benefit laws that often make coverage prohibitively expensive, thus lowering the costs of health insurance and making it possible for small firms to offer coverage. H.R. 1101 establishes a class certification for fully-insured AHPs prescribed by the Secretary of Labor. Likewise, self-funded AHPs must meet certain criteria to insure the businesses covered will be of average health risk to avoid pulling healthy individuals from the small group market (to avoid cherry picking). The legislation also contains protections to ensure self-funded AHPs meet and maintain solvency standards (e.g., maintaining at minimum
Committee Views
Background on Employer-sponsored insurance coverage
Since World War II, employers have offered health care benefits as a way to recruit and retain talent and ensure a healthy and productive workforce. Employer-sponsored insurance is one of the primary means by which Americans obtain health care coverage. According to the
13Kaiser Family Found.,
14Troy, T., and Wilson, D.M., Health Coverage Cost Per Covered Life: Government vs. Employment-Sponsored Programs,
15Kaiser Family Found., supra note 11.
Employer-provided health benefits are regulated by a number of laws, including ERISA as amended by the ACA.
Small and large employers offer health care coverage to employees in self-funded arrangements (self-insurance) or purchase fully-insured plans. ERISA regulates both fully- insured and self-insured plans, but only self-insured plans are exempt from a patchwork of benefit mandates imposed under state insurance law. Employers sponsoring self-insured plans are not subject to the same requirements under the ACA as those with fully-insured plans. Therefore, employer-provided plans have different requirements and costs depending on funding arrangements. Last year, approximately 61 percent of workers with coverage were enrolled in a self-funded plan, up from 49 percent in 2000 and 54 percent in 2005.16
16Id.
Obamacare has failed, proving the need for a better way of providing access to affordable, quality health care
The ACA attempted to expand access to health insurance through a complicated structure of federal subsidies,
17Jess Henig &
18Rescuing Americans from the Failed Health Care Law and Advancing Patient-Centered Solutions: Hearing Before the H. Comm. on Educ. and the Workforce, 115th Cong. (2017). (Statement of
19Statement on the Small Business Health Care Crisis: Possible Solutions,
The ACA placed additional mandates and administrative burdens on employers, increasing the cost of insurance coverage and making it more difficult to hire workers and grow their businesses. According to a recent study by the
20Gitis, B. and Batkins, S., Update: Obamacare's Impact on Small Business Wages and Employment, AMERICAN ACTION FORUM, (2017), https:// www.americanactionforum.org/research/update-obamacares-impact-small- business-wages-employment/.
Since 2008, approximately 36 percent of small businesses with fewer than 10 employees have stopped offering coverage, leaving workers with even fewer health care options.21 In 2015, the offer rate for businesses with fewer than 50 employees dropped to 29 percent, compared with 39 percent in 2010 when ACA passed.22 Due to their size and economies of scale, large businesses and labor organizations have the ability to negotiate on behalf of their employees for high- quality health care at more affordable costs. By offering a qualified group health plan under ERISA, these large employers and labor organizations are also exempt from myriad state rules and regulations on health insurance. Small businesses, however, do not have the same bargaining power as larger businesses and are unable to band together to increase their bargaining power in the health insurance marketplace.
