Health Insurance Purchasing Cooperatives and Alliances: STATE AND FEDERAL ROLES
Updated November 2013
"The idea of having small employers collectively purchase health insurance has intuitive appeal, and it has been supported by thoughtful health analysts and politicians with widely different philosophical perspective. The experiments with the concept have proved less successful than expected."
This introductory statement by Dr. Eliot Wicks in 2000 captures much of the 15+ year policy debate about the advantages, disadvantages and limitations of authorizing and encouraging health insurance purchasing cooperatives (HPCs), pools or alliances. When health cooperatives were discussed for months and then included as a component within federal reform, some of the existing state programs were back in the spotlight.
Back in 1995, at least nine states had enacted some type of health insurance purchasing cooperative (HPC) or alliance. By early 2009, at least 28 states had created or authorized such cooperatives by state law or regulation. Quite a few of these programs are no longer operational.
Most of these initiatives have been aimed at assisting small businesses with up to 50 or 100 employees to join together with others to create a larger purchasing pool. Participation is voluntary for employers. This structure allows negotiations for more favorable premium rates and broader benefit packages. The goal also includes savings on administration and marketing for these businesses.
Please note that until passage of the ACA there was no operational federal "model" or multi-state uniform definition of these programs. The National Association of Insurance Commissioners (NAIC) has suggested statutory language, but there was wide variation among the laws, regulations and operational contracts used by states. This NCSL report provides examples of state statute citations in the table below.
Federal Health Reform Creates the "Consumer Operated and Oriented Plan (CO-OP)" - updated Oct. 2013
Under the federal health reform law the creation of new health insurance cooperatives is encouraged primarily through the distribution of up to $6 billion in funding under the Consumer Operated and Oriented Plan (CO-OP) program. The Secretary of HHS is to use the authorized funds to foster the creation of new nonprofit member-run health insurance issuers that offer QHPs in the individual and small group markets.
Federal funds are being distributed as loans for start-up costs and grants for meeting solvency requirements. Under the ACA, the Secretary will make grant and loan awards no later than July 1, 2013, after taking into account the recommendations of the advisory board. The Secretary is required to make grant and loan awards giving priority to applicants that offer QHPs on a statewide basis, that use an integrated care model, and have significant private support. The Secretary would ensure that there is sufficient funding to establish at least one qualified nonprofit health insurance issuer in each state and the District of Columbia. If no health insurance issuer applies within a state, the Secretary would use funds for the program to award grants to encourage the establishment of qualified issuers within the state or the expansion of an issuer from another state to the state with no applicants. Grantees would enter into an agreement with the Secretary to follow the provisions of the federal law, and any regulations promulgated by the Secretary. The agreement would include prohibitions for the use of loan or grant funds for carrying on propaganda, attempting to influence legislation, or marketing.
The federal law defines a qualified nonprofit health insurance issuer as an organization meeting the following requirements:
It must be organized as a nonprofit, member corporation under state law.
It must not be an existing organization that provides insurance as of July 16, 2009, and must not be an affiliate or successor of any such organization.
Substantially all of its activities must consist of the issuance of QHPs in the individual and small group markets in each state in which it is licensed to issue such plans.
It must not be sponsored by a state, county, or local government, or any government instrumentality.
Its governing documents incorporate ethics and conflict of interest standards protecting against insurance industry involvement and interference.
- Governance of the organization must be subject to a majority vote of its members.
- It must operate with a strong consumer focus, including timeliness, responsiveness, and accountability to members in accordance with regulations to be promulgated by the Secretary of HHS.
- Any profits made would be required to be used to lower premiums, improve benefits, or other programs intended to improve the quality of health care delivered to members.
- It must meet all the requirements that other issuers of QHPs in any state where the issuer offers a QHPs, including solvency and licensure requirements, rules on payment to providers, network adequacy standards, rate and form filing rules, applicable state premium assessments, and any other applicable state law.It must coordinate with state insurance reforms by not offering a health plan in the state until that state has in effect the market reforms required by the ACA.
The ACA permits qualified nonprofit health insurance issuers participating in the CO– OP program to enter into collective purchasing arrangements for services and items that increase administrative and other cost efficiencies, especially to facilitate start-up of the entities, including claims administration, general administrative services, health information technology, and actuarial services. The ACA also permits establishment of a purchasing council to execute these collective purchasing agreements. The council would be explicitly prohibited from setting payment rates for health care facilities and providers. There would not be any representatives of federal, state, or local government or any employee or affiliate of an existing private insurer on the council. The Secretary of HHS would be prohibited from participation in any negotiations between qualified health insurance issuers or a private purchasing council and any health care facilities, providers or drug manufacturer. The Secretary also is prohibited from establishing or maintaining a price structure or interfering in any way with the competitive nature of providing health benefits through the program. State insurance departments will normally play a role in licensing and regulating CO-OPs once they are in business.
COOP news update – Nov. 11, 2013
The following are recent developments reported from NASHCO “about the impact of health insurance CO-OPs on the marketplaces. A McKinsey and Company report examining new entrants to the marketplaces determined that CO-OPs are offering the most plans of these insurers, and in the 22 states with a CO-OP, 37% of the lowest-priced plans are offered by CO-OPs. Where they are not the low option, CO-OPs are the most likely of all carriers to be within 10% of the lowest-priced plan. The McKinsey report further reinforces what is seen from other sources: CO-OPs are having a positive impact on the marketplaces.
Operating in what is perhaps the most successful state marketplace launch thus far, the Kentucky Health Cooperative is reporting early signs of positive enrollment. In fact one of the families profiled in a Huffington Post story about the Kentucky marketplace - Kynect - ultimately chose a Kentucky Health Cooperative plan. In Maryland, Evergreen Health CO-OP was profiled by CBS Evening News for its focus on small business plans in light of the early problems with the individual marketplaces.”
