International Franchise Association, Page 2
The Honorable Senator Mike Enzi
Chairman
U.S. Senate Committee on Health, Education, Labor and Pensions
428 Dirksen Senate Office Building
Washington, DC 20510-6300
April 21, 2005
Dear Chairman Enzi,
The International Franchise Association (IFA) wishes to share with you our support for S. 406, the Small Business Health Fairness Act of 2005.
The IFA was organized in 1960 and is the oldest and largest association representing the franchising community for the purpose of protecting, enhancing and promoting franchising. Our membership includes in excess of 1000 franchisor members and 8000 franchisees that collectively represent a “who’s-who” of American industry. Our members conduct business in over 75 different industry areas – from hotels to quick service restaurants to lawn care and personnel services. The pervasive economic impact and vitality of the franchise method of business in the United States is extensive. In March 2004, the International Franchise Association Educational Foundation released a study that was conducted by PricewaterhouseCoopers, entitled “The Economic Impact of Franchised Business.” Among other things, this study found that:
· Franchised businesses directly employ 9,797,000 people in the U.S., about the same number as the U.S. durable goods manufacturing sector. Franchising employment is almost as large as that of the information and construction sectors combined.
· Franchised businesses, in turn, generate jobs for more than 18 million Americans, about one out of every seven jobs in the private sector in the U.S.
· More than 760,000 franchised businesses operate in the U.S., and generate a total economic output of more than $1.53 trillion – representing nearly 10 percent of the U.S. private-sector economy.
One of the wonderful features of franchising is its diversity. As I mentioned earlier, over 75 industries franchise – everything from plumbers to realtors, florists to hoteliers. Likewise, franchisees come from all walks of life. One thing many franchisees have in common is the difficulty they face in offering health coverage for their employees.
The skyrocketing cost of health insurance is consistently cited as the No. 1 business concern of IFA members. The IFA and our members believe that passage of Association Health Plan (AHP) legislation is a first step towards providing affordable health coverage for small businesses.
Employer-sponsored health coverage is becoming harder for small businesses to provide for their employees and harder for working families to afford. According to recent reports, more than 45 million Americans are uninsured. And approximately 60 percent of those 45 million uninsured are employed by small businesses. But, small businesses have little buying power and few affordable options. Five or fewer insurers control at least three quarters of the small group market in most states.
Clearly, something must be done to slow the rate of health insurance price increases and to decrease the numbers of completely uninsured Americans. But reforming health care is a vastly broad and complex task. Rather than searching for one comprehensive solution, one of the various proposals raised over the past few years to incrementally reform the health care system is particularly promising: Association Health Plans.
Association Health Plans would allow small business owners to pool together through association membership to purchase health insurance, leveling the playing field by giving small business the same access to the cost-benefits that Fortune 500 companies and unions have enjoyed for decades. Health care coverage would become more affordable by spreading risk among a larger group, strengthening negotiating power with plans and providers, and reducing administrative costs. AHPs would allow associations such as IFA, or an association-like group, such as a franchisor, to buy thousands of health insurance policies at a lower per-policy cost and pass those savings – as much as 25 percent, according to the Congressional Budget Office – along to small business members and their employees. Others estimate that AHPs could reduce health insurance premiums for small businesses by between 15 to 30 percent.
While some opponents of AHPs fear that participants in insurance pools that cross state lines and are exempt from state insurance regulation could be denied consumer protections granted under state law, we urge you to consider that the same federal regulatory umbrella successfully regulates many of the largest labor union and corporate plans. In addition, other opponents of AHPs are concerned that by exempting these plans from state benefit mandates (coverage requirements, which vary by state), the insurance market would be destabilized. However, limitations imposed by state mandates have had the effect of decreasing the insurance market for small businesses. Under S. 406, AHPs would be allowed to determine minimum health care coverage needs for their members. These determinations would not be based on the various mandates set out by the different states in which the AHP operates, but based on the specific needs of an association’s members. AHPs would help develop a market that is presently constrained by state mandates. This would help stabilize the insurance market and keep the costs of AHPs lower than the health insurance presently available to small businesses.
Furthermore, proponents point out that AHPs are potential customers of large insurance companies. Depending on the size of the AHP, it may choose to either fully insure through an insurance company or to self-insure by paying claims from its own funds. Considering that AHPs will insure millions of presently uninsured, the insurance companies should rest assured that the increased competition from AHPs would be offset by the potential for increased business.
With the President and the U.S. House in support of AHPs again this year, IFA believes the environment is right for passing AHP legislation this Congress. IFA applauds you for holding today’s hearing, fostering discussion, and leading the debate on AHPs in the Senate. The franchisee, franchisor, and supplier members of IFA stand ready to work with this Committee on this critical issue. Please feel free to call on the IFA in the future and thank you again for listening to our concerns.
Sincerely,
John F. Gay
Vice President, Government Relations
International Franchise Association
1350 New York Ave, NW
Suite 900
Washington, DC 20005
202/628-8000
www.franchise.org
cc: Senate Health Education Labor and Pensions Committee Members