Consumer-choice purchasing pools: Past tense, future perfect?

Health Affairs

Volumn 20, Issue 1, 2001, Pages 164-168

  Curtis, Richard E ^a   Neuschler, Edward ^a   Forland, Rafe ^a  

^a Institute for Health Policy Solutions   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ARTICLE; CONSUMER; DECISION MAKING; ECONOMICS; HEALTH CARE ORGANIZATION; HEALTH INSURANCE; HOSPITAL PURCHASING; HUMAN; INSURANCE; ORGANIZATION AND MANAGEMENT; UNITED STATES; UTILIZATION REVIEW;

CONSUMER PARTICIPATION; DECISION MAKING; GROUP PURCHASING; HEALTH BENEFIT PLANS, EMPLOYEE; HEALTH CARE COALITIONS; HUMANS; INSURANCE CARRIERS; INSURANCE POOLS; INSURANCE SELECTION BIAS; KANSAS; UNITED STATES;

EID: 0035220007     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.20.1.164     Document Type: Article

References (21)

1. S.H. Long and M.S. Marquis, "Have Small-Group Health Insurance Purchasing Alliances Increased Coverage?" Health Affairs (Jan/Feb 2001): 154-163.
2. Ibid; J.M. Yegian et al., "The Health Insurance Plan of California? The First Five Years," Health Affairs (Sep/Oct 2000): 158-165; and T.C. Buchmueller, "Managed Competition in California's Small-Group Insurance Market," Health Affairs (Mar/Apr 1997): 218-228.
3. Ibid; J.M. Yegian et al., "The Health Insurance Plan of California? The First Five Years," Health Affairs (Sep/Oct 2000): 158-165; and T.C. Buchmueller, "Managed Competition in California's Small-Group Insurance Market," Health Affairs (Mar/Apr 1997): 218-228.
4. Ibid; J.M. Yegian et al., "The Health Insurance Plan of California? The First Five Years," Health Affairs (Sep/Oct 2000): 158-165; and T.C. Buchmueller, "Managed Competition in California's Small-Group Insurance Market," Health Affairs (Mar/Apr 1997): 218-228.
5. This sentiment may be becoming less common. As Long and Marquis note, pools have recognized the importance of agents and are working hard to maintain a good business relationship with them. In our experience, this is true of all existing pools.
6. M.A. Hall, E.K. Wicks, and J.S. Lawlor, "HealthMarts, HIPCs, MEWAs, and AHPs: A Guide for the Perplexed," Health Affairs (Jan/Feb 2001): 142-153.
7. We also believe that many plans do not want to cede to pools administrative functions associated with their traditional business roles, such as premium collection and enrollment processing.
8. See, for example, R. Ullman et al., "Satisfaction and Choice: A View from the Plans," Health Affairs (May/June 1997): 209-217.
9. The value and importance of consumer choice, as envisioned in the original managed competition concept, was greatly mitigated by the unanticipated development of largely overlapping provider networks. To a large degree, this resulted from many employers' demand for broad networks under exclusive contracts. Large employers' more recent interest in employee-choice and defined-contribution approaches will probably change this dynamic. Moreover, in the face of renewed cost escalation, health plan and provider price negotiation is reportedly leading to a narrowing of provider networks in California and other parts of the country. This may re-suit in improved capacity for cost and care management as well as demand for employee choice of competing plans.
10. Individual health insurance markets are characterized by high turnover and high average medical costs, risk segmentation, aggressive underwriting, and competition among carriers based on risk selection. These interrelated problems lead to high overhead costs and large variations in premiums based on health status and therefore make it unlikely that using tax credits or other subsidies to purchase coverage through those markets would be a cost-effective means of covering uninsured workers and dependents.
11. While economists variously estimate the price elasticity of health insurance, they all agree that a higher price means fewer purchasers. The "Catch-22" here is that making individual tax credits larger simply increases the incentive for employers to stop sponsoring coverage.
12. "Cashing out" benefits implies (but does not require) that employers use their savings to increase the wages of affected workers.
13. Some proponents of individual tax credits as a free-market mechanism to cover the uninsured predict that a variety of voluntary pools will emerge. Suggested sponsors include civic groups, churches, and the like. Individuals would presumably be free to join and benefit from these pools. But such pools would almost certainly be doomed simply because they do not constitute a "natural group" with cohesion and stability. That is, individuals could leave the pool at will and would be likely to do so when they could obtain a better price elsewhere. With large employer-based coverage, stability and cohesion result from the fact that a significant contribution is generally not available unless a worker participates in that employer's plan. Thus, leaving the plan means forgoing a significant benefit.
14. Enrollment grew from 19,135 lives in November 1999 to 27,503 lives in November 2000. David Gregory, chief executive officer of the Alliance's Cooperative for Health Insurance Purchasing, personal communication, 20 November 2000.
15. For a discussion of the importance of PPO options to enrollment, see Yegian et al., "The Health Insurance Plan of California."
16. The pools would continue to serve the entire small-business market, but public subsidies would be focused on low-income workers and families and/or low-wage small businesses.
17. This administrative capacity of pools will be especially valuable if, as seems likely, the new Congress adopts both tax incentives and public program expansion.
18. Low-income uninsured children are eligible to enroll in SCHIP, but not their parents. In the absence of the right kind of administrative mechanism, such as a purchasing pool, new tax incentives might help the parents to enroll in employment-based coverage, while the children remained enrolled in the separate public program. Consider, for example, a typical family at 185 percent of the federal poverty level. The children are eligible for SCHIP coverage for a full year; one parent works seasonally at low wages and is eligible for a modest employer contribution for six months of the year and (we postulate) for a tax credit during the other half of the year; and the other parent is a full-year low-wage worker but has no employer coverage and is therefore eligible for a tax credit throughout the year. Without some new sponsor that can manage multiple funding sources, the proposed tax credits would simply exacerbate the fragmentation of funding sources for family members' health insurance.
19. For a discussion of risk adjustment in California's HIPC, see Yegian et al., "The Health Insurance Plan of California."
20. Kansas Senate Bill (SB) 668 was adopted in late April 2000.
21. An earlier private effort in Kansas to develop a consumer-choice purchasing program got the participation of only one health plan, which then agreed to offer worker choice of products through the program. Whether health plans' expressed interest in the new partnership will actually translate into participation and support (one major plan has expressed opposition) very likely depends on whether funding is made available for uninsured low-wage workers.