While the debut of the Affordable Care Act this month has been marred by widespread computer problems, the difficulties facing the co-ops have been less obvious to consumers. One co-op, however, has closed, another is struggling and at least nine more have been projected to have financial problems, according to internal government reviews and a federal audit. The co-ops differ from traditional insurers in their nonprofit status, consumer focus and organizational structure; they will be governed by boards controlled by policyholders. Those co-ops that have opened their doors are scrambling to prevail against the odds, sending their small staffs door to door to educate people about what they do without violating a ban on explicit marketing. To get around what she called the “really difficult” restriction, Julia Hutchins, chief executive of the Colorado Health Insurance Cooperative, was reduced to dispatching scantily clad models into the streets of Denver to urge people to “get covered.’’
In another provision sought by industry lobbyists, the legislation said “substantially all” of the co-ops’ business must be in the individual and small-group insurance markets, meaning the outfits were essentially barred from the lucrative large employer market. The law allowed co-ops to band together to purchase actuarial and other services, but it prohibited them from jointly negotiating contracts with doctors, which could have helped them compete with major insurers. Although the law required the administration to give top consideration to co-op applicants with significant private financial funding, it hampered their means of getting it by preventing them from accessing equity markets or investor capital. Then there was the restriction on using federal money for marketing.
Funding Cut: The administration offered up the co-ops as a potential savings in April 2011 budget negotiations with Republicans, and their funding was cut by an additional $2.2 billion, according to people familiar with the negotiations. Last year, as Washington approached what was being called the “fiscal cliff,” the White House again put co-op funding on the table. With hours remaining before the deadline, Senate Minority Leader Mitch McConnell (R-Ky.) said, “We want the co-op money,” according to a person familiar with the negotiations. The White House agreed. The last-minute cut eliminated the remaining co-op funding, leaving only a small contingency fund, and prevented the administration from lending additional money. Applications from more than 40 proposed co-ops were junked. [Read full article] - Washington Post, Oct. 22, 2013.
Will Consumers Sign On For Health Law’s Co-Ops? Examples from Oregon and Beyond - KHN & Washington Post, 6/2/2013 (Excerpt; also read full article)
Four months before the opening of new online health insurance marketplaces where the plans will be sold, there are some positive early signs: Proposed premiums in Oregon – one of a number of states to publish preliminary figures – compare favorably to what commercial plans are charging. A single nonsmoking 40-year-old will be able to choose a basic policy for $234 a month from Oregon’s Health CO-OP, or $251 a month from Freelancers CO-OP, which will also operate in the state. Comparable plans from other companies will cost from $169 to $422 a month, state data show. Critics had questioned whether the co-ops could attract seasoned leadership, but among their CEOs are former state insurance commissioners Janie Miller of Kentucky and David Lyons of Iowa, former Baltimore health commissioner, Dr. Peter Beilenson, and other insurance insiders who left senior positions, said John Morrison, president and chief executive of the NASHCO,
Source: CMS CO-OP Fact Sheet, December 21, 2012
> National Alliance of State Health Cooperatives, the organization formed to support federally authorized co-ops.
The operational HHS CO-OP program offered low-interest loans to eligible nonprofit groups to help set up and maintain these issuers. As of December 21, 2012, a total of 24 non-profits offering coverage in 24 states have been awarded $1,980,728,696. The first four rounds of applications were due on October 17, 2011, on January 3, 2012, on April 2, 2012, and on July 2, 2012. There will be subsequent quarterly application deadlines through December 31, 2012. Future awards will be announced on a rolling basis. > For a full list of awardees and more information about CO-OPs, visit the federal CO-OP fact sheet,
> In March, 2013 HHS announced that no further funds would be available for 2013.
CO-OP loans are only made to private, nonprofit entities that demonstrate a high probability of financial viability. All CO-OPs receiving loans were selected by CMS on a competitive basis based on external independent review by a multi-disciplinary team. As CO-OPs meet or exceed developmental milestones, funds are allowed to be incrementally drawn down.
CO-OPs Report Competitive Premiums, but Face Challenges Reprinted from AIS’s Health Reform Week, July 1, 2013
The Consumer Operated and Oriented Plans (CO-OPs) set to launch on the insurance exchanges this fall appear to be offering competitive rates, according to the few states that have released premium data. Some advocates tout CO-OPs as the “real nonprofit” option that will attract customers wary of profit-driven commercial carriers. But others predict these new players could face a tough time competing with established insurers that have broad name recognition and the heft to create wide provider networks while extracting deep provider discounts. .... Read Full Story
Colorado CO-OP Receives $69 Million Loan From Health and Human Services. The Colorado Health Insurance Cooperative has received a $69 million low-interest loan in August 2012 from the U.S. Department of Health and Human Services (HHS) for statewide implementation of the latest Consumer Operated and Oriented Plan (CO-OP). The Colorado CO-OP's mission is to provide quality and affordable health insurance to both individuals and small businesses and to participate in the Colorado Health Benefit Exchange. The CO-OP will operate as a non-profit entity governed by its participants. The CO-OP will begin marketing its insurance products in 2013 and coverage is expected to begin on Jan. 1, 2014. Sponsors hope for more than 10,000 insured by the first year.
On March 29, 2012 the Centers for Medicare and Medicaid Services (CMS) awarded a total of $206,335,108 in low-interest loans to nonprofit groups in Maine—$61,100,000, Oregon—$56,656,900 and South Carolina—$87,578,208. CMS has so far has awarded $845,012,408 to 10 nonprofit groups in 10 states, which leaves more than $2.9 billion still to be allocated.
As reported April 25, 2012 by Politico: “CO-OPs’ WORST WEEK EVER – In the same week that the House Energy and Commerce Committee called for the elimination of CO-OP loans, the House Committee letter to HHS questioned whether health reform funding for health insurance CO-OPs has been misspent. The committee is investigating if HHS has given money to “entities that do not meet the statutory requirements for eligibility in this program,” and the committee points to OMB warnings that some of the loans may never be repaid. The Obama administration has so far awarded $845 million in start-up and solvency loans to 10 groups.” [Politico, 4/25/2012]
First Round of Federal Seed Money Released February 21, 2012 for CO-OPs in State Exchanges
Includes material excerpted/reprinted from INSIDE HEALTH INSURANCE EXCHANGES, March 2012 (C)
On Feb. 21, 2012 CMS awarded $638 million in low-interest loans to seven nonprofit groups that intend to launch Consumer Operated and Oriented Plans (CO-OPs) in eight states (see table below). According to a report in "Inside Health Insurance Exchanges", This first round of seed money could help cultivate a new breed of not-for-profit health insurers that will compete against established players beginning in 2014. But some industry observers are dubious that the non-profit entities will be more effective at keeping costs down.