21Paul Fronstin, Fewer Small Employers Offering Health Coverage; Large Employers Holding Steady, EBRI Educ. and
222015 Medical Expenditure Panel Survey-Insurance Component: Table I.A.2,
According to a
Under the Affordable Care Act (ACA) our nation's small businesses and their employees have been relegated to a second class consumer status versus their large, self- funded, ERISA exempt competitors when it comes to access and affordability of health insurance coverage. . . . The ACA, in mandating the purchase of health insurance coverage yet failing to provide consumer equitable treatment under the law in terms of access and pricing[,] is not only unfair it is discriminatory.24
23Holly Wade, Small Business's Introduction to the Affordable Care Act Part III, NFIB Research Found. (
24Legislative Proposals to Improve Health Care Coverage and Provide Lower Costs for Families: Hearing Before the H. Comm. On Educ. and the Workforce, 115th Cong. (2017). (Statement of
One significant factor contributing to the high cost of health care for small employers is their inability to band together in order to unlock the financial benefits of small business pooling arrangements. These cost-saving benefits-- economies of scale, freedom from state regulation, and increased administrative efficiencies--would help small employers access coverage at a more affordable price and decrease the number of uninsured individuals who work in small businesses.25 That is particularly important because the percentage of smaller firms that offer coverage has fallen from 57 percent to 53 percent since 2011.26
25According to 2010 Census data, smaller firms (less than 500 employees) were almost twice as likely to be uninsured than larger firms (more than 500 employees), with 36 percent of the uninsured working population being employed at a firm with 10 or fewer employees. Small Bus. Admin., What is the level of availability and coverage of health insurance in small firms? (2012), https://www.sba.gov/sites/ default/files/
26Kaiser Family Found., supra note 11.
To address the damage to small businesses caused by the ACA,
27Id.
In
The need for small business pooling
More specifically, AHPs will give small businesses another option for offering health insurance coverage. In a letter to
We believe AHPs will help lower the cost of health insurance by allowing small business owners the same opportunities that larger businesses now experience. AHPs will allow small business owners to band together across state lines through their membership in bona fide trade or professional association to purchase health coverage. Establishing health insurance benefits through associations will make coverage more affordable by spreading risk among a much larger group, strengthening negotiating power with plans and providers, and reducing administrative costs.28
28Legislative Proposals to Improve Health Care Coverage and Provide Lower Costs for Families: Hearing Before the H. Comm. On Educ. and the Workforce, 115th Cong. (2017). (Letter from
29Hurst, supra note 22.
30Mass.
31Hurst, supra note 22.
Employment-based group coverage can be distinguished from public pools because employees come to the business to work rather than seek coverage, as opposed to public pool[s, like the ACA exchanges,] where the sole objective is to obtain coverage. The difference in presentation of risk, though subtle, is important. Private, employment-based group plans work better and provide more affordable coverage.32
32Id.
A key element of H.R. 1101 is that AHPs would have the ability to self-fund, which in turn would allow small businesses to band together across state lines to offer coverage. Self-insuring also allows employers to offer plans designed to meet the needs of their employees, while controlling costs. These plans provide excellent, well- regulated benefits. As Mr.
33Legislative Proposals to Improve Health Care Coverage and Provide Lower Costs for Families: Hearing Before the H. Comm. On Educ. and the Workforce, 115th Cong. (2017). (Statement of
34Id.
Some states already allow pooling arrangements within their state. Association Health Plans not certified under Part 8 of ERISA remain subject to all federal and state laws otherwise applicable to such plans, and the provisions of the Act are not intended to modify the application or interpretation of such laws to such plans.
Support for creating options and flexibility for small businesses
Because this legislation benefits both employers and working families, the legislation is endorsed by a broad swath of groups representing job creators, including:
Conclusion
H.R. 1101, the Small Business Health Fairness Act, makes it easier for small businesses to promote a healthy workforce and offer more affordable health care coverage. By allowing small businesses to join together in AHPs, the bill puts smaller businesses on a more level playing field with larger companies and unions, and it increases their bargaining power with insurance providers. More importantly, it provides smaller employers--many of whom have limited resources--with a greater opportunity to offer their workers quality and affordable health care coverage. If enacted, H.R. 1101 will empower small businesses to provide quality health care coverage at a lower cost for their employees.
Section-by-Section
The following is a section-by-section analysis of the Amendment in the Nature of a Substitute offered by HELP Subcommittee Chairman Walberg and reported favorably by the Committee.
Section 1. Short title; Table of Contents
Section 1 provides the short title is the "Small Business Health Fairness Act of 2017."
