Cheaper by the Dozen

A look at how small-business alliances have cut costs and improved coverage for entrepreneurs and their employees.

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Forget health-care reform. Small-business alliances have cut costs and improved coverage without it

Karen Meade-Bentlage, who owns a $4.6-million distributor of tanning equipment and supplies in Stratford, Conn., remembers the day one of her 18 employees came into her office and thanked her for the excellent health insurance the company had obtained through a small-business purchasing alliance. The employee had recently had a tumor removed, and the health-maintenance organization in which she'd enrolled through the alliance had borne most of the cost. The company's previous, fee-for-service insurer would have paid a much smaller portion of the charges, says Meade-Bentlage, if it had covered her treatment at all.

The 37-year-old entrepreneur decided to join the buying group last year after her former carrier handed her company, Future Industries of America, a 25% rate increase. In the alliance, which is sponsored by the Connecticut Business and Industry Association (CBIA), she paid 15% less than her previous insurance carrier would have charged her. This year her rate rose just slightly, while HMOs and preferred-provider organizations (PPOs) outside the alliance hiked small-group prices by 2% to 9%.

What most amazes Meade-Bentlage about the coalition is that it allows her workers to choose from among four managed-care plans offered by each of four major carriers -- more choices than the employees of most large corporations have. That virtually guarantees that each of them can find a network with his or her own doctor in it. The freedom of choice helped persuade five previously uninsured workers to get coverage, although the company pays only half of employees' premiums.

Future Industries of America is one of thousands of small businesses across the country that have benefited from the new crop of insurance-buying groups. Many of those voluntary alliances emerged or germinated at the same time as Clinton's national health-care-reform campaign. They survived the failure of that effort because they answered a genuine need among small employers for improved access to health insurance.

In the past three years, a dozen states -- including California, Florida, Texas, and Ohio -- have created or endorsed purchasing alliances. Partly as a result, a number of privately sponsored coalitions have sprung up in those and other states. In the regions where they've taken root, alliances have helped hold down costs in the entire small-group insurance market.

Harnessing the collective buying power of small businesses is not new. Trade associations and chambers of commerce have long been entering contracts with traditional insurance carriers to get volume discounts on insurance. But in recent years, as indemnity insurance has grown more expensive than managed care, many companies with young, healthy employees have left those association plans. That, in turn, has caused insurers to jack their rates up further.

Chambers of commerce receive royalties from the carriers, and most are reluctant to interfere with that stable source of income, notes Kevin Haugh of the Institute for Health Policy Solutions, in Washington, D.C. But there are exceptions. For instance, Connecticut's CBIA, a group similar to a chamber of commerce, created a multicarrier alliance but also kept its Aetna association program, which covers 5,000 small and midsize companies. In the MinneapolisÑSt. Paul area, the Minnesota Chamber of Commerce and the Employers' Association have a joint contract with Medica Health Plans, a local HMO, for a batch of managed-care plans. They've obtained a 6.5% annual rate cap and the same health-promotion program that Medica offers large employers. One chamber program stands in the forefront of the alliance movement. The 24-year-old Council of Smaller Enterprises (COSE) of the Cleveland Chamber of Commerce boasts about 230,000 enrollees from 13,500 companies with 150 or fewer workers. Employees of those businesses can choose from among 13 different plans offered by Blue Cross and Blue Shield of Ohio, as well as two Kaiser Permanente HMOs. Last year COSE's premiums went up only 2.5%, compared with a 6.5% average increase for small businesses in the Midwest. Now several other Ohio chambers are following COSE's lead, spurred on by the state's removal of legal obstacles.

Other states have taken an active role in launching small-business coalitions. California, for instance, has established the statewide Health Insurance Plan of California (HIPC) for companies with 3 to 50 employees. Activated in August 1993, it now includes about 100,000 workers and dependents from 5,800 companies, including Flowers by Adelaide Inc., in San Diego. (See"Before and After," below.) The employees have a choice of up to 24 health plans, mostly HMOs, and the carriers' rates dropped an average of 5% last year.

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