After healthcare premiums were subdued in the mid-1990s, business purchasing coalitions set out to slay the seemingly larger dragons of coverage quality and choice. But now, with double-digit rate increases once again rearing their ugly heads, many buying groups are finding themselves ill-equipped to battle for better prices.
Today, most coalitions collect performance data and publish reports that rate health plans on service quality, access and member satisfaction. Many others have launched projects designed to expand benefits, promote wellness or reduce medical errors. One business group in Texas has set out to create a new physician-credentialing process. Another in Minnesota has teamed up with local doctors and hospitals to launch a not-for-profit organization aimed specifically at improving healthcare delivery.
Doubtless, these myriad efforts have influenced healthcare policy, helped consumers make wiser coverage decisions and improved communication among purchasers, payers and providers. But with premiums now climbing at an 11% to 20% annual rate, many industry experts have begun to wonder whether business coalitions have lost sight of their original raison d'etre-making insurance more affordable.
Indeed, recent studies show that purchasing alliances on the whole have failed to secure lower premiums, particularly for the small employers that need them most. Several coalitions-including the nation's largest, San Francisco-based Pacific Business Group on Health (PBGH), which represents more than 9,500 employers-have been walloped in recent years by price increases that outstripped even the industry average.
And, according to the Robert Wood Johnson Foundation, hopes of lower administrative costs haven't been borne out either, because most alliances haven't attained the substantial scale needed to achieve greater efficiency and have duplicated instead of substituted for many of the administrative functions performed by health plans and insurance agents.
"Most purchasing organizations came together at a time when the market was falling, so they were really just capitalizing on a downward trend in premiums," says Eileen Raney, a partner with Deloitte & Touche in Los Angeles. "Now it's become very difficult for them to deliver better rates, and many are losing followers."
Though conceding that pricing negotiations have grown tougher, coalition proponents argue that the groups make coverage more affordable in ways other than simply winning rate reductions. Coalitions, they say, improve long-term pricing by stirring up competition, improving efficiency and reducing medical errors, among other factors.
Purchasing alliances were touted in the late 1980s as an innovative way to expand health coverage to those who couldn't afford it. They were also seen as a means of helping small and midsize employers muster the collective purchasing power to wrest better rates from health plans. Large employers, which already could secure better rates, were promised lower administrative costs, improved efficiency and greater lobbying clout.
Yet, though some alliances grew rapidly at first, their ultimate market penetration has fallen far short of initial expectations. Among employers that offer insurance as a benefit, only 2% to 6% purchase it though a coalition, according to a recent study released by the journal Health Affairs. Even the nation's two largest small-business coalitions-the PBGH and Connecticut's Health Connections-haven't captured more than 10% of their respective markets.
Such low market penetration has made alliances of fleeting value to many employers. In recent years, insurers offering lower rates and multiyear guaranteed premiums have lured several prominent businesses away from purchasing coalitions comprising large employers.
Minnesota's Buyers Health Care Action Group, for example, has been in a downhill slide ever since its founding member, Wells Fargo, pulled out of the Minneapolis-based coalition in 1999, taking its 25,000 employees, or 11% of the group's covered lives, with it. Both employers and key staff members began defecting once they realized the BHCAG lacked the scale to fulfill its primary mission-boosting efficiency by running its own provider networks.
"We did a cost-benefit analysis, and when we looked at our situation financially, we realized we'd be able to get more flexibility and value for our money on our own," says Terri Anderson, spokeswoman for American Express, which departed the BHCAG on Jan. 1 for Bloomington, Minn.-based insurer Health Partners.
The BHCAG is now trying to pad its membership rolls by reaching out to small and midsize businesses. But the effort may prove fruitless if the coalition can't offer competitive rates, something it has been struggling to do, says Ernie Smith, a principal with Towers Perrin in Charlotte, N.C., who helps coalitions evaluate health plans.
"Most small employers don't look at quality and performance measures," Smith says. "Only the largest employers look at this information to try to effect change."
Some coalitions blame insurers for their loss of momentum. They say health plans, threatened by coalitions' demands for lower prices and better quality, are attempting to break up purchasing groups by enticing employers with short-term promises to provide coverage at below-cost rates.
The insurers' side
Insurers, however, argue that alliances have sealed their own fate, paradoxically, by offering members a broad choice
of health plans-widely considered alliances' strongest selling point.
Several large insurers have reconsidered contracting with purchasing groups that sign multiple plans, because the chances of gaining an employer's entire business are too slim. It's costly for an insurer to market to thousands of employees in one group and then enroll very few of them because several plans were offered to the same group, says Mary Sellers, spokeswoman for Louisville, Ky.-based Humana.
Humana, the nation's seventh-largest health insurer, no longer does business with any purchasing alliances. It pulled out of the now-defunct Texas Insurance Purchasing Alliance three years ago after finding it "too administratively burdensome," and has since declined to take part in the TIPA's successor, Texas Health Partnership.
Other health plans, such as UnitedHealthcare and Cigna Corp., say they made pricing miscues in previous years and have realized they can't continue to undercut themselves by giving lower rates to coalitions than to employers that negotiate independently. Both UnitedHealthcare and Cigna opted out of the Chicago Business Group on Health in 1999.
Such plan withdrawals were a key factor behind last year's demise of Florida's Community Health Purchasing Alliances, a network of 11 regional coalitions with a total of 92,000 enrollees. Insurers began bailing out of the CHPA once its membership became top-heavy with self-employed individuals, who tend to be the riskiest to insure, says Rick Curtis, president of the Institute for Health Policy Solutions, a not-for-profit think tank in Washington.
"If there has been a sea change, it's that health plans are more willing to walk away from business if it's not economic," Curtis said.
Those insurers that do continue to work with coalitions are boosting prices to make it worth their while. But the PBGH is still very competitive, spokeswoman Leslie Rose says, especially when the impact of its quality initiatives are factored into the equation.
Savings in disguise
Indeed, pricing parity inside and outside the alliances doesn't necessarily spell failure in making insurance more affordable, observers point out.
Some experts, for instance, argue that coalitions save employers money by greatly increasing employees' opportunity to enroll in lower-cost HMOs.
According to the Health Affairs study, virtually all alliance members offer their workers at least one HMO, compared with 57% of employers who aren't in an alliance. Providing that option lets businesses reap savings afforded by managed care without having to restrict all their workers to a single plan type, experts say.
Coalitions also tend to have members with a great deal of expertise on how to run businesses efficiently. Many are offering that know-how to health plans directly, in hopes of helping them trim administrative costs-costs inevitably passed along to employers in the form of premium hikes.