In its announcement, CMS referred to the new entities as “more affordable, consumer-friendly and high quality health insurance options.”
The CO-OPs will be allowed to sell in markets outside of the exchanges. While the reform law envisions a CO-OP in every state, it’s uncertain how many there will be. Moreover, the feds last year predicted a 40% default rate for the loans.
Courtney White, a consulting actuary at Milliman, predicts that the majority of states — though not all — will have a CO-OP in place by 2014. He tells HEX that the start-up companies will have “a unique opportunity” to build enrollment in 2014 when a large pool of underinsured and uninsured people gain access to health coverage and federal premium assistance through state insurance exchanges. Milliman has helped more than 30 CO-OPs complete their applications to HHS.
CO-OP sponsors say they’re optimistic that having a clean slate and no pressure to turn a profit or appease shareholders will give them an edge over more established health insurers (see interview, p. 3). “Unlike traditional insurance companies, [CO-OP] profits must go to improving quality, benefits and premium affordability,” says Sara Horowitz, founder and executive director of Freelancers Union, which will use the federal loans to sponsor CO-OPs in three states. She tells HEX that her organization’s goal is to provide coverage to almost 200,000 people in New York (100,000), New Jersey (60,000) and Oregon (35,000).
But Freelancers Union, which received the bulk of the loans, appears to be ineligible to operate the CO-OPs, according to the Republican-led House Ways and Means Committee. In a prepared statement, the committee notes that Freelancers Union offers health insurance to union members and their dependents in New York through Freelancers Insurance Company, a for-profit company that it owns. Under the reform law, entities that issued health coverage before July 16, 2009, are ineligible to operate a CO-OP.
The reform law allocated $6 billion in loans, but Congress whittled that figure down to $3.8 billion last year. This first round of funding will be used to get CO-OPs up and running. In December, HHS issued its final rule, which set standards for the new nonprofit, member-run entities. Of the available funding, HHS estimates about $600 million will go toward five-year start-up loans, while the remaining $3.2 billion will be dedicated to solvency loans that will need to be paid back within 15 years.
In accordance with the exchange law, the CO-OP will offer at least a “silver” and a “gold” coverage option. Identical products will be available outside of the individual and small-employer exchanges.
While seven applicants received loans, seven others were asked to supply more information and several were rejected. One of those asked to provide more detail was The Evergreen Group, a CO-OP venture in Maryland (HEX 8/11, p. 4). Peter Beilenson, M.D., health officer for Howard County, Md., who is heading the group, says HHS wanted more detail about how the group would build the neighborhood-based clinics (dubbed “team-lets”) that are at the heart of its closed-panel model. “They wanted to know if we could get enough primary care doctors, so we were able to give a good amount of info about how we would do that,” he says. Evergreen intends to target working-class families with annual incomes of between 133% and 400% of the federal poverty level (FPL) — between $28,000 and $88,000 for a family of four.
Based on an actuarial study conducted by Milliman, Beilenson estimates the CO-OP will need about $50 million in federal funding to get up and running, and about 20,000 members in the first year to sustain the business model. It also is seeking about $10 million in private funding to help it build the team-lets. HHS doesn’t allow the federal loans to be used for clinical purposes.
CO-OPs Must Build Scale, Networks
But the new entities could find it difficult to build scale, create provider networks and compete against well-established, deep-pocketed health insurers. They also must reach certain milestones on an aggressive timeline leading up to 2014 when health insurance exchanges become operational.
One of the most significant challenges for CO-OPs will be in building provider networks in a relatively short time. And they’ll need to try to sign contracts that are competitive with those of the largest carriers in each state, says White. “Since contracting leverage is primarily based on volume or members and the CO-OPs do not have any yet, they will need to help the providers fully understand the vision and mission of the CO-OP,” he says. “They need to differentiate themselves from the traditional insurance carriers.”
And attracting members won’t be easy. White says CO-OPs will need “a strong marketing force that can explain their story and demonstrate the benefits of a CO-OP over a traditional insurance company.”
They’ll also need to make sure they’re ready to sell coverage by the time state exchanges begin their open-enrollment period on Oct. 1, 2013. Missing that initial wave of uninsured could be detrimental to the success of a CO-OP, says White.
And there will be hurdles in becoming licensed insurance companies or HMOs in their states. Moreover, HHS intended for the solvency loan “to be subordinated debt” on the balance sheet. That means that the state would not consider it as debt, but rather equity for the purpose of measuring solvency, White explains. “While preliminary discussions about the subordinated debt have taken place with states, these conversations need to continue to ensure proper licensing.”
Loans Will Help CO-OPs Meet Reserve Levels
Larry Turney, the project officer at the Montana Health Cooperative (MHC), estimates that it will cost about $6.7 million to get that CO-OP up and running. To be successful, it could need as much as $51 million in loans to meet reserve requirements. He tells HEX that disbursements for the first and second quarter arrived in the mail on Feb. 28. Future disbursements will be tied to reaching various milestones, he says. Prior to joining MHC, Turney was director of strategic planning and projects at Blue Cross and Blue Shield of Montana, where he spent 19 years. Turney says the CO-OP’s model will be to outsource as much as it can and “try to be as paperless as possible.” He anticipates the CO-OP will be able to keep its administrative costs below 10%. “Since our governance is member-controlled, the consumer will have much more say in how we operate the CO-OP. We believe this will result in insurance plans better tailored to meet the needs of Montanans.” MHC, he says, hopes to work closely with the Montana Primary Care Association, and intends to forge partnerships that could lead to the creation of more free-standing clinics in the state. Montana has a population of about 1 million, and Turney anticipates being able to enroll about 10,000 people in 2014. While he doesn’t think insurance carriers are worried yet about the new competition, Turney does say they appear to be “very interested in what we’re doing.”
