February 2, 2006
HEALTH INSURANCE PURCHASING COOPERATIVES
By: Janet L. Kaminski, Associate Legislative Attorney
You asked if Connecticut or other states permit small employers to form health insurance purchasing cooperatives.
Connecticut permits small employers to join together to jointly purchase insurance (CGS § 38a-560). Under certain circumstances, a purchasing cooperative may be exempted from the state's small employer rating law, which restricts what criteria may be used to determine plan premiums. PA 05-238 permits this exemption if (1) the alliance offers plans to members as a single entity; (2) it insures at least 10,000 individuals; (3) the offered plans are community rated (i.e., the same rate is charged for each person); and (4) the plans are written on a guaranteed issue basis. “Guaranteed issue” is a requirement that coverage must be offered regardless of the health status or prior claims experience of the group's members.
Twenty five states have laws that explicitly permit health insurance purchasing arrangements (also referred to as alliances or cooperatives): Arkansas, California, Colorado, Florida, Georgia, Illinois, Iowa, Maine, Massachusetts, Minnesota, Mississippi, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Texas, and Wisconsin. The requirements for the arrangements vary by state. Enclosed is a chart from the National Association of Insurance Commissioner's Compendium of State Laws (II-HG-30-1) that outlines the main characteristics of each state's requirements, including whether participation by insurers is voluntary or mandatory, who may participate in the purchasing alliance, how the alliance is structured, if there is a uniform benefit package offered, and if the plans must be offered on a guaranteed issue basis.
Proponents of group purchasing arrangements for small employers believe that the small employers who join together to purchase health care insurance can (1) collectively negotiate a better deal (e.g., lower premiums) than if they work independently; (2) save administrative costs by consolidating expenses; and (3) offer employees more health plan choices than an individual employer.
A significant proportion of cooperatives have failed due to poor participation (i.e., too few employers and too few employees), according to Elliot K. Wicks of the Economic and Social Research Institute, an independent non-profit foundation. If the cooperative is too small it has difficulty (1) attracting health plans that want to compete for the business and (2) realizing administrative savings. However, certain cooperatives have been successful, including the Connecticut Business and Industry Association (CBIA), which offers members insurance through its Health Connections program. Information about CBIA and Health Connections may be found at www.cbia.com/ins/.
Enclosed are two articles that provide additional details about purchasing cooperatives: Health Insurance Purchasing Cooperatives, by Elliot K. Wicks, Economic and Social Research Institute, and Group Purchasing Arrangements: Issues for States, by Mila Kofman, Georgetown University Institute for Health Care Research and Policy.
GROUP PURCHASING ARRANGEMENTS
Group purchasing arrangements (GPAs) are public or private efforts to allow more than one employer to pool together to collectively purchase health insurance. They seek to achieve lower cost premiums by bringing smaller groups together to achieve the buying power of large groups. Some GPAs are established through state legislation or regulation, while others are formed by associations of employers or individuals. Table 1 provides an overview of some of the GPAs in other states.
Table 1: Group Purchasing Arrangements by State
Group Purchasing Arrangement Description
The Small Employer Health Insurance Purchasing Group Act of 2001 allowed for the formation of health insurance purchasing groups for the purpose of buying health insurance. This legislation allows health insurers to offer options to consumers participating in the purchasing group that include all, some, or none of the Arkansas coverage mandates and contains some actuarial protections to minimize the concern of anti-selection.
On January 1, 2005, the first health insurance purchasing group in Arkansas was initiated. Administratively housed within and sponsored by the North Little Rock Chamber of Commerce, this allows businesses with fewer than 100 employees and not currently offering health insurance to band together to negotiate coverage with health insurance carriers.
PacAdvantage Health Plan is a purchasing alliance, which allows small businesses and self-employed individuals to buy insurance in California. Run by the Pacific Business Group on Health, PacAdvantage offers affordable combinations of health insurance plans for businesses based in California with 2-50 employees.
In 2001, Kansas implemented a small employer pooling mechanism called the Kansas Business Health Partnership. The pool, a non-profit organization, purchases coverage via the private market with the stipulations of employee choice, minimizes administrative costs, and the benefits meet standards of federal and state law. The original legislation would have made subsidies available for low-income workers to purchase health insurance through the partnership, but budget troubles delayed the subsidy. In 2005, the Kansas Legislature authorized $500,000 for subsidies. The original partnership has been dissolved and will be reorganized.
In 2005, the Small Business Health Care Affordability Act was approved, allowing small businesses in Montana to join a purchasing pool to obtain health insurance. The program provides tax credits to small businesses that are currently offering health insurance and will provide premium assistance for small employers that begin to offer insurance through the State Health Insurance Purchasing Pool or a qualified association plan. The program is funded by a tobacco tax.
Legislation passed in the 2005 New Mexico legislative session (HB 523) creates a structure for small employers (less than 50 employees) to voluntarily buy into a state-administered health insurance pool. The Small Employer Insurance Program (SEIP) will be available to working employees and their dependants. SEIP is slated for implementation effective March 2006.
HealthPass allows small businesses (2-50 employees), with an active address in the New York City area, to provide a choice of over 25 health insurance options offered by six carriers to their employees. The employer determines their level of contribution and 75% of eligible employees must join HealthPass. To offer HealthPass, a minimum of two full time employees must be eligible though only one must participate.
LIA Health Alliance is a health purchasing cooperative that allows small businesses (2-50 employees) and sole proprietors, located in the greater New York City area, to offer employees health insurance from five carriers.
Since mid-1990, Texas has had legislation allowing for the formation of group purchasing arrangements. In 2003, the legislature made changes to the law, allowing more employers to participate. In August 2005, 14 cooperatives and coalitions were registered with the state. See below for details on the various types of arrangements available in Texas.
