The Wall Street Journal

WASHINGTON, D.C. — After years of setbacks, the Bush administration and the small-business lobby are making progress on a top priority: A federal law that would override some state insurance regulations to let small companies band together to offer their workers scaled-back, low-cost health-insurance policies.

The bill, which will be voted on Wednesday by the Senate Health, Education, Labor and Pensions Committee, would allow trade associations to sell small-business health plans” — essentially group health plans — to their members on a national or regional basis without having to offer all the benefits mandated by states in which the workers are employed.

If the committee, under Wyoming Republican Sen. Mike Enzi, chairman, approves the bill as expected, it would mark the Senate’s first official action — and a potential breakthrough — on an issue of prime importance to the National Federation of Independent Business, or NFIB, one of the Republican Party’s closest allies.

At a time when rising health costs are relentlessly pressuring small businesses, supporters say the legislation would provide relief without creating an expensive government program. Critics, including most Democrats and some consumer and patient groups, say the legislation would gut state protections for patients. The American Diabetes Association expressed concern that the plans would be able to avoid state mandates on coverage of diabetes supplies and medication.

For years, the NFIB has sought passage of legislation that would allow trade associations to pool members to sell group policies, known as Association Health Plans, or AHPs, regulated by the federal government. Eight times, the House has approved such legislation, which would allow the AHPs to bypass state rules, often stricter and potentially more costly than federal regulation. The AHP bill never got traction in the Senate, in part because of opposition from state regulators and health insurers.

State regulators opposed a cutback in their clout. Insurers, whose small-business health plans are regulated by the states, worried that AHPs would have a competitive advantage because they would be operating under the easier federal regime.

To try to defuse the opposition Enzi, in fashioning the bill, preserved a role for state regulators. And in a potentially sweeping change designed to assuage the insurers, he eased some state requirements for them, not just for the small-business associations.

Under his bill, both insurers and small-business associations would be allowed to sell lower-cost policies that don’t include state-mandated benefits, as long as they offer comprehensive coverage. The result: For now, at least, insurers are holding their fire. Some common state mandates include requirements that mammograms and some substance-abuse treatment be covered.

Enzi’s efforts succeeded in winning over Sen. Judd Gregg, a New Hampshire Republican, who had been critical of AHP legislation, and Democratic Sen. Ben Nelson of Nebraska, a former state-insurance commissioner.

Enzi’s legislation would create a uniform federal standard on how much insurers, in setting premiums, can consider workers’ health status. The standard would give insurers who sell policies to small businesses and individuals more leeway to charge higher premiums for sick people than is permitted under some states’ rules. Supporters say that would bring down premiums for healthier people and make coverage more affordable; critics say it would make coverage costlier for sicker people. Insurers would be allowed to follow the federal standard or stick with the state law.

“We need to give small-business owners a safe place to get off this escalator of rising costs, some place where they can find more affordable health-insurance options,” Enzi said last week, as his committee had its first meeting to consider the bill.

Enzi’s legislation has a long list of supporters, from the National Association of Realtors to the American Disc Jockey Association. Some supporters would benefit by getting access to cheaper health insurance, while others could earn money by selling coverage to members. The NFIB is intensifying its advertising and lobbying push as the committee prepares to vote. The group is focusing its efforts on senators in tight re-election races, including Ohio Republican Sen. Mike DeWine, a member of the health committee. Wednesday, the group will distribute stickers backing small-business health plans, as it did last week, saying “Pass SBHPs now.”

“It’s important to cover your bases,” says Amanda Austin, NFIB’s manager of legislative affairs. “The Senate has been the stalled body. The urgency is finally here.”

Sen. Edward Kennedy of Massachusetts, the ranking Democrat on the health committee, is leading the opposition to the legislation, saying it is “a blank check for the insurance industry” that would result in “higher premiums and lower benefits for millions of Americans with reliable health coverage today.” Democrats could decide to filibuster the bill on the floor if it is approved by the committee.

The Foundation for Taxpayer and Consumer Rights, a consumer group in Santa Monica, Calif., complained that the legislation could mean the loss of state protections such as California’s requirement that women have a right to visit a gynecologist. “A panoply of patient services could… be eviscerated,” including the right to a second opinion from a doctor, the group said.

Supporters of the legislation say state mandates can make insurance so costly that small businesses and their workers can’t afford it. They argue that small businesses — not the states — should decide what benefits to pay for.

Groups representing health insurers, while not opposing the bill overall, are taking issue with some individual provisions. They are concerned that whatever passes the Senate will, in a House-Senate conference committee, be rewritten to include objectionable elements from the House AHP legislation.

The Blue Cross and Blue Shield Association, the umbrella organization that regulates use of the Blues brand, said in a letter to Enzi that its members are reviewing what “represents a major rewrite of the existing health-insurance laws across the country.”

America’s Health Insurance Plans, an insurance-industry trade group based in Washington, said it is concerned that the legislation, by permitting the sale of low-cost plans that bypass state requirements, would drive up premiums for people choosing more-comprehensive policies.

“Groups that do not envision requiring costly health-care services would be likely to opt for the lower-cost plan, while groups expecting high health-care utilization would be inclined to select the comprehensive option… ultimately pricing many small employers out of the market,” wrote AHIP President Karen Ignagni.