State Programs Created Through State Law, 1980s-2010.
Strength in Numbers? The premise behind health purchasing alliances lies in the number of individuals who acquire health insurance coverage through group purchasing arrangements. By allowing small employers and the self-employed to come together, the "group" bargaining power increases and lower premium rates can be negotiated. Aside from gaining purchasing leverage, HPCs also are intended to provide employees with a choice of health benefit plans- an option that would not necessarily be made available if an employer obtained coverage independently of an alliance. In addition, administrative burdens of contracting with multiple health plans are avoided. Through these advantages, many employers that previously were unable to offer health insurance coverage can provide their employees with access to coverage. In almost all cases, the programs themselves are voluntary and run as a private or nonprofit structures. Five states, Georgia, Minnesota, New Mexico, Texas and Vermont, have a public entity governing the program. At least 21 states allow multiple, separate organizations to be created.
Shortcomings? The study by Dr. Wicks from 2000 concluded that health insurance purchasing cooperatives are unsuccessful because of their inability to gain market share. Because HPCs have not been able to enroll small employers in larger numbers, they have not achieved economies of scale or gained the bargaining power that would allow them to offer lower-cost coverage. Lack of participation by health plans and insurance agents and strong opposition by stakeholders are also blamed. According to the report, HPCs underestimated the role that insurance agents play in the small group market and cited legal and policy restraints in the health insurance environment as factors that limited HPA growth. In addition, because small group reform efforts made coverage more widely available and administrative cost savings were not realized, group purchasing arrangements were considered to be a viable option by either employers or health plans.
In addition, a 2001 study published in Health Affairs concluded that HPCs have not led to increased health care coverage, citing insignificant market penetration due to the inability to offer health insurance at lower price than offered in the broader small group market.
Note: This report generally does not include state subsidy programs in which the state is actually paying for the insurance. These subsidy programs are detailed in a separate report, State Programs to Subsidize or Reduce the Cost of Health Insurance for Small Businesses located online at http://www.ncsl.org/Default.aspx?TabId=14526
State Statute listings are accurate as of April 2010; they may not not reflect changes related to the PPACA. - See the list above for federally-supported CO-OPS as of 2013
The table below summarizes programs created through state law. Other jurisdictions may have programs with similar goals or functions.
"Health insurance purchasing group." Small employers with no more than 99 employees and large employers; includes self-employed individuals. Participation is voluntary for qualified employers.(2001) Ark. Stat. Ann. §§ 23-86-501 et seq, (2003) Emergency regulation 78.
Program Details: The Small Employer Health Insurance Purchasing Group Act of 2001 (the “Arkansas Act”) allows cities, counties and small employers (i.e., employers with fewer than five hundred employees) to form health insurance purchasing pools for their employees. The Arkansas Act allows small employers to offer a broader range of options to purchasing group participants that includes all, some, or none of the Arkansas coverage requirements and contains some actuarial safeguards to diminish the potential for anti-selection. (If the insurance coverage does not meet the state required mandates for coverage, the purchasing pool must provide enrollees with advanced notice that the insurance does not meet state requirements.)
The State and Public School Life and Health Insurance Board (the “Board”) or any insurance carrier approved by the Board may offer a purchasing pool health benefit plan. The Board maintains broad authority with respect to the establishment of a purchasing pool and generally may adopt rules necessary to implement the program. More specifically, the Board is responsible for (i) establishing new insurance purchasing pools for cities, counties and small employers, (ii) requiring contracts between the plan and cities, counties and smaller employers to remain in effect for at least one year, (iii) establishing underwriting restrictions to ensure financial stability of the purchasing pools, (iv) determining the benefits to be covered by the pool, and (v) setting rates concordant with private marketplace practices.
A unique aspect of the Arkansas program is that the purchasing pools are community-based purchasing cooperatives for small businesses in that community. By using a community-based approach, the pools are able to organize, monitor, and support smaller employers in their effort to secure more affordable insurance options for their employees. Further, the Arkansas legislature favored community-based pools because it allowed tighter controls on enrollment that could more easily address adverse-risk selection problems.*
Payments: Employers participating in the purchasing pools are required to pay at least fifty percent (50%) of each employee’s premium for individual coverage.
"Health Insurance Plan of California" (HIPC) or "Voluntary Alliance Uniting Employers Purchasing Program." Small employer groups of not more than 100 down to sole employers. Participation is voluntary for qualified employers. (1993, 1996) Cal. Ins. Code §§ 10730 et seq.
PACADVANTAGE - closed as of December 31, 2006: The reform required insurers in the small-group market to sell policies to business buyers with as few as two employees and barred exclusions for pre-existing conditions. It did not require all businesses to buy insurance or all insurers to participate in the market, its premium limitations were weak, and it didn't subsidize small employers or low-income workers. When it opened, 24 insurers were participating, lured by the opportunity to access a big market. But the exchange's fatal flaw was that it was voluntary. Insurers could offer competing policies outside the exchange. Employers weren't required to offer insurance and didn't have to use the exchange if they did. The promise of a large number of potential customers therefore faded fast. At its peak, the exchange enrolled 147,000 members, which represented about 2 percent of the state's small-group market. A 2009 American Bar Association analysis reported: "California’s purchasing pool alliance, the PacAdvantage Health Plan, allowed small employers and self-employed individuals to purchase health insurance through the cooperative. Created as the Health Insurance Plan of California in 1992, PacAdvantage was an independent, non-profit voluntary purchasing pool for small businesses with two to fifty employees. Perhaps once considered a successful purchasing pool initiative, PacAdvantage ceased operations on December 31, 2006. Along with other participating health plans, Blue Shield of California notified PacAdvantage that it could no longer participate after December 31, 2006, due to its financial losses in the program. PacAdvantage tried, but was unable to reach an arrangement that would allow for continued participation of several health plans. The purpose of PacAdvantage was to provide different plan choices for participating small employers, and, once choices became limited, the program lost its operational purpose."