Section 2. Rules governing association health plans
Section 2 amends Subtitle B of Title I of ERISA to add a new Part 8 (Rules Governing Association Health Plans), after part 7:
Section 801. Provides that a sponsor of an AHP must be a bona fide trade, industry, or professional association; chamber of commerce; or similar organization established for substantial purposes other than that of obtaining or providing medical care. The sponsor must be a permanent entity receiving membership payment on a periodic basis that does not condition membership, dues, or coverage under the health plan on the basis of health status.
Section 802. Requires the Secretary of Labor (Secretary) to promulgate regulations to certify AHPs and maintain certification. For AHPs that purchase a fully-insured group health plan from an insurance company, the Secretary will establish a class certification. For those that will offer a self-insured health benefit, the bill establishes several criteria in order to insure the businesses covered will be of average health risk, to avoid pulling only healthy individuals from the small employer market (cherry- picking). To be certified, a self-funded AHP must have one of the following: (1) offered such self-funded coverage on the date of enactment, (2) represent a broad cross-section of trades and businesses or industries, or (3) represent one or more trades with average or above average health insurance risk or health claims experience.
Section 803. Establishes additional eligibility requirements for AHPs. Applicants must demonstrate the sponsor of the AHP has been in existence for a continuous period of at least three years for substantial purposes other than providing coverage under a group health plan. AHPs must be operated, pursuant to a trust agreement, by a board of trustees, which serves as the plan sponsor and is the fiduciary of the plan. The board of trustees must have complete fiscal control and be responsible for all operations of the plan. The board of trustees must consist of individuals who are owners, officers, directors or employees of the employers who participate in the plan.
Section 804. Requires all employers participating in the AHP to be members or affiliated members of the sponsor. All individuals under the plan must be active or retired employees, owners, officers, directors, partners or their beneficiaries. This applies to partnerships and self-employed individuals. Expressly prohibits discrimination by requiring (1) all employers that are association members are eligible for participation; (2) all geographically available coverage options are made available upon request to eligible employers; and (3) eligible individuals cannot be excluded from enrolling because of health status. The bill also stipulates that no participating employer may exclude an employee by purchasing an individual policy of health insurance coverage for such person based on his or her health status.
Section 805. Requires contribution rates for any particular employer comply with the Health Insurance Portability and Accountability Act (HIPAA), which prohibits group health plans from excluding high-risk individuals based on high claims experience. Thus, it will not be possible for AHPs to cherry pick because sick or high-risk groups or individuals cannot be denied coverage. Contribution rates can only vary to the extent already allowed under the relevant state community rating insurance law. State-licensed health insurance agents must be used to distribute health insurance coverage provided to small employers under an AHP, and must also be used to distribute self-insured benefits to small employers through an AHP, if the AHP also offers fully-insured plans. In addition, AHPs must be allowed to design benefit options. Specifically, the bill mandates that no provision of state law shall preclude an AHP or health insurance issuer from exercising its discretion in designing the items and services of medical care to be included as health insurance coverage under the plan.
Section 806. Establishes capital reserve requirements (unearned contributions, benefit liabilities, expected administrative costs, any other obligations) for self- insured AHP's and requires them to obtain both specific and aggregate stop loss coverage and solvency indemnification insurance. In addition, the AHP must maintain minimum surplus reserves of at least
Section 807. Sets forth additional criteria that AHPs must meet to qualify for certification. The Secretary shall grant certification to a plan only if (1) a complete application has been filed, accompanied by the filing fee of
Section 808. Requires that, except as provided in section 809, an AHP may voluntarily terminate only if the board of trustees provides 60 days advance written notice to participants and beneficiaries and submits to the applicable authority a plan providing for timely payment of all benefit obligations.
Section 809. Requires that the board of trustees of a self-insured AHP must determine quarterly whether the capital reserve requirements under section 806 are met. If not, in consultation with the qualified actuary, the board must develop a plan to ensure compliance and report such information to the Secretary.
