Buying Coverage as a Team
Many large companies form purchasing alliances to bargain with health insurers for lower premiums. By forming a similar alliance for small companies, Clayton Meier saved his 18-employee metalworking shop $18,000 last year.
Meier, then CEO of Metalworld, in Racine, Wis., headed a committee of his local chamber of commerce whose task was to investigate purchasing alliances. His group researched the subject over six months and then approached insurers, who offered the proposed alliance savings on administrative and marketing costs. The insurers also indicated that they would use experience rating, which could mean lower premiums. Most important, some insurers agreed to share medical-underwriting data, the records of health-care use that determine whether a company is a good risk. Small companies usually cannot get that data, so they negotiate in the dark.
After a year's research, more than 100 small-business chamber members met to discuss the alliance. Of those, 44 chipped in $200 each to pursue the plan and cover legal costs. They also supplied the names of their insurers and offered information about employees for rating purposes.
Any small business joining the buying alliance would agree to one insurer and one basic plan, with limited options -- such as wellness programs -- for the entire alliance. It would also stay in the alliance for three years -- a commitment that attracted the attention of the insurance carriers.
After negotiations, the committee settled on one insurer that guaran teed no increase in premiums for the first 18 months and a cap on increases for two years after that. The insurer quoted a single rate for a preferred-provider-organization plan with a $200 deductible.
At that point the alliance began to crack. Some of the original 44 companies took the quote back to their current carrier, asked them to match it, and then jumped ship. But other small companies took the defectors' places, and the alliance is now back up to about 40 members. Their insurer assesses the risks presented by all newcomers, so some are refused. Each member buys a $1 equal share in the alliance "corporation."
Meier has some advice for those interested in the collective purchasing of health insurance. Lead the effort yourselves, he says; otherwise, agents or carriers will step in without the credibility a business owner brings. Start small. If you allow hundreds of businesses in right away, you'll get a lot of bad risks and save nothing. It's also important to acknowledge up front the limited goal of such an alliance. "The idea is not to solve all the problems of U.S. health care. You are getting together to see if you can save some money over the next few years, until a national plan takes effect."* * *