Private; multiple alliances; competing alliance design; employer size - all groups; non-group individuals eligible; subject to small group regulations; alliance powers health plan participation in select health plans; alliance negotiates discount; alliance requires standard benefit package(1994).
History: The Alliance in Colorado was another recent failure. Established in 1995, the Alliance closed in the summer of 2002 after one of its three health plans withdrew from the state small-group market, a second capped enrollment, and the third decided to stop participating.
"Community Health Purchasing Alliance (CHPA)" Small employer groups of not more than 50. Participation is voluntary for qualified employers. State chartered, nonprofit. (1994) Fla. Stat. §§ 408.70 to 408.7071.
Program Details: In 1993, the Florida Legislature determined that the health care system did not provide access to affordable health care for everyone in this state and sought to implement a structured health care competition model to improve the efficiency of the health care markets in Florida. Section 408.70 provides legislative findings and the intent for enacting these provisions, including subsection (3) which states that: "The Legislature intends that state-chartered, nonprofit private purchasing organizations, to be known as "community health purchasing alliances," be established. The community health purchasing alliances shall be responsible for assisting alliance members in securing the highest quality of health care, based on current standards, at the lowest possible prices." A community health purchasing alliance (CHPA) is established in each of the 11 health service planning districts established under section 408.032(5).
Program closed in 2000: The Florida Community Health Purchasing Alliances enrolled 92,000 people when enrollment peaked in 1998, had increasing difficulty attracting any but the smallest employers and gradually found themselves losing health insurers. As a consequence, enrollment also fell, and the purchasing alliance ceased operations in 2000.
"Health plan purchasing cooperatives" Small employer groups of no more than 50 eligible employees. May choose to include sole proprietors and larger employer groups. Participation is voluntary for qualified employers and nonprofit corporations (1997).
Statute Excerpt: Ga. Code §§ 33-30A-1- Membership in a health plan purchasing cooperative shall be voluntary. A purchasing cooperative shall accept for membership in the cooperative any eligible small employer which agrees to pay the membership fee and a premium for coverage through the purchasing cooperative and which abides by the bylaws and rules of the purchasing cooperative. A purchasing cooperative may, at its option, accept for membership in the cooperative any otherwise eligible employer which does not qualify as a small employer because it employs more than 50 eligible employees during 50 percent or more of its working days during the previous calendar quarter.
"Health care purchasing group (HPG)." Any two or more employers with no more than 2,500 covered individuals. (1998) Ill. Rev. Stat. 215 ILCS 123/1 to 123/75.
"Health Insurance Purchasing Cooperative (HIPC)." Individual and small employer group alliances. Participation is voluntary for qualified employers (1994).
"Dirigo Health Insurance" & "Small Business Health Coverage Plan." Small employers with 2-50 employees; after one year open to large businesses, self-employed and unemployed, those whose employer does not offer coverage. Participation is voluntary for qualified employers. (Oct. 2003) Me. Rev. Stat. Ann. tit. 24-A §§ 6901 to 6915.
"Purchasing alliances." Businesses, trade or church organizations, MEWAs, governmental entities; participants must live within a common geographic area, be employed in a similar occupation or share some other common factor. (July 1997) Minn. Stat. §§ 62T.01 to 62T.12.
Operational Examples: Health Partners, Inc., in Minneapolis, has 660,000 members and provides health care, health insurance and HMO coverage. Minnesota "National Joint Powers Alliance" is a service cooperative that includes 24 government groups in central Minn., including 15 school systems, 5 cities and 1 county; in 2006, it selected HealthPartners to provide health care coverage for about 3,100 members. "The agreement with the National Joint Powers Alliance marks the first new health plan in 21 years among Minnesota's eight service cooperatives." The National Joint Powers Alliance and Minnesota's other eight service cooperatives were formed to reduce the cost of health care and other goods and services by leveraging the combined purchasing power of governmental and municipal agencies. "State law requires co-ops to seek bids every four years and after due diligence, we determined that HealthPartners can do the job and do it better than anyone else," said Gary Nytes, NJPA executive director. The NJPA selected HealthPartners after an extensive bidding process that followed guidelines recommended in a 2004 Minnesota State Auditor's report.
"Mississippi Health Care Purchasing Pool." State and local government employees, teachers, Medicaid recipients, additional persons without health coverage, as economically feasible. Also includes any private entity that chooses to participate in the pool. Includes employees, retirees and their dependents. Participation is voluntary for qualified employers. (1995) Miss. Code Ann §§ 41-95-1 to 41-95-7.
"Voluntary purchasing pool." Employers with more than 25 eligible employees. Pool shall have at least 1,000 eligible employees. Voluntary (1993) Mont. Code Ann. §§ 33-22-501; 33-22-1815 to 33-22-1828.
"Small business health insurance purchasing pool." Small employers with 2-9 employers. Voluntary (2005 law) Mont. Code Ann. §§ 33-22-2001 to 33-22-2009.
Program Details: Originally known as the Small Business Health Care Affordability Act of 2005, “Insure Montana” allows small businesses the option of (i) joining purchasing pools to obtain more affordable health insurance coverage for their employees or (ii) realizing tax credits by providing employees with health insurance. In order to qualify for the purchasing pool program, the following criteria must be met: (i) the employer has not provided employee health insurance in the past twenty-four months; (ii) the employer has a number of employees that meets the eligibility criteria established by the State Auditor’s Office (currently, between two and nine employees); (iii) the employer begins to provide health insurance through the new State Health Insurance Purchasing Pool or another qualified plan; and (iv) no employee is paid more than $75,000 per year (owner excluded). Blue Cross Blue Shield of Montana is the plan administrator, and there are standard and premium program choices. The program makes either employer incentive or employee assistance payments, which generally result in the employer paying only twenty-five percent (25%) of the monthly premium. The program is funded by a tobacco tax and by state allocations of $13 million combined for 2006 and 2007 and $20 million combined for 2008 and 2009.*
As of the end of 2007, nearly 730 employers and 5,310 individuals were enrolled in the program. As of mid-2008, all available slots for the program were filled due to limited funding. Even though applications continue to be accepted, over five hundred businesses were placed on a waiting list in the order that applications were received. Insure Montana’s website notes that additional funding has been requested and will be determined by state legislators during 2009 legislative session
Insure Montana Website: www.sao.mt.gov/InsureMontana/index.asp
"Voluntary purchasing group." Open to employers with 2 to 50 employees. Participation is voluntary. (1995) Nev. Rev. Stat. §§ 689C.360 to 689C.600; reg. 689C.360 to 689C.450.
