HIPC: Purchasing Alliance Model Holds Promise for Small Businesses, Study Says
A look at the first five years of the Health Insurance Plan of California, the "nation's first and largest state-run purchasing alliance for small firms," shows that the program has "established itself as a stable and experienced player in the competitive market for small-group insurance," according to a study in the current issue of Health Affairs. Sponsored by the California HealthCare Foundation and led by CHCF senior program officer Jill Yegian, the qualitative study analyzed the HIPC's performance through interviews with program administrators, health plan representatives and insurance brokers and consultants. Created in 1992, the HIPC was designed to increase coverage by improving affordability and consumer choice. In July 1999, the Pacific Business Group on Health took over the HIPC, renaming the program PacAdvantage. The new management made available an expanded HMO benefit and four additional POS plans. PacAdvatage also has implemented performance guarantees: participating plans put 2% of premiums at risk, receiving those funds only if the plans meet performance goals in areas such as customer service, claims processing and Health Plan Employer Data and Information Set measures. However, Yegian's study primarily focuses on the program's first five years of operation, prior to PBGH's takeover.
After its first year, the HIPC had enrolled nearly 1% of the state's small-group market, and enrollment grew steadily between 1994 and 1998. However, the numbers of small businesses in the state also grew steadily, leading the study researchers to estimate that the HIPC's share of the small-group market has remained below 5%. The authors attribute the HIPC's limited growth to a variety of factors, including a lack of PPO options under the plan. Recent surveys of the state's small employers found that nearly 40% who offered health coverage to employees provided a PPO option. Initially, the program offered a choice between several HMOs, PPOs and POS plans, but adverse selection issues caused all the PPOs to drop out of the program. In addition, a recent comparison of premiums in the HIPC HMOs with the greatest enrollment to the same HMOs available outside the program found non-HIPC HMO premiums to be slightly lower. Despite this finding, the study suggests that the HIPC may have driven premiums down for the entire market by offering a low initial rates. Another factor limiting the HIPC's growth was the program's initial policy toward brokers. The HIPC paid lower brokers' fees compared to plans outside the HIPC, allowed brokers' fees to be itemized rather than being folded into the premium, and permitted employers to bypass brokers and the associated fees entirely when joining the program. However, since many small employers rely on brokers for information on health insurance options, the HIPC's policies "likely" created animosity in the broker community and contributed to the program's slow growth.
The study analysis suggests that the "managed competition model is a viable means of expanding the health plan choices" available to small employers. However, the study notes that "pooled purchasing alone cannot sustainably lower the cost of insurance enough to increase insurance provision among small firms." Moreover, analysis of underwriting rules, adverse selection and choice under the HIPC implies that alliances "are best suited to offering broad choice of plans but little variation in benefit design." The "real potential for the purchasing alliance," the study states, "may lie in efficiently offering publicly funded health insurance" noting that the state's Healthy Families program has adopted such a purchasing structure (Yegian et al, September/October 2000).