Employer purchasing coalitions enjoy a rebound by promising consumer choice
September 1, 1999 4 minutes read
Employer purchasing coalitions enjoy a rebound by promising consumer choice among health plans
Successful ones tend to have fewest governmental hurdles to jump, says researcher
Employer purchasing alliances are enjoying a resurgence in the small group market, says the president of an independent research group that tracks the development of such private or quasi-governmental entities.
"These things that are working tend to be private-organization based, without a whole lot of operational stipulations from government," notes Rick Curtis, president of the Institute for Health Policy Solutions in Washington, DC.
Choice of health plans is the impetus for the development of such coalitions, he says, particularly as managed care restricts choice in the private sector health insurance market. In fact, the institute calls the alliances "consumer choice purchasing groups."
"People are realizing it’s nutty that employees don’t have choice," Mr. Curtis says. "How can you be in a position that Medicaid recipients, Medicare recipients, federal employees, state employees — everybody in the country — has choice except for working Americans who are paying for all this?"
In the last two to three years, purchasing groups have come into being in Oregon and Montana. Others are under development in Montana and southwest Michigan. "It’s clear this is an approach whose time has come, I think," says Mr. Curtis. (See insert in this issue of State Health Watch, and stories in SHW December 1998 and July 1999 issues.)
Statewide purchasing alliances such as those in Connecticut, Florida, and California are the exception to the majority of pooled purchasing arrangements — which don’t add much in the way in choice or low cost — concludes an analysis in the July/August issue of Health Affairs. Employees covered through these quasi-governmental coalitions have a "substantial" choice advantage over employees in similar-size firms outside the coalition, says lead author Stephen Long, a senior economist in RAND’s office in Washington, DC.
A choice of plans is available in 80% of the alliance employer groups with fewer than 10 employees, but there’s a choice of plans for only 10% of those who participate in some other type of pooled purchasing. Among employers who don’t participate in any type of pooled purchasing at all, the availability of choice drops even further.
Going private
Since the impetus for many coalitions is expanding choice of health plans, the finding is not surprising, says Mr. Long. He notes, however, another significant effect of coalitions: expansion of the availability of managed care. Among alliance members, 78% with fewer than 10 employees offered an HMO product among its choices, but only 46% of employers in other types of pooled arrangements did. As with choice generally, the figure dropped even further for employers in no type of pooled purchasing at all.
Successful development of employer-based purchasing alliances has been shifting to the private sector, sometimes by design, Mr. Curtis says. For example, the Pacific Business Group on Health (PBGH) as of July 1 acquired the 150,000 covered lives in the state-sponsored Health Insurance Plan of California (HIPC), paying off the $2 million outstanding on the $5 million loan fronted by the state to get it going in 1993. While the state legislation authorizing the creation of the HIPC anticipated that it would be transferred in time to private-sector ownership, it also included several features that made the plan strong enough to be attractive to potential buyers. Unlike statewide initiatives in Connecticut and Florida, for example, the HIPC had the flexibility to negotiate with insurers on price.
"It does introduce an impetus for cost discipline and competition based on price that heretofore wasn’t in the market," says Mr. Long. "It’s reasonable to think that can’t help but help."
The Pacific Business Group on Health has renamed the plan PacAdvantage but will keep its 14 health plans and seven dental plans. The group has added two vision plans and is looking at offering coverage for alternative medicine and group life insurance by Jan. 1. The plan has been growing by about 1% per month, says director of marketing and strategic planning Chuck Kiskaden; PBGH hopes the additional choices will help increase the plan’s growth to 1.5% per month.
"Under state management, it has done fine," says Mr. Kiskaden. "It could have done better."
PBGH will negotiate separately for its PacAdvantage enrollees and the 500,000 lives covered in the large-employer purchasing coalition. But Mr. Kiskaden notes that the existing enrollees provide considerable leverage when negotiating on behalf of the newly acquired small-employer groups.
Contact Mr. Curtis at (202) 857-0810, ext. 103, Mr. Kiskaden at (949) 766-1905, and Mr. Long at (202) 296-5000, ext. 5370. The Institute for Health Policy Solutions can be reached at www.ihps.org.
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