"Purchasing Alliance." Open to employers with 1-100 employees. Participation is voluntary. (2001) N.H. Rev. Stat. Ann. § 420_g:10a; Ins. Reg. 3401.01 to 3401.11.
"Small Employer Purchasing Alliance." Small groups (2-50) via employers engaged in similar trade or business in a common geographic area. Voluntary (2002) N.J. Rev. Stat. §§ 17B: 27A-25.1 to 17B:27A-25.9.
Small groups (2-50) and individuals that meet requirements; applies to all insurers, nonprofits and HMOs (self-insureds not subject to federal preemption) required to be members of alliance; one statewide alliance. Voluntary (1994) N.M. Stat. Ann. §§ 59A-56-1 to 59A-56-25; SEIP: N.M. Stat. Ann. § 13-10-20.11 (2006).
Program Details: In 2005, New Mexico passed the Small Employer Insurance Program (“SEIP”) as a part of the "Insure New Mexico!" initiative. Established by the Health Insurance Alliance Act, SEIP is for small employers and non-profit corporations with fifty or fewer employees “if the small employer has not offered health care coverage to persons and dependents eligible through a small employer for a period of at least twelve months prior to enrollment in the coverage offered pursuant to the group benefits act.” SEIP offers a comprehensive health insurance benefits package with an annual claims limit of $100,000 per enrollee, and benefits include primary and specialty care, inpatient and outpatient hospitalization, pharmacy, lab, X-ray, physical, occupational, speech therapy, behavioral health and substance abuse services.*
Even though SEIP was established by the New Mexico General Services Department and its director of risk management (collectively, the “Department”), SEIP is administered by Blue Cross Blue Shield of New Mexico, and the pool is funded by premium contributions from both participating employers and employees.
SEIP mandates that the Department develop and maintain the following administrative procedures: (i) program design standards, including the types, extent, nature and description of coverage, specific eligibility and enrollment rules, the deductibles, the premium rates, the amount of reserves necessary to be retained, and all other matters reasonably necessary to carry on or administer the program; (ii) procurement of contracts with health care providers, (iii) dissemination of information about the program to eligible small employers and their employees; (vi) orientation of new employees and continued communication with ongoing employees in the program; and (v) record keeping procedures, including insurance files, claim files, and files for eligible participants.
In order to help achieve the purchasing pool’s intended effect of lower premiums by pooling risk, the New Mexico program uniquely combines SEIP with its high-risk insurance pool, the New Mexico Medical Insurance Pool (“NMMIP”). High-risk members of SEIP will become members of NMMIP, and, since the programs use the same administrator, individuals will not know from which program they are drawing coverage. New Mexico law requires that Alliance premium rates be determined and adjusted to reflect the average premium rate offered by insurance carriers in the small group commercial market. As of December 2006, approximately 4600 individuals were participating in SEIP.
2010 Change: By January 1, 2010, the Department, in coordination with the superintendent and the New Mexico Health Insurance Alliance, is required to coordinate the promulgation of a rule to replace SEIP to allow participating small employers and persons and dependents eligible for SEIP to participate in the coverage afforded pursuant to the Health Insurance Alliance Act.
SEIP Website: http://www.gsd.state.nm.us/rmd/seip.html
Health Insurance Alliance Website: http://www.nmhia.com/
"Municipal Cooperative Health Benefit Plan." Limited to municipal corporations, school districts and other public employers. Voluntary (1994) N.Y. Ins. Law §§ 4701 to 4714.
"Caroliance." Private governing structure; number of alliances between 4-12; alliance design is non-competing; employer group size 2-50; subject to small group regulations; accepts all qualified health plans; requires standard benefit package.
Program Analysis: An early study of the program (1999) published these conclusions:
Positive effects of Caroliance include:
1. Improved access for higher-risk groups to more comprehensive benefit packages and to the statutory benefit products.
2. Easier comparison shopping for purchasers as a result of standardized products.
Disappointing outcomes include:
1. A small enrollment that is disproportionately high risk
2. Premium rates for healthier groups that are not competitive with the outside market.
3. Low carrier participation.
4. Difficulties with the employee-choice feature.
5. Failure to implement quality comparison measures.
"Joint purchasing entities (purchasing cooperatives)." Small employers. Voluntary; private. (1994) N.D. Cent. Code § 26.1-01-07.4; Rule 45-06-09.
"Small Employer Health Care Alliance." Small employers of 150 or fewer employees. Voluntary; but commissioner may require insurers to offer coverage to an alliance that has not received reasonable bids; private. (1995) Ohio Rev. Code Ann §§ 1731.01 to 1731.09.
"Employer Health Insurance Purchasing Group." Affects small employers with no more than 100 employees. Each group must include at least 200 employees within 12 months from formation, with at least 51 employees at the time of formation. Must offer at least 2 plans; one must include state-mandated health benefits. Voluntary; private. (2002) Okla. Stat. tit. 36§§ 4521 to 4529; Reg. 365:10-19-1 to 365:10-19-8.
Common group (1,000 employees). Affects small employer groups; others may join together if can get formal approval of a Certificate of Public Advantage from Dept. of Health. Voluntary; private. S.C. Code Ann. §§ 44-7-500 to 44-7-590.
2008 Law: Governor Mark Sanford signed a bill, S.588 (Act No. 180), that gives small businesses more flexibility to provide health insurance for their employees. The bill allows a group of at least 10 small businesses to join together and negotiate cheaper insurance rates than an individual business. Current state law allowed businesses to join together for health insurance but sets a minimum of 1,000 employees. The new law defines small business as 2-50 employees, and permits an employer of one to qualify subject to separate pricing terms [news release 2/19/08].
