Report to the General Assembly (Published)

Document Title

Study of Pooled Purchasing Arrangements for Small Employers, Community Health Centers and Free Clinics

Author

Joint Commission on Health Care

Enabling Authority

(1998)

Executive Summary

Senate Joint Resolution (SJR) 124 and House Joint Resolution (HJR)
202 of the 1998 Session of the General Assembly directed the Joint
Commission on Health Care to study various issues regarding pooled
purchasing arrangements for health insurance for small employers,
community health centers, and free clinics.

Specifically, SJR 124/HJR 202 directed the Joint Commission's study
to include: (i) evaluating the pooled purchasing arrangements operating
in California, Florida and other states; (ii) assessing the level of interest
among Virginia's small employers in participating in a pooled purchasing
arrangement; (iii) analyzing the key elements of such a purchasing pool to
maximize the number of participating employers; and (iv) identifying
health insurance market reforms or other actions necessary to ensure the
success of a purchasing pool.

Based on our research and analysis during this review, we
concluded the following:

*small employers (groups of 2-50 employees) traditionally have
had a more difficult time purchasing coverage for their
employees than larger employers primarily due to cost;

*small employers have a significantly higher percentage of
employees who are uninsured than larger employers;

*pooled purchasing arrangements, such as health insurance
purchasing cooperatives (HIPCs), provide a means for
aggregating purchasing power and spreading risk for small
employers;

*HIPCs can offer several advantages for small employers,
including more stable premiums, lower administrative costs,
and a greater choice of plan options for employees;

*while pooled purchasing arrangements can be defined in
many ways, there appear to be 11 HIPCs across the country
which offer multiple benefit options and standardized
benefits;

*the success of HIPCs has been mixed; some (e.g., California,
Connecticut and Florida) have been very successful, while
others have not had the market impact that was anticipated;

*there are several key elements to the success of a HIPC,
including: (i) market rules inside and outside of the HIPC
must be identical; and (ii) insurance agents and brokers must
support the plan and play a key role in marketing the HIPC's
products;

*Virginia does not require modified community rating in the
small group market except for the Essential and Standard
plans; if a Virginia HIPC were to use modified community
rating, legislation would be needed to require the same rating
methods for all products in the small group market;

*small businesses in Virginia support the concept of a HIPC;
however, without an actuarial analysis of the cost of coverage
inside and outside of a HIPC, it is difficult to gauge whether
employers actually would purchase coverage through the
HIPC;

*the Code of Virginia does not prohibit the private formation of
a HIPC by interested parties leading some to believe that if
there is a need for a HIPC in Virginia, the private sector
should respond to this need rather than the Commonwealth;

*while THE LOCAL CHOICE (TLC) program has functioned
successfully as a HIPC for local governments and school
divisions, expanding eligibility for the program to small
businesses likely would create a number of administrative
difficulties which could increase administrative costs and
potentially injure the program; and

*based on TLC rates calculated for a sample of Free Clinics and
Community Health Centers (CHCs), only a handful of the
Free Clinics and CHCs indicated that the program would
result in any significant savings in insurance premiums.

A number of policy options were offered for consideration by the
Joint Commission on Health Care regarding the issues discussed in this
report. These policy options are listed on pages 31-32.

Our review process on this topic included an initial staff briefing,
which comprises the body of ths report. This was followed by a public
comment period during which time interested parties forwarded written
comments to us regarding the report.