Association Health Plans: A Godsend, or a Recipe for Disaster?

But entrepreneurs like Ronald Hatch say they are living testaments to the need for AHP coverage. Hatch, a fourth-generation furniture shop owner, hadn't worried about health insurance costs in the nearly 30 years since he became president of his family business. But in 2001, his insurance company pulled its coverage in South Dakota, where he owned one of his two shops, and that, in turn, forced him to adopt a new insurer for both of his stores.

After studying bids and finding no real price competition, he picked a plan--only to see the premiums skyrocket 50 percent, leaving more than two-thirds of his employees without affordable coverage. Hatch responded by paying half of each employee's yearly deductible, along with much of the monthly insurance costs, but he hardly regards that as a permanent solution.

In the meantime, Hatch testified before the House Committee on Small Business last year, promoting AHPs as an escape hatch for businesses caught in the same crush. "I really think they are a viable option," Hatch says. "Right now, we're faced with the situation with just 20-something employees, and if we have one or two with any serious health problems, it drives our underwriting through the roof."

Faraone likewise says that hunting for affordable health insurance has left her company both financially strapped and swamped with paperwork. "We spend an enormous amount of time shopping for plans that the company and employees can afford," she says. "With our current health-care costs rising substantially every year, it makes it much more difficult to become financially successful and to compete when hiring employees beyond our means."

Grim Predictions
But not all entrepreneurs are so enthusiastic about the legislation's potential. Todd McCracken, president of National Small Business United (NSBU), which opposes the legislation, cautions that without local regulation, AHPs may resort to aggressive risk-aversion tactics to turn a profit--and might even orchestrate their coverage plans so that they appeal only to select, healthy individuals.

"By carefully designing benefit packages that will be relatively unattractive to older and less healthy populations, AHPs will be able to simultaneously attract a higher proportion of younger and healthier individuals," McCracken warns. AHPs that don't cherry-pick clients, meanwhile, will instead boost their premiums to survive, leading to "the destruction of the traditional insurance market for small firms, and the displacement of millions of currently insured individuals," he says.

Many small-business owners, however, remain optimistic despite such predictions.

"Fraudulent activity can exist in any plan with greedy individuals, as we have seen with the bankruptcy of many large corporations," Faraone says. "But the strengths of this plan outweigh the negatives. These arguments are coming from the companies that will no longer be able to take advantage of small businesses."

Jennifer Anne Perez, a former Los Angeles Times reporter and editor for numerous business trade journals, is currently a freelance business writer based in New York City.