Small businesses create Texas-size choices in health-care - Texas Insurance Purchasing Alliance - Column

Business & Health, April, 1995 by Dan Wise

After a year of missteps, false starts, and regulatory roadblocks, several efforts to create health-care purchasing alliances for small businesses in Texas appear ready to bear fruit this spring.

A state-sponsored program, the Texas Insurance Purchasing Alliance (TIPA), is online with 1,341 covered lives after a difficult first year. Meanwhile, three private programs are expected to begin operation within the next few months.

TIPA, which is modeled on the statewide Health Insurance Purchasing Cooperative (HIPC) established in California, was authorized by H.B. 2055, a 1993 reform law covering groups with 3 to 50 employees. The legislation included a one-time $250,000 appropriation for the start-up of a purchasing alliance. The alliance, a non-profit corporation run by an independent board of directors, designs standardized benefit plans, solicits carriers, and organizes the rate information to facilitate health insurance purchasing decisions by small businesses.

TIPA uses a managed-competition model that allows employers to choose the reimbursement levels and gives individuals within those groups a choice of plans and carriers. Under H.B. 2055, employers must pay at least 75 percent of their employees' premium and at least 90 percent of the employees in each group must be insured.

TIPA got off to a slow start with a pilot program in Houston last summer, advocates admit. Tony Gaudiano, a principal in the Dallas office of William M. Mercer Inc., a consultant to TIPA, says the alliance's offerings "were not as competitive as they could have been" on pricing. And support from brokers, who were to market it to the business community, was lacking.

"There was a lot of interest in the program," says Joseph Phillips, owner of a chain of convenience stores and gas stations and chairman of TIPA's board. "We were receiving a lot of inquiries, but people were confused by the program." With more than a dozen carriers participating, each offering most of the benefit designs, there was simply too much choice. "Some agents were saying, 'I'm getting substantially less commission and I am spending more time presenting it,'" recalls Phillips.

Gaudiano and Phillips say TIPA learned from its mistakes and made key improvements before rolling out the program statewide in November. Among the changes were:

* bringing insurance brokers into the process earlier to get advice on benefit design and to educate them about the alliance concept;

* redesigning the standardized benefits so that they more closely matched insurance products currently in the market, including reducing the amount of mental health coverage; and

* raising broker commissions. Phillips has been pleased by the response to the revamped program despite the low initial numbers. He says that 50 percent of the employees covered under TIPA so far were previously uninsured. And TIPA has plenty of marketing clout. Under its agreement with TIPA, third-party vendor Blue Cross Blue Shield of Texas is committed to spending $2 million to market the TIPA alliance, Phillips says. As for privately initiated co-ops, "We welcome the competition. Many people don't know we exist but as more co-ops come up, the marketplace is going to grow as awareness grows."

The first of those competitors is likely to be the Houston Healthcare Purchasing Alliance (HHCPA). The year-old group of large self-insured companies will offer fully insured benefits to small firms through its provider and hospital network in partnership with John Alden Insurance Co., of Miami, Fla., starting April 1.

"Business does not win if one sector of the business community cannot get coverage," says John Kajander, executive director of the HHCPA. The large employers wind up paying higher health-care costs through cost-shifting if small businesses can't afford to provide insurance coverage to their employees. By creating a small-business product, the alliance also has the opportunity to add more covered lives to its network, Kajander points out, thereby increasing its influence with providers. The HHCPA now has more than 100,000 covered lives in its self-insured program, Kajander says.

Another statewide purchasing cooperative, Small Business United of Texas, had to battle state insurance regulators before it could move ahead. SBU plans to offer an employer-owned version of a purchasing cooperative with a broad array of fully insured coverage options--including indemnity plans, HMOs, and PPOs--in each region of the state. Like the TIPA, each employee in a group, no matter what its size, will be able to choose any plan offered in the region.

After selecting 13 carriers to participate in its alliance last spring, SBU encountered an obstacle when the participating HMOs wanted to be able to adjust their rates to reflect the age and gender of the employees selecting their plans. Under federal law, most HMOs must offer the same "community" rate to all members of the groups it insures. HMOs participating in TIPA, for example, use adjusted community rating.