Section 810. Sets forth procedures whereby the Secretary may become the trustee of insolvent AHPs. Whenever the Secretary determines an AHP will not be able to provide benefits, or is otherwise in financial distress, the Secretary must act as trustee to administer the plan for the duration of insolvency.
Section 811. Allows a state to assess newly certified AHPs a contribution tax to the same extent they tax health insurance plans. This will enable states to maintain the revenue source for funding state priorities such as high-risk insurance pools.
Section 812. Defines the following terms: group health plan, medical care, health insurance coverage, health insurance issuer, applicable authority, health status-related factor, individual market, treatment of very small groups, participating employer, applicable state authority, qualified actuary, affiliated member, large employer, and small employer. Also, clarifies the treatment of ERISA's preemption rules with regard to AHPs. For certified AHPs, state law is preempted to the extent that it would preclude an AHP from existing in a state. In addition, state law is also preempted in order to allow health insurance issuers to offer health insurance coverage of the same policy type as offered in connection with a particular AHP to eligible employers, regardless of whether such employers are members of the particular association. Health insurance coverage policy forms filed and approved in a particular state in connection with an insurer's offering under an AHP are deemed to be approved in any other state in which such coverage is offered when the insurer provides a complete filing in the same form and manner to the authority in the other state. Not later than
Section 3. Clarification of treatment of single employer arrangements
Section 3 amends the definition of multiple employer welfare arrangement and control group with regard to the treatment of single employer arrangements and collectively bargained arrangements.
Section 4. Enforcement provisions relating to association health plans
Section 4 amends ERISA to establish enforcement provisions relating to AHPs and multiple employer welfare arrangements (MEWAs). Establishes criminal penalties for willful misrepresentation as a certified AHP, or as a collectively- bargained plan, or as a MEWA established pursuant to a collective bargaining agreement; authorizes DOL to issue cease activity orders against fraudulent health plans; and outlines the responsibility of the board of trustees for meeting the required claims procedures.
Section 5. Cooperation between federal and state authorities
Section 5 amends section 506 of ERISA (relating to coordination and responsibility of agencies enforcing ERISA and related laws) to require the Secretary to consult with state insurance departments with regard to the Secretary's authority under sections 502 and 504 to enforce provisions applicable to certified AHPs.
Section 6. Effective date and transitional and other rules
Section 6 provides the amendments made by this Act shall take effect one year after the date of enactment. Requires the Secretary to issue regulations to carry out the amendments made by this Act within one year after the date of enactment. Deems certain requirements of this legislation met for previously existing AHPs meeting certain stringent requirements.
Explanation of Amendments
The amendments, including the amendment in the nature of a substitute, are explained in the body of this report.
Application of Law to the Legislative Branch
Section 102(b)(3) of Public Law 104-1 requires a description of the application of this bill to the legislative branch. H.R. 1101 improves access to affordable health coverage options for workers employed by small businesses.
Unfunded Mandate Statement
With respect to the requirements of Section 423 of the Congressional Budget and Impoundment Control Act (as amended by Section 101(a)(2) of the Unfunded Mandate Reform Act, P.L. 104- 4), the Committee has requested but not received from the Director of the
Earmark Statement
H.R. 1101 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9 of House Rule XXI.
Roll Call Votes
Clause 3(b) of rule XIII of the Rules of the
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Statement of General Performance Goals and Objectives
In accordance with clause (3)(c) of House Rule XIII, the goal of H.R. 1101 is to improve access to affordable health coverage options for workers employed by small businesses.
Duplication of Federal Programs
No provision of H.R. 1101 establishes or reauthorizes a program of the Federal Government known to be duplicative of another Federal program, a program that was included in any report from the
Disclosure of Directed Rule Makings
The committee estimates that enacting H.R. 1101 does not specifically direct the completion of any specific rule makings within the meaning of 5 U.S.C. 551.
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause 2(b)(1) of rule X of the Rules of the
With respect to the requirements of clause 3(c)(2) of rule XIII of the Rules of the
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of the
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of the
Continues with Part 2 of 2
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