Private purchasing co-ops show rapid growth in several state
HPC Growth
The rapid growth of private health purchasing cooperatives (HPCs) in Connecticut and Colorado are the latest sign that private alliances, rather than government-created ones, may be taking the lead in providing insurance to small businesses.
States will play "more of an authorizing or encouraging role" with HPCs "rather than setting them up themselves," predicts Kevin Haugh, a principal with the Institute for Health Policy Solutions in Washington, D.C.
Some of these private cooperatives are formed by large employer purchasing coalitions that want to bring their expertise to the small business market. Others are formed by business associations that want to be more aggressive in offering health-care coverage to their small business members.
One of the most successful of the new breed of private cooperatives is in Connecticut. Created by the Connecticut Business and Industry Association (CBIA), the alliance, known as Health Connections, has signed up 3,500 groups, covering some 54,000 lives in only 20 months.
In Colorado, a cooperative launched in October 1995 by the Colorado Health Care Purchasing Alliance met is January 1997 goal of 10,000 covered lives in June 1996.
Another large-employer coalition in Wisconsin, which is planning to launch a cooperative for small businesses, sees some advantages to its large employer members in giving a hand to small businesses. With small businesses accounting for a large percentage of the market in that state, the move is part of an ongoing effort by large employers to shape the marketplace.
"Strategically, we made the decision that we need to have employer unity. We must aggregate employers to transform the delivery system and make plans accountable to purchasers," says Chris Queram, CEO for The Alliance in Madison, WI.
Mr. Queram says his alliance is working with area chambers of commerce to form the cooperative. "Chambers are looking for ways to add value to their members," he says. The alliance will be open to sole proprietors and to groups up to 99.
A new law in Maine and similar laws in Colorado and Iowa are an "excellent approach" to providing consumer
protections as these alliances form, Mr. Haugh says.
The new Maine law (S.P. 769) establishes licensing standards for cooperatives, encourages the development of standardized products and has conflict of interest provisions.
Established reputation a key
Nancy DeGroff, vice president of insurance marketing for the Connecticut Business and Industry Association, attributes the success of the Connecticut alliance to several factors:
• a big advertising budget for television and radio commercials, eye-catching billboards and brochures for brokers, employers and employees.
• a well-established reputation in the business community. (CBIA provided insurance to small business through Aetna for decades); and
• a strong relationship with agents (with the prospect of high volumes, agents attend the alliance’s mandatory training seminars on selling the product).
Ms. DeGroff also credits CBIA’s decision to offer plans from only four high-rated companies as an important factor in the HPC’s success. "Everyone said, whatever you do, it has to be simple.’" Each company offers both an HMO and point-of- service plan and, together, these plans provide access to nearly any hospital in the state. The alliance is open to groups of 3-50 employees.
Like the Connecticut model, the Colorado HPC put an "an enormous effort into educating the broker community, " says Claire Brockbank, former vice president of marketing for the Colorado cooperative. "There were monthly training sessions for brokers and the cooperative invited a lot of input from agents about how to market to the public," she says.
The Colorado Cooperative for Health Insurance Purchasing relied largely on free publicity, but had the big advantage of having "a name recognized in the marketplace" and a reputation in the insurance community, says Elisa Hamill, executive director of the cooperative. Despite its rapid growth, the cooperative faced some negative publicity recently over premium increases.
Ms. Hamill says the increases were due primarily to an adjustment of broker commissions "to properly reflect the group size of participating employers." Overall, she says, rate changes for the four participating HMOs averaged 14.5% for HMO of Colorado (Blue Cross and Blue Shield);
+ 8.5% for FHP of Colorado; +4.5% for Kaiser Permanente; and +2.5% for Frontier Community Health Plans. Still, Ms. Hamill says, "in a very competitive rate market, if people look to coalitions to solve cost problems, they won’t be successful." Instead, she says, "cooperatives should be looked to more as a way to provide better choice, administrative simplicity and accountability."
While many alliances, such as the Colorado Health Care Purchasing Alliance and the spin-off Colorado Cooperative for Health Insurance Purchasing, are non-profits, Ms. Brockbank believes that alliances will evolve much more quickly if regulators accept the concept of for-profit purchasing alliances.
"The question is who does the second generation of these things," she says. Start-ups can require a lot of money, says Ms. Brockbank, noting that foundation grants which have been used by some private non-profits for start-ups, will become scarcer in the future.
"Remarkable" impact on market
Mr. Haugh believes that while the overall growth rate of alliances for small businesses has been slower than expected, "their effect on the market has been pretty remarkable" in some states by pushing health plans outside the alliance to offer small businesses more choice and better prices.
But, their biggest impact has been in providing small employers with a greater choice of health plans, including managed care. Small employers also have benefitted from the introduction of standardized plans that make for easier comparison.
With a few notable exceptions, though, the cooperatives have made only a small dent in the number of small businesses without insurance. In states where there is guaranteed issue and community rating, the percentage of previously uninsured captured by alliances is generally around 20%, similar to the rate for new books of business in the rest of the market, Mr. Haugh says.
One exception is Florida where 50% of small business employees enrolled in the state’s 11 Community Health Purchasing Alliances (CHPAs) were previously uninsured. While CHPAs serve employer groups of 1-50, the average group size of two is substantially smaller than in many other alliances. The CHPAs now provide coverage for about 17,000 groups and 75,000 lives.
CHPAs draw criticism in new study
Nevertheless, in a recent report by the state’s Office of Program Policy Analysis and Government Accountability (OPPAGA) CHPAs were criticized for providing coverage to less than 2% of the state’s 2.7 million uninsured. It noted that the state had spent $8.1 million to establish the pools since 1993 and said it was unlikely that they would ever become self-sufficient unless lawmakers cut administrative costs by reducing the number of CHPA regions to no more than six.
The state policy office said the CHPAs might fare better if they were able to negotiate and select plans offering the most competitive benefits and prices.
In a written response to the report, Doug Cook, director of the state’s Agency for Health Care Administration, noted, among other things, that the pools serve as consumer advocates and that CHPA rates have become a "kind of benchmark" for the rest of the small group market.
Clark Jobe, executive director of the Texas Insurance Purchasing Alliance (TIPA) says his HPC is "the poster child" for what happens to alliances in "the not-fully-reformed state." Begun in July 1994, the alliance has signed up 560 groups with 7,100 covered lives. The alliance tried modified community rating when it started, but found the going rough because insurers were allowed substantially more leeway outside of the cooperative. As a result, the alliance’s rates were higher, Mr. Jobe says.
After the state adopted a guaranteed issue law, TIPA decided to abandon its effort at community rating so that it did not become an assigned risk pool, he says.
Contact Mr. Haugh at 202-857-0810; Ms. DeGroff at 860-244-1900; Ms. Hamill at 303-333-6767; Ms. Brockbank at 303-778-8903; and Mr. Jobe at 512-472-3956.
Private purchasing co-ops show rapid growth in several state
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