"Voluntary Health Insurance Purchasing Organization." Structured as a nonprofit corporation or organization. Voluntary. S.D. Codified Laws Ann. §§ 58-18-52 to 58-18-63; 58-38-25 to 58-38-36.
Private; multiple alliances; competing alliance design; employer group size must be between 2-50; subject to small group regulations; accepts all qualified health plans.
2008 Law: SB 4014 of 2008 allowed small businesses of 2 to 50 employees to pool together for the purpose of negotiating better insurance rates, creating a small business cooperative. The bill was designed to encourage more small employers to purchase health insurance and to give them predictability and stability in health-insurance rates. It was signed May 28, 2008.
Two structures: 1) public purchasing "Texas Health Insurance Purchasing Alliance" and 2) "Private Purchasing Cooperative" or "Health Group Cooperative" formed by 2+ small employers. Voluntary. Tex. I.C. Code Ann. Sec. 1501.051 to 1501.065; Reg. 28 TAC 26.22 to 26.23; see also Reg. 28 TAC 26.401 to 21.413.
Program Closed: The Texas Insurance Purchasing Alliance, begun in 1994, covering only about 1,000 firms and 13,000 people at its height. Difficulty in attracting employers led to the withdrawal of insurers, and the Alliance governing board ultimately decided that the operation was not viable and closed it.
"Health insurance purchasing alliance" or "health insurance purchasing co-operative." Applies to employer groups and individual applicants; structured as nonprofit corporation or trust. Private, §31A-34
Private; multiple alliances; competing; employer group size between 2-50; subject to small group regulations; accepts all qualified health plans; alliance negotiates discount; alliance requires standard benefit package.
Public; non-competing; Medicaid eligible.
"Health Benefit Purchasing Cooperative." Voluntary project; cooperative shall decide membership and notify commissioner of criteria. Private.
Law: Wis. Stat § 185.99. First enacted 2003 as a pilot project; not fully operational; portions to begin 2008. Wisconsin statutes were expanded in 2005 to allow for the formation of health benefit purchasing cooperatives. Cooperative Health Choices of Western Wisconsin (‘CHC’) was formed in late 2008 to bring affordable health insurance to western, west central, and northwest Wisconsin. In February 2009, the Office of the Wisconsin Commissioner of Insurance (OCI) approved an Order designating the geographic territory of CHC’s operations. It includes 17 counties – Ashland, Barron, Bayfield, Burnett, Chippewa, Clark, Douglas, Dunn, Eau Claire, Pepin, Pierce, Polk, Price, Rusk, St. Croix, Sawyer, and Washburn counties. For businesses to access health insurance, they must sign up as a member of the CHC Cooperative. Eligible members of the cooperative include large and small businesses, the self employed, non-profit organizations, local units of government (towns, villages, cities, counties, and school districts, etc.), rural utility cooperatives, trade and labor organizations, and business partnerships.
Sources: Citations from NAIC and NCSL research, 2007, 2009.
* ABA eHealth Net, March 2009
||Based in Seattle, Washington, Group Health provides medical coverage and care to more than 580,000 residents in Washington state and Northern Idaho through Group Health Cooperative or its subsidiaries, Group Health Options, Inc. and KPS Health Plans. Nearly two-thirds of members receive care in Group Health-operated medical facilities.
See program description under Washington below.
||Massachusetts passed a major reform package in 2006. Commonwealth Care, offered through the Commonwealth Connector, covers uninsured adults by providing a premium subsidy for private insurance. The Commonwealth Connector offers Commonwealth Choice for those who do not qualify for MassHealth (Medicaid) or Commonwealth Care. Although it is not a subsidized program, Commonwealth Choice identifies private health plans that receive a "seal of approval" for meeting quality and cost criteria. The Connector also pools individual participants to access better prices. Signed into law as Chapter 58 of 2006.
The Utah Health Exchange is an internet-based state program, comparing insurance options and providing greater transparency of insurance plan benefits, serving the individual and small group markets. The exchange allows employees to couple defined contributions from one or more employers and pre-tax personal contributions to purchase insurance that also is portable. Part of this reform was the creation of NetCare, a low-cost mandate-free insurance option for insurers to offer to the individual and small-business markets and for those eligible for COBRA, mini-COBRA or conversion coverage. It was launched August 19, 2009, based on HB 188, enacted into law in 2008.
The Health Insurance Partnership (HIP) is a Private/Public Partnership that combines contributions from small employers, employees and the state to make small group coverage more affordable for employees. The program was to begin accepting applications in January 2009 with coverage to begin in April. However, program implementation has been halted due to a budget deficit (as of August 2009).
Regional Plan: Group Health Cooperative in Seattle provides health coverage for 10 percent of Washington State residents. Founded in 1947, Group Health Cooperative is a consumer-governed, nonprofit health care system that coordinates care and coverage. Based in Seattle, Washington, Group Health provides medical coverage and care to more than 580,000 residents in Washington state and Northern Idaho through Group Health Cooperative or its subsidiaries, Group Health Options, Inc. and KPS Health Plans. Nearly two-thirds of members receive care in Group Health-operated medical facilities. Website: http://www.ghc.org/about_gh/index.jhtml
West Virginia's Small Business Plan allows small businesses to tap into the buying power of the Public Employees Insurance Agency (PEIA) through a public/private partnership between PEIA and insurance companies. PEIA is the largest self-insured plan, providing insurance to public employees, state universities, and colleges. It allows participating carriers to access PEIA's reimbursement rates, enabling the new small business coverage cost to be reduced significantly. The program was created by SB143 of 2004, which encouraged a private/public partnership, among insurance carriers, health care providers and PEIA in order to bring commercially comparable coverage plans to qualifying uninsured small businesses at a premium cost reduction up to 25 percent. This is primarily accomplished by allowing the participating carriers to access PEIA’s provider reimbursement rates which average 20-25 percent lower than those of private insurance companies. Other key components include:
- the Plan is available for businesses having 2 – 50 employees;
- the small business must have been without a company-sponsored health plan for the prior 12 consecutive calendar months;
- the employer must pay at least 50 percent of the individual premium costs;
- 75 percent of eligible employees must participate; and
- the business must have been in existence for at least the past 12 consecutive months.
