Why So Few Franchise Chains Offer Health Insurance

This is a post by guest blogger Don Sniegowski, the founding editor of the daily franchise news site BlueMauMau.

About as many franchise systems offer group health insurance coverage to franchise owners as there are snowflakes in the Mojave Desert. That’s because insurers consider franchisees as separate companies from the franchising firm. So a franchised Burger King restaurant won’t qualify for the deep group discounts that Burger King Corp employees receive. The result is that most franchise owners find health insurance too expensive to afford for themselves and their employees.

But one chain of some 550 print shops, Allegra Network, has found a way to buck the trend. The franchising firm is offering its franchise owners and their employees three types of PPO (Preferred Provider Organization) plans through Blue Cross Blue Shield of Michigan.

“Franchisor-based health insurance plans are rare in the franchising industry,” said Carl Gerhardt, CEO of Allegra Network. Yet more than a third of Allegra’s franchisees have signed on to a health care group discount, he noted. “Being part of a large franchise system like Allegra means that as more franchise owners join our health insurance program, there is a greater likelihood that cost increases will be kept to a minimum in the future.”

Laura Pierce, Allegra’s Vice President of Human Resources and Controller, explains that in the past insurance companies turned up their noses at covering franchise chains. “We could never find an insurance company that was willing to group several small businesses together under one umbrella and be willing to invoice each of them individually,” says Ms. Pierce.

As the economy tightened in 2008, Allegra met with Blue Cross Blue Shield of Michigan.

The health care provider was willing to try.

Bernard Rubenstein, president and CEO of Michigan-based Franchise Benefit Solutions, one of the rare insurance brokers that can match health and dental insurance providers to franchisees, says, "This is extremely unusual. I've talked to the Blues [Blue Cross Blue Shield] and there wasn't a Blue Cross in the nation that would offer health insurance to franchisees through a franchisor." Rubenstein says that insurers must go through trade groups, like franchise associations, in order to be able to meet regulations for offering group rates to franchisees. He is startled that Allegra has found a way around this.

Steve Ellerhorst, a 15-year veteran of running his own franchise as well as leading various franchisee associations such as Hardee's and Curves Fitness, largely agrees. "This is typically the first or second reason franchisees join independent franchisee associations - for reasonably priced health insurance. And even franchisee associations have trouble offering health insurance because there are just a few insurance carriers that can offer national coverage to franchisees."

These complicated policies are subject to all kinds of varied state laws.

"It is not easy for an association to get national coverage," Ellerhorst says. "If it were easy, everyone would be doing it."

"With nearly 600 printing and sign franchises and an estimated 3,200 employees, Blue Cross Blue Shield was willing to give it a try if we were able to meet their specific criteria, including a minimum participation count," says Allegra's Pierce. "So, we surveyed our franchise members to get initial commitments from them to put an initial program together and were able to meet their criteria."

The PPO plans that Blue Cross developed and launched in January of this year were a result of an April 2008 Allegra franchisee survey to determine their interest in a health insurance program. "We found that interest was strong among our existing franchisees, but even stronger among folks looking to invest in an Allegra franchise," Gerhardt said. "With the current economic crisis, people are very concerned about the availability of health insurance and whether a company like ours can provide comprehensive coverage for themselves and their family members."

Group Health Plan Saves Single Print Shop Franchisee $30,000

Dave Jones, franchise owner of Allegra Print and Imaging of Pittsburgh, says that after twenty-four years in corporate America he bought a quick print shop a year ago.

He acquired an independently owned print shop that, with the help of his franchisor, he converted to a franchised print shop. Jones observes that the transformation from an independent store to a franchise went very smoothly. "The number of customers I lost was inconsequential," says Jones.

One major issue was that the previous owner provided health insurance to his staff of nine. Jones needed to match this but also to take advantage of a franchise chain's economy of scale in purchasing services, an area that has eluded health care services.

Jones says he is happy with the results of the new group health plan.

"The scope of services provided to my staff were basically comparable to the old plan," observes Jones, "but I was able to realize some savings through the Allegra plan."

"I saved about $30,000 in annual premiums," declares Jones.

Major Hurdles in Providing Health Care to Franchisees

According to Allegra's Pierce, "Blue Cross Blue Shield agreed to offer a group health insurance plan for the Allegra Network on three conditions."

The hurdles to insure franchisees, who are all independent small business owners, were not easy to get past. Blue Cross stipulated:

1. The franchising firm must be located in Michigan and its employees needed to participate. 2. There can be no other health insurance plan offered to headquarters employees, franchisees and the employees of the franchisees 3. There must be at least 500 participants

Allegra was able "to enroll roughly a third of the franchise owners on the initial roll out," said Pierce.

"I'd like to know how they did it," comments Rubenstein, referring to how Allegra and Blue Cross worked through Michigan's daunting health insurance regulations. "Blue Cross may have jumped the gun," he commented, while wondering how long the policy can last. Rubenstein explains that as healthy franchisees gradually find better insurance rates through time, they will leave the Allegra plan, leaving a larger percentage of sick policy holders. Blue Cross would then need to raise their premiums. "I suspect the [Allegra health] program will be gone in four years," Rubenstein concludes.

"I hope he is wrong," says franchisee Jones.

In regard to the insurance that the owners received, Pierce observes, "There's no exclusionary stipulation regarding pre-existing conditions, which is crucial for many of our franchise members and their employees. We were also able to get BCBS [Blue Cross Blue Shield] to offer dental insurance and Aetna to offer life insurance."

Don Sniegowski is the founder and editor of Blue MauMau, a daily business news site for franchise buyers and owner-operators. Previously, he led global field operations and franchise development for a quick-print franchising firm. Sniegowski also helped lead global publishing efforts for trade publisher Global Sources Media and led Asia-Pacific retail and operations for Franklin Covey.

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