Health Plan Woes? Join The Club
When Anne Herzog started Florida Entech in 1993, she found herself in a bind. To attract employees, her Orlando-based company, which makes rides, displays, and other equipment for theme parks such as Universal Studios, had to offer competitive medical benefits. But Florida Entech, like most small employers, was at a disadvantage in the health-care marketplace. Lacking the clout of large employers, small businesses typically can't negotiate premiums, and their employees get stuck with higher deductibles.
Then she found out about Florida Community Health Purchasing Alliances (CHPA). Since 1994, the state has made it easier for small employers to get insurance by sponsoring regional buying groups. These groups allow companies to tailor their health plans to employees' needs, while reducing costs and administrative hassles. There are now eight of them--aiding nearly 23,000 Florida employers to date. Herzog can offer coverage to her 40 full-time employees, and it costs 25% less than the cheapest available alternative. As a bonus, workers get a menu of health plans. "CHPA is one of the best programs Florida has ever developed for small business," says Herzog.
Such local alliances are catching on across the country. Today, consumer-choice health purchasing groups (CHPGs) are providing relief to benefit-starved small employers in 14 states, covering as many as 750,000 people. Chicago-area employers started a group this summer, and in New York City, Mayor Rudolph Giuliani has authorized $1 million to launch a citywide health purchasing group by early 1999. Several more states have plans in the works (table). Congressional lawmakers are jumping on the bandwagon, too, considering two new bills to bring small employers together to buy insurance. "CHPGs represent a new paradigm in small-business health care," says Kevin Haugh, co-founder of the Institute for Health Policy Solutions in Washington. "I wouldn't be surprised if their enrollment doubled within the next two years."
Small employers who recall how the scandal-plagued multiple employer welfare associations (MEWAs) of the early 1980s ran off with premium payments may be leery of any group-purchasing scheme. But CHPGs are merely intermediaries between employers and insurers and, unlike MEWAs, put premiums in established insurance plans rather than in risky investments.
These newly affordable health plans come none too soon for small businesses competing in tight labor markets amid rising health-care costs. In 1996, only 49% of companies with fewer than 200 employees offered coverage, compared with 99% of companies with more than 200 employees, according to a recent study published in the journal Health Affairs. The smallest employers did even worse: Only 42% of firms with 1 to 9 employees offered coverage.
FREEDOM OF CHOICE. CHPGs vary from state to state, and no two are exactly alike. When they first came on the scene five years ago, state agencies played an active role. Nonprofits run the newer CHPGs that have limited ties, if any, to government. Employers pay a nominal fee (say, $100) to join the group, which handles all the paperwork of administering health insurance and dealing with insurers. Employees then choose from among all the participating insurers. Most programs require employers to pay at least 50% of the premiums for the least expensive health plan. That keeps employers' costs down, while employees still get access to as comprehensive coverage as they're willing to pay for.
The purchasing groups don't solve all problems in all places; their ability to undercut market rates depends on each state's insurance law. But even in states that regulate premiums, CHPGs can provide savings. Brian Gerhart, president of Riverboat Cruises, a small outfit with 20 full-time employees in Sacramento, saved 25% by joining the Health Insurance Plan of California (HIPC). Gerhart used to offer one expensive plan that tried to "be all things to all people," he says, but now his employees can choose from among 22 options offered through HIPC. A middle-aged employee, for example, opted for generous prescription drug coverage but no well-baby care, while a younger employee chose a plan with excellent pediatric benefits but little catastrophic coverage.
All plans offer the same basic benefits, for which Gerhart pays about 75%. But they differ with regard to the doctor/hospital network and the level of copayment. For a single employee under 30, premiums range from $75 a month for basic HMO coverage to $165 a month for the most comprehensive. "When it comes to competing for qualified employees, HIPC levels the playing field for little guys like me," says Gerhart, who says turnover has been cut in half since he joined HIPC.
SPREAD THE WORD. Despite its advantages, HIPC, the nation's first CHPG, has not grown as fast as expected. After five years, the California program insures only about 5% of the state's small employers. The reason? Without a heftier marketing budget, the group has only been able to make itself known to about one-third of the state's small businesses. But word is spreading: Small employers can now Find out about purchasing groups in their state by going to www.ihps.org, a Web site recently established by the Institute for Health Policy Solutions. Local chambers of commerce are also good sources.
Perhaps one of the most successfully marketed CHPGs is Connecticut's--no surprise for the home state of the insurance industry. In 1995, the Connecticut Business & Industry Assn. (CBIA) formed a CHPG that now has 3,600 companies enrolled and some 60,000 people covered. CBIA enrollees can choose from among 17 options offered by the sTate's four largest insurers: Kaiser, CIGNA, Physicians Health Services, and Aetna.
Danbury (Conn.)-based Maplecrest Software, with 30 employees, joined CBIA last year at the urging of employees who live in nearby New York State. "Our Kaiser HMO plan did not include any New York doctors in the network. Like most small employers, we could not afford to go with several providers," says Karen Doolan, who manages Maplecrest's employee benefits. They may not be the total cure for small business' health-care ills, but so far CHPGs look like pretty potent medicine.