"What Health Insurance Pools Can and Can't Do"
An Issue Brief, "What Health Insurance Pools Can and Can't Do," published by the California Health Care Foundation in November 2005 provides useful background and perspective on the promise and limitations of pools and cooperatives.
"It is commonly assumed that purchasing pools have the power to provide economies of scale and negotiate favorable rates with health plans. Yet while pools have the potential to provide small-firm workers with access to coverage and favorable premium rates, creating a successful pool is a challenge. This issue brief examines how insurance pools work, the risks they face, and the conditions necessary for a pool to succeed. It explains why pools are not the same as large employer groups, discusses the crucial role health plans play in establishing a successful pool, and describes the ways pools can attain the necessary market clout to succeed.
The authors find that under the right circumstances pools can be effective at meeting cost and coverage goals and expanding insurance choices. However, without attention to basic considerations such as the cohesiveness of a pool's members and the market environment in which it operates, the mere establishment of more insurance pools will do little to bring down coverage costs or reduce the number of uninsured."
"The Conservative Case for Reform"- Voluntary purchasing pools give individuals and small businesses the opportunities that large businesses and the government have to seek lower insurance costs.- By Governor Bobby Jindal, Louisiana 10/5/2009, Washington Post Op-Ed
Studies/ Journal Articles
- Bender, Karen and Beth Fritchen, “Government-Sponsored Health Insurance Purchasing Arrangements: Do They Reduce Costs or Expand Coverage for Individuals and Small Employers?” Oliver Wyman Actuarial Consulting, Inc. (2008); available at http://www.oliverwyman.com/ow/pdf_files/health_ins_purchasing_arrangements.pdf.
- Curtis, Rick and Ed Neuschler (2005) What Health Insurance Pools Can and Can't Do, Institute for Health Policy Solutions
- Long, Stephen and Susan Marquis (2001) "Have Small-Group Health Insurance Purchasing Alliances Increased Coverage? Health Affairs Journal. Vol.20, no. 1.
- Kofman, M. Group Purchasing Arrangements Issues for States (Washington, D.C.: State Coverage Initiatives, April 2003).
- Pfannerstill, Larry and S. Brandel. Arizona Health Care Cost Containment System Issue Paper on Purchasing Pools (Milliman USA, Inc., August 2001).
- Pool, James M. and Lauren C. DeMoss. (March 2009) "Are Purchasing Pools the Answer to Small Employers' Health Insurance Needs? ABA eHealth Net. http://www.abanet.org/health/esource/Volume5/07/Pool.html
- State Coverage Initiatives, "Coverage Profile: New Mexico".
- Wicks, Eliot et al (2000) "Barriers to Small-Group Purchasing Cooperatives: Purchasing Health Coverage for Small Employers." ESRI. (144 pages)
- Tanner, Michael D., Cato Institute (June, 2009) "No, Really, It's Not Government-Run!."
- Forman, Wallace, Americans for Tax Reform (ATR). "A Public Option Co-op is still a Public Option" (August 18, 2009)
- Hiltzik, Michael, LA Times. "Will U.S. learn its healthcare reform lesson from California?" (September 14, 2009)
- AcademyHealth. "Lessons from the Rhode Island Experience" (2008)
- Robert Pear and Gardiner Harris, New York Times. "Alternate Plan as Health Option Muddies Debate" (August 17, 2009).
- Janice Lawlor, Wake Forest University School of Medicine. "An Evaluation of Caroliance" (1999).
- Health Purchasing Alliances: An Alternative for Small Employers (Year End Report - 2004). Carla Plaza, Nick Bandoli. NCSL/Health Policy Tracking Service, 12/31/2004.
Measuring Success - Archive and Historical Views
The following analysis is excerpted from "Barriers to Small-Group Purchasing Cooperatives: Purchasing Health Coverage for Small Employers (2000).
HPC success can be measured in a number of ways. We employed five measures, and found the following results:
1. Market share. For the most part, HPCs ability to capture market share has been disappointing. HPCs' market share has generally been below 5 percent, except for COSE (Cleveland) and perhaps CBIA (Connecticut). In absolute terms, however, enrollment is large in some areas. The California HPC had an enrollment of about 150,000 by 2000, and Florida peaked at 92,000. But the Texas TIPA failed, and North Carolina and Florida had serious problems, with very small or rapidly dropping enrollment.
2. A new product. The biggest selling point for HPCs has been their ability to allow employers to offer individual employees a choice of several health plans, an option that was not practical for small employers previously. But HPCs have generally not been able to continue to offer PPO products because health plans fear adverse selection.
3. Price. Prices are generally not lower than in the non-HPC market, though they may have been initially in some cases. On the other hand, prices are not generally much higher either (contrary to what some early critics expected).
4. Competitive effect on the market. Health plans do not admit to making any changes in response to HPCs. A number, however, are now offering small firm employees the option of choosing from the single health plan's HMO, PPO, or indemnity offerings. This may be a response to the employee-choice feature of HPCs. The ready availability through HPCs of immediate price quotations from several health plans for essentially identical products has probably helped stimulate price competition in some areas.
5. Reduction in the number of uninsured workers. There is no convincing evidence the HPCs have had a major impact on reducing the number of uninsured. HPCs typically enroll about the same proportion of previously uninsured groups as the rest of the small-group market. However, it was unrealistic to expect that, even under the best of circumstances, HPCs could bring down premiums sufficiently to attract large numbers of firms previously not offering health coverage. Several HPCs cover a large proportion of very small "micro" groups (five or fewer employees), which they believe would otherwise often be uninsured because insurers prefer to avoid such groups.
Our research led us to identify a number of impediments to HPC success, which we group in four main categories. Gaining market share has proved more difficult than anticipated. The HPC concept does not sell itself; health plans have generally not promoted it, and agents have often opposed it. In a number of cases, HPCs greatly underestimated how important agents were to the HPC's success and thus proposed or adopted practices that made agents hostile.
NCSL Related Resources