Table 1: Continued
Group Purchasing Arrangement Description
The West Virginia Small Business Plan allows small businesses access to the buying power of the Public Employees Insurance Agency (PEIA). Through a private-public partnership between the West Virginia Public Employees Insurance Agency (PEIA) and insurance companies that choose to offer the plan, the West Virginia Small Business Plan allows participating carriers to access PEIA's reimbursement rates, enabling the new small business coverage cost to be reduced significantly. PEIA is the largest self-insured plan in the state, providing insurance to public employees in state agencies, state universities, and colleges, as well as county boards of education.
In 2003, Wisconsin Governor Jim Doyle (D) signed legislation into law that creates five regional health care purchasing alliances to bring farmers and small businesses into one pool per region. These cooperatives allow groups to directly negotiate with health plans. In 2005, Governor Doyle passed new legislation that removes limits on the number of cooperatives that can be developed in the state. By encouraging the establishment of cooperatives, the hope is that not only will more uninsured individuals access health insurance, but also that competition will increase among carriers and create more options for coverage.
Source: State Coverage Initiatives, The Robert Wood Johnson Foundation (www.statecoverage.net/matrix/grouppurchasing.htm)
Information is provided here on the Texas purchasing cooperative laws as an example of the various types of cooperatives that a state may permit. The Texas Legislature has enacted three bills that allow employers to form four types of cooperatives for the purchase of employer health benefit plans in Texas. The descriptions of the cooperatives provided below are from the Texas Insurance Department's website, www.tdi.state.tx.us/company/lhcoopdefintyps.html.
Private Purchasing Cooperative
HB 2055, enacted by the 73rd Texas Legislature (1993), initially authorized private purchasing cooperatives in Texas. Two or more small or large employers may form a private purchasing cooperative for the purchase of small or large employer health benefit plans. A cooperative may limit its membership for a variety of reasons, but may not do so based on the health status or experience of an employer or employee.
A private purchasing cooperative is considered a single small employer solely for the purpose of benefit elections. This means that the private purchasing cooperative may act as the employer when choosing the type of plan, cost-sharing provisions, and any optional benefits to be purchased.
A private purchasing cooperative is not considered a single small employer for the purposes of issuance of coverage or rating. This means that the private purchasing cooperative is not guaranteed issuance of coverage in the same manner as a small employer and carriers may rate employers purchasing coverage through the cooperative separately.
Employers may experience savings when purchasing coverage through a private purchasing cooperative due to larger group size factors, volume of purchases, and potential administrative savings for the carrier.
Small Employer Health Coalition
HB 897, enacted by the 78th Texas Legislature (2003), created this special type of private purchasing cooperative made up of only small employers.
A small employer health coalition may limit its membership for a variety of reasons, but it may not do so due to the health status or experience of an employer or employee. A small employer health coalition that meets the statutory definition of a small employer (2-50 employees) is treated as a single small employer. This means that the small employer health coalition is guaranteed issuance of coverage and will be rated as a single small employer rather than each employer member of the coalition being rated separately. Small employers with fewer employees may experience savings as a result of the coalition's larger group size factor.
Health Group Cooperative
SB 10, enacted by the 78th Texas Legislature (2003), created health group cooperatives. Any person, other than a health carrier, may form a health group cooperative. Once a health group cooperative is formed, it must have at least ten employer members to be eligible to purchase coverage from a health carrier that is participating in the health group cooperative market.
A health group cooperative must be composed of either small or large employers. Any small employer in the health group cooperative's service area may join a small employer health group cooperative and enroll in coverage upon the next open enrollment period.
A health group cooperative has discretion to allow a large employer in the same service area to join and enroll in health benefit plan coverage. Employers that join a health group cooperative must commit to purchasing coverage through the cooperative for two years, but may cease purchasing coverage upon demonstrating financial hardship.
A health group cooperative may grow to any size, yet is still considered to be a single large employer for the purposes of issuance of coverage and rating. Accordingly, a health group cooperative may purchase coverage from any health carrier participating in the health group cooperative market that is not already providing coverage to a health group cooperative in that county.
Health carriers providing coverage to a health group cooperative may offer a health benefit plan, specifically allowed by SB 10, which does not include state mandated benefits.
The flexibility in plan design for a health group cooperative, as well as the opportunity to group large numbers of employers together for rating purposes provides an opportunity for savings when purchasing coverage through a health group cooperative.
Sub (p) Health Group Cooperative
SB 805, enacted by the 79th Texas Legislature (2005), created a new type of health group cooperatives with special rights and requirements. Any person, other than a health carrier, may form a “sub (p) health group cooperative.” Once a sub (p) health group cooperative is formed, it must have at least ten small employer members to be eligible to purchase coverage from a health carrier that is participating in the health group cooperative market.
A sub (p) health group cooperative is not required to allow a small employer to join the cooperative if the cooperative has elected to restrict membership in the cooperative in accordance with legal requirements, and after the small employer has joined the cooperative, the total number of eligible employees employed on business days during the preceding calendar year by all small employers participating in the cooperative would exceed 50. A health group cooperative must make the election to restrict membership at the time the cooperative is initially formed.
Employers that join a sub (p) health group cooperative must commit to purchasing coverage through the cooperative for two years, but may cease purchasing coverage upon demonstrating financial hardship.
A sub (p) health group cooperative is considered to be a single small employer for the purposes of issuance of coverage and rating. Accordingly, a health group cooperative may purchase coverage from any small employer health carrier that is not already providing coverage to a health group cooperative in that county.
Health carriers providing coverage to a sub (p) health group cooperative may offer a health benefit plan, specifically allowed by SB 10, which does not include state mandated benefits.