The phase-in of health-care reform has also affected California's HIPC. Its use of modified community rating has made its plans cheaper for many companies than risk-rated policies outside the alliance are. But in July the state will cut the range of variability in health-risk rating from 40% to 20%. As a result, groups with fewer healthy members won't save as much by joining the HIPC. On the other hand, groups with more healthy members will have a greater reason to enroll, notes Richard Figueroa, deputy director of the state Managed Risk Medical Insurance Board, which runs the alliance. "If price is less of an issue, employers are much more likely to go with us to pick up the choice of plans," he contends.
Most alliances consider employee choice their best drawing card. "If employers can obtain good coverage for the same or a bit less than they've been paying, and they can also get a choice of several managed-care networks, they feel it's an extra benefit for their employees," notes Nancy DeGroff, vice-president of insurance for Connecticut's CBIA.
The CBIA includes some of the state's largest companies. Big-business coalitions in Texas and Colorado have spun off purchasing groups for small companies. The Houston Healthcare Purchasing Organization (HHPO), for instance, persuaded the John Alden Life Insurance Co. to organize such an alliance and offer it a range of major-medical plans. Piggybacking on the rates that the corporate group has negotiated with area doctors and hospitals, Alden has been able to offer competitive prices, and 2,500 companies joined the alliance in its first nine months.
Why did the big companies in the HHPO extend a helping hand to small employers? According to HHPO president Ralph Smith, they wanted to build a larger, more potent coalition. Also, as small businesses flee the insurance market, he notes, big corporations are forced to assume more of the cost of uninsured care. "As you get more people insured, you lessen the burden overall," he says.
Ken Terry (ken_terry@medec.com) is a senior editor at Medical Economics, a magazine for practicing physicians.
HEALTH-INSURANCE BUYING GROUPS
Your state's department of insurance can tell you if there's an alliance in your area.
Caroliance, North Carolina: 800-873-6464
Cincinnati Chamber of Commerce: 513-579-3100
Cooperative for Health Insurance Purchasing, Denver: 800-996-CHIP
Council of Smaller Enterprises, Cleveland: 800-562-7121
Employers Health Purchasing Cooperative, Bellevue, Wash.: 206-646-4302
Florida CHPAs: 800-4MY-CHPA
Independent Health Alliance of Iowa: 515-223-7790
John Alden Life Insurance, Houston: 800-444-7322
Kentucky Health Purchasing Alliance (PlanSource): 800-677-7323
Long Island Association Health Alliance: 516-499-4400
Minnesota Business Coalition: 612-644-9702
Texas Insurance Purchasing Alliance: 800-TEX-TIPA
BEFORE AND AFTER:
One Company's Health-Care Switch
Flowers by Adelaide Inc.
Florist and greenhouse in San Diego; $3 million in annual sales; 40 employees, 25 with health-care coverage through the company
Old Health Plan
Insurer: Aetna Choice HMO
Percentage paid by employer: 50% for first year, 100% thereafter
Annual company cost per employee: $2,136
Last rate change: 5% increase
New Plan, in Alliance*
Insurer: Employees chose 5 HMOs from regional menu of 10 HMOs and two PPOs
Percentage paid by employer: 50% of the lowest-cost plan among the 12 for first year, 100% thereafter
Annual company cost per employee (including alliance fees): $1,590
last rate change: 25% decrease, largely because of steep drop in rates of Kaiser Permanente HMO
*THE ALLIANCE: The Health Insurance Plan of California (HIPC). Number of carriers: 22 HMOs, two PPOs (statewide total). Number of employees in member companies: 3 to 50. Number of companies in alliance: 5,800. Number of workers and dependents covered: 105,000. How companies join the HIPC: directly or through insurance agents. Membership fees: $20 per company per month, $2.50 per enrollee per month. Percentage of premium employers must pay: 50% of lowest-cost plan offered in area.
WILL THE ALLIANCES SURVIVE?
The survival of small-business purchasing alliances depends partly on the insurance companies. While some insurers and HMOs are doing a good business with buying groups, others are ignoring or actively undermining them. Some Florida carriers, for instance, have paid agents lower commissions for selling alliance policies than for doing business outside the pools. In Kentucky, insurance companies backed failed legislation to repeal the health-care reforms that included that state's fledgling alliance. And the Illinois Chamber of Commerce's attempt to create a small-employer coalition foundered last year after most insurers declined to participate.
Stiff competition has nearly done in the Independent Health Alliance of Iowa (IHAI), which was started two years ago by independent insurance agents under a state charter. Last year the alliance cut its members' costs by 3%, while small-group rates in Iowa jumped 7% to 8%. But that was only because so many coalition members switched to HMOs before their peers outside the alliance did. Recently, as the market has shifted toward managed care, the competition has soared, and the pool's enrollment has stalled.
"Our growth is not what we hoped it would be, and that's partly because the marketplace is responding," observes Bob Skow, program director of the IHAI. "All of the carriers are lowering their prices, and they're all offering multiple-choice plans."
The alliances in California, Florida, Connecticut, and Ohio, however, have been undeniably successful. Although the differential between their prices and rates outside the pools is narrowing, some observers believe that the coalitions will look more attractive when market rates start rising again. In addition, bills now pending in Congress, if passed, would help the alliances bargain for lower rates and would preempt state laws that prevent alliances from being formed.
Whether the purchasing groups can endure and grow in such a hotly competitive environment is anyone's guess at this point. But one thing seems clear: if the alliances die, small employers will be worse off. States James Buckley, partner in charge of KPMG's New York City benefits practice, "I can assure you that once those insurance companies push an alliance out of the marketplace, their rates will go back up."
