Private Health Insurance:
Cooperatives Offer Small Employers Plan Choice and Market Prices
HEHS-00-49, Mar 31, 2000
Pursuant to a congressional request, GAO reviewed small employer health insurance purchasing cooperatives, focusing on: (1) a bill that would establish Healthmarts; (2) studies of small employer purchasing cooperatives and the small group market; (3) GAO's interviews with health policy association officials and experts; and (4) experiences of five small employer health purchasing cooperatives.
GAO noted that: (1) small employer purchasing cooperatives have been an important component of several states' efforts during the 1990s to improve small groups' health insurance options; (2) purchasing cooperatives aim to provide small employers with some of the same advantages larger employers have in offering health insurance; (3) the five small employer purchasing cooperatives GAO examined have demonstrated that these cooperatives can offer two of these advantages--administrative services and a range of benefit options to participating small employers; (4) by participating in a cooperative, small employers have a single point of entry to multiple insurers' plans with standardized benefit packages; (5) furthermore, since cooperatives typically offer plans sponsored by a variety of insurance carriers with different benefit levels and managed care features, participating small employers can offer their employees a choice of multiple health insurance products; (6) these advantages have led some small employers that previously had not been offering health insurance to join a cooperative; (7) however, even the larger cooperatives cover only a small fraction of the small group health insurance market in their states; (8) the experiences to date of small employer purchasing cooperatives typically have not resulted in a third advantage--leverage in negotiating lower premiums; (9) the cooperatives' potential to reduce overall premiums is limited because: (a) they lack sufficient leverage as a result of their limited market share; (b) the cooperatives have not been able to produce administrative cost savings for insurers; or (c) their state laws and regulations already restrict to differing degrees the amount insurers can vary the premiums charged different groups purchasing the same health plan; (10) cooperatives can potentially offer lower premiums for firms with high-risk, high-cost individuals if they restrict the premiums insurers may charge individual firms more than restrictions already imposed by state statutes and regulations for all small groups; (11) to ensure their viability in the small group market, the purchasing cooperatives GAO examined have taken several steps to maintain a sufficient number of participating insurers and employers; (12) recognizing and countering insurers' perceptions that high-risk individuals and groups are likely to enroll through the cooperative is key to gaining insurer participation; and (13) furthermore, to increase employer participation, the cooperatives have maintained insurance agents' principal role in guiding employers to the cooperative.