Puget Sound's hopes ride on group buying; a Washington State purchasing co-op is offering a private sector solution to health reform - Coalition Report

Business & Health, Jan, 1994 by Dan Wise

A demonstration purchasing co-op in Washington state is offering a private [sector alternative to state-run health care reform.

A sweeping health-care reform bill passed last spring virtually eliminates any role for private purchasers in the state, employers say. But one business coalition, the Health Care Purchasers Association, has launched a private health purchasing co-op it hopes will show the state a better way. The project is the employers' only chance for marketdriven reform. If the purchasing coop fails to convince lawmakers of the need for competing purchasing groups, employer co-ops may cease to exist.

The Washington Health Services Act would radically change the state's health care delivery system along the lines of President Clinton's health care reform proposal. However, employer groups such as the HCPA, a coalition in Seattle, have voiced concerns that the system mandated by the law is unworkable. One example of unworkability, the employers say, is that the legislation calls for four non-competing health insurance purchasing cooperatives that would be required to offer all qualified health plans in their service areas. Critics, such as Charlie Harris, president of Spencer Industries, in Seattle, a manufacturer and distributor of industrial hydraulic equipment, say this provision would remove any selectivity from purchasing and hence, would not control costs.

"We believe that HIPCs will be of little value to employers unless they are able to compete, and unless they are permitted to be selective in their contracting," says Harris, whose company employs about 90 people in five western states. "Otherwise, you might as well be buying from a government agency."

To counteract these problems, the purchasers' group converted the Employers' Health Purchasing CoOp, an effort started by the group before the legislation was developed, into a demonstration project. The intent is to prove that the private sector can fulfill the aims of health care reform without government intervention, Harris says. The co-op incorporated as an independent organization in February.

"The co-op is a good way for people to see what the business community can do," Harris says. "We are trying to show that a non-exclusive alliance can accomplish what health care reform is aimed at--making health coverage accessible."

The co-op primarily serves employers in the Puget Sound region, a three-county metropolitan area (including Seattle) that stretches from Tacoma to Everett. It currently has about 250 companies as members and serves roughly 300,000 employees and dependents, says co-op marketing director Anita Boser.

The co-op offers small and mid-sized employers the chance to purchase collectively and obtain competitive benefits. Rates are guaranteed for three years.

The co-op's offerings resemble the delivery system called for in the state's legislation in many ways. For example, its standard benefits package closely matches the state's plan now available to low4ncome households, covering hospitalization and physician office visits, inducting preventive services, prescription drugs, limited mental health benefits (maximum of 20 outpatient visits annually). Dental and vision care are available as options for an additional cost. Each plan offers an HMO, PPO, or fee-for-service indemnity plan in any of three premium levels. Depending on the premium level, variations exist in annual out-of-pocket spending limits and patient copayments.

Coverage is provided by networks of providers and insurers that had to band together to meet the co-op's specifications for comprehensive benefit packages in much the same way as networks of providers and insurers are defined in the Certified Health Plans called for in the state legislation.

An important advance for a private-sector initiative such as the coop is its role in promoting access to insurance, co-op officials say. The coop chose only those plans that agreed to accept any employer group (of five employees or more), and in exchange, the plans are allowed to set rates based on the age, sex, and industry classification of employer groups.

The co-op's complex pricing system has 26 separate rate bands that vary by employer size and experience. The rate bands were necessary to reduce the disparities in insurance rates between small and larger employers. But Richard Rubin, managing director of the co-op, says premium rates can not vary by more than 300%. That range is not as bad as the current market, in which premium rates can vary by as much as 3,000% and some companies are unable to obtain coverage at any price, he contends. Offering a less complex array of rate bands to keep prices lower for-the smallest companies would have pushed up prices for other employers, Rubin says. While Rubin concedes that the co-op's plan doesn't offer relief for the smallest of employers, he points out that the coop strived to structure rates to provide coverage to companies that had been kept out of the market, and still remain competitive enough to attract sufficient market share to prove that the co-op is workable