By Michelle Andrews

To hear Jessie Brairton tell it, there's no way on earth small businesses could possibly oppose association health plans (AHPs). "Small businesses want premium reform and consumer choice, and through AHPs they'll be able to offer a better package," says Brairton, manager of legislative affairs for the National Federation of Independent Business. Brairton is not alone in her enthusiasm; indeed, AHPs may be more popular in Washington than the Atkins diet. A bill to establish them passed the House in June and is now before the Senate. It has won the support of President Bush, the U.S. Chamber of Commerce, and Associated Builders and Contractors, among others.

That's odd, because the bill won't really help much. In fact, if it passes, premiums will probably go up for three-quarters of small business owners and employees, according to estimates from the nonpartisan Congressional Budget Office.

AHPs would let employers band together to buy health insurance across state lines, in theory granting them strength-in-numbers bargaining clout to negotiate better rates and plans. The health plans would also be exempt from most state regulations that determine premium rates and require certain health benefits. The thinking is that AHPs—with their cheaper, stripped-down plans—would make coverage affordable.

But the reality would probably be quite different. How so? Here are three ways.

1. Potentially limitless premium hikes Most states now limit how much insurers can jack up premiums if somebody in a group files an expensive claim. But the way the bill is written, AHPs could circumvent those laws. "There would be no rules about whether rates could go up and how much they could go up," says Mary Nell Lehnhard, senior vice president for the Blue Cross and Blue Shield Association, which opposes the legislation.

2. The sick will get (financially) sicker Insurance works on the principle of spreading the risk. Healthy people, who don't use many health services, subsidize the costs of sicker people, who do. This legislation would destabilize that system. Cheap, limited-benefit AHPs would become a magnet for healthy people who don't think they need much coverage. State-regulated, full-service plans would be left with a disproportionate number of older, sicker workers. Think that won't make a difference to your company? According to CBO estimates, even if AHPs become available, about 75% of small businesses and their workers would still choose traditional health insurance—and those premiums will increase an extra 2%.

3. The savings aren't all they're cracked up to be Okay, let's see. We have a fractured health-care system and unpredictable premiums. So what's the upside? For the relatively few companies that sign up for AHPs, a projected one-time 13% savings—less than the rate that premiums are currently increasing annually—for skimpier coverage. AHP boosters may pitch this bill as strong medicine, but it's a sugar pill at best: AHPs may seem sweet, but they'll only make you sicker.