August 2003

Grant Results

National Program

Changes in Health Care Financing and Organization

SUMMARY

This 1998–1999 project, conducted by researchers at the Economic and Social Research Institute in Washington, led by Elliot K. Wicks, Ph.D., gathered information to help employers, employees, consumer groups and policy-makers better understand the barriers to small-group health insurance purchasing coalitions.

They also formulated policy recommendations that might enable greater achievement of the benefits predicted to arise from coalition purchasing of health care coverage.

The project is part of the Robert Wood Johnson Foundation's (RWJF) national program Changes in Health Care Financing and Organization (HCFO) (for more information see Grant Results).

Key Findings
Researchers reported the following in a Findings Brief:

  • Health purchasing coalitions have enabled small employers to offer a choice of health plans to their employees.
  • Health purchasing coalitions have not reduced insurance costs nor have they improved access to health coverage for uninsured workers.
  • Market share for health purchasing coalitions continues to be low.
  • Low coalition market share results from increased competition, lack of cost savings and resistance from health plans and insurance agents.
  • Health plans are concerned that they may attract only the highest-risk employees as part of a health purchasing coalition.

Funding
RWJF provided a $199,901 grant to support the project.

 See Grant Detail & Contact Information
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THE PROJECT

According to the National Business Coalition on Health, there are more than 90 employer-led coalitions across the United States that use their collective purchasing power to obtain reduced rates on health insurance for their employees. During the health care reform debate in the early 1990s, proponents touted small-group health insurance purchasing coalitions as a "magic bullet" that would cure the many ills of health care reform. However, purchasing coalitions have not secured as much market share as expected and have met with limited success where they have been implemented.

Researchers at the Economic and Social Research Institute in Washington evaluated barriers to small-group health insurance purchasing coalitions located in California, Colorado, Florida, North Carolina, Texas and Cleveland, Ohio. They interviewed health plan executives, coalition staff, state regulators, state legislators and insurance agents in each location. The research focused on four hypotheses as explanations for the limited growth of health purchasing coalitions:

  1. flaws in the basic concept
  2. changes in the health insurance environment
  3. implementation issues
  4. resistance or opposition of interest groups.

Criteria for coalition success included: market share, introducing a new product, reducing insurance prices, affecting competition in the non-coalition market and reducing the number of workers without insurance.

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FINDINGS

Researchers reported the following in a Findings Brief:

  • Health purchasing coalitions have enabled small employers to offer a choice of health plans to their employees. In addition, many health plans now offer more competitive pricing and a choice of plans to their small-group clients — changes influenced in part by the advent of health purchasing coalitions.
  • Health purchasing coalitions have not reduced insurance costs nor have they improved access to health coverage for uninsured workers.
  • Market share for health purchasing coalitions continues to be low. Even in California and Florida, where coalition enrollments are highest, such enrollments account for less than 5 percent of all small-group enrollments.
  • Low coalition market share results from increased competition, lack of cost savings and resistance from health plans and insurance agents. Another disincentive for health plans is that selling through health purchasing coalitions garners only a portion of a firm's employees, in contrast to selling directly to a firm and enrolling all of a firm's employees. In addition, health purchasing coalitions initially bypassed insurance agents in an effort to minimize administrative costs. This led to agent hostility and few agents selling coalition products, despite later coalition attempts to be more agent-friendly.
  • Health plans are concerned that they may attract only the highest-risk employees as part of a health purchasing coalition. Experience with preferred provider organizations was evidence of a legitimate concern. (Preferred provider organizations are networks of providers affiliated by a common agreement to discount the price of their services to individuals insured under specified insurance policies.) When policies with preferred provider organizations were sold through health insurance purchasing coalitions, the choice of provider and the corresponding higher cost of the plans appealed mostly to enrollees who knew they would use that option. Thus, preferred provider organizations did not attract enough low-risk enrollees to spread the cost of higher-risk enrollees. According to the principal investigator, virtually all health insurance purchasing coalitions have lost preferred provider organizations, in part because of adverse selection. In addition, not having a preferred provider organization option has exacerbated the coalitions' problems competing in the small-group market.

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GRANT DETAILS & CONTACT INFORMATION

Project

Research to Identify Barriers to the Success of Small-Group Purchasing Coalitions

Grantee

Economic and Social Research Institute (Washington,  DC)

  • Amount: $ 199,901
    Dates: August 1998 to December 1999
    ID#:  035044

Contact

Elliot K. Wicks, Ph.D.
(202) 785-3669
ewicks@esresearch.org,  jmeyer@esresearch.org

Web Site

http://www.hcfo.net

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Report prepared by: Mary Geisz
Reviewed by: Robert Crum
Reviewed by: Molly McKaughan
Program Officer: Nancy L. Barrand

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