State Alliance Gives Workers Health Clout

Forty thousand workers at small California businesses will get an extraordinary piece of good news on Tuesday: At a time when health insurance costs are climbing by 6% to 8% a year, their premiums will actually be reduced for the year starting July 1.

These fortunate few are members of the state’s unheralded health alliance, a purchasing agency that gives companies with five to 50 workers an opportunity to band together and achieve the same buying clout in the health care market as giant corporations.

Even as President Clinton’s proposal for alliances covering every citizen is being denounced in Washington as a blueprint for a menacing new bureaucracy, a staff of just 13 state workers in Sacramento has put together a working alliance, the first in the nation. And its customers seem delighted.

“It was heartbreaking to want to get insurance for your workers and not be able to afford it,” said Cynthia Chauvie of Van Nuys, whose precision-instrument repair firm was once quoted an impossible $2,500-a-month premium for its seven workers. Last July she joined the new state health alliance, and now she pays $780 a month for the whole office.

“It’s a great relief to have coverage now for all of us,” she said.

The alliance, formally called the Health Insurance Plan of California, offers something never before available for employees of small companies: a wide choice of different insurance programs, with workers--not management--making the selection.

In Los Angeles County, for example, a worker whose small company has joined the HIPC can choose among 15 plans--12 health maintenance organizations and three preferred provider organizations--including such well-known names as Kaiser, Aetna, FHP, Healthnet and Prucare. That differs dramatically from the conventional situation in which the company makes available one or perhaps two health plans.

All plans must offer the same benefits, but the doctors and hospitals are more desirable in some than others. Monthly fees range from $84 to $173.14 for a 25-year-old worker and from $342.80 a month to $674.44 for a 35-year-old employee with a spouse and children. The company must pay an amount equal to at least half of the cost of the lowest-priced plan; the worker pays the rest.

“You get one monthly bill whether you have 13 employees in one health network or in 13 different networks,” said Diane Bourassa, office manager for Telenet-works, a software firm in Petaluma. “It’s a great variety of choices and avoids a tremendous administrative load on small companies like us, where typically you have one person running the office.”

Rates are 10% to 15% below many comparable plans in the conventional insurance market, according to a recent study by a HIPC board member. The reason: Providers are willing to offer discounts to gain access to as many as 40,000 customers.

“There’s no mystery here,” said John Ramey, the HIPC’s executive director. “We’re trying to get a large-volume deal for our small employers.”

In May, Florida will become the second state to try voluntary alliances when it begins enrolling small businesses in a voluntary purchasing group called the Community Health Purchasing Alliances.

The California and Florida experiences may offer some direction for the increasingly bitter national debate over health care reform. Clinton’s plan is being torn apart in Washington by partisan Republicans and skeptical Democrats, with enthusiastic lobbying by businesses large and small.

California and Florida officials are betting that their voluntary approach will be a giant step toward Clinton’s goals of providing insurance protection for everyone while controlling the soaring costs of medical care.

By offering wide choice and low prices, they hope to woo enough businesses to make significant inroads in the ranks of the uninsured; among the nearly 40 million Americans without coverage, about 80% are full-time, low-wage workers, their spouses and children.

Clinton wants to require all employers to offer insurance and pay 80% of the cost of an average-priced plan. He also wants to require everyone except workers in firms with more than 5,000 employees to enroll in health alliances that would negotiate on their behalf with insurance companies, health maintenance organizations and other networks of health care providers.

Fear of a compulsory national program of alliances made it easier for all factions in Florida--businesses, insurers and politicians--to work together for a voluntary program. Gov. Lawton Chiles said he was grateful that the President’s plan prodded everyone to get down to work.

Florida officials say they hope to get prices down simply by publishing the bids offered by insurers to small firms through the alliance. Side-by-side comparisons will make businesses aggressive in seeking better deals and force the high-priced insurers to bring their prices down, they say.

“A lot of what we do in Florida will send a message to the nation,” said Lynn Kislak, chairwoman of the alliance for Dade County. “The wonderful thing Florida has is choice.”

But California took a bigger step: Republican Gov. Pete Wilson and the Democrat-controlled Legislature decided to give the health alliance real muscle by granting it the authority to negotiate rates with insurers.

When the first set of bids came in last year, the HIPC gave the companies 48 hours to lower rates--and many of them did.

On Tuesday, the HIPC board will approve its second rate schedule: the figures covering 40,000 people from 2,300 employers for the 12 months starting July 1. The HIPC will announce that the average insurance premium will decline in price, a testament to the negotiating skills of the organization and the desires of the insurance companies to crack the important small-group market.

The average company now enrolled in the HIPC has 10 workers. Companies with as few as four employees will be able to join as of July 1, and the threshold will drop to three a year later. About three-quarters of the employers in the HIPC bought their coverage through insurance agents, a fact that has made agents friendly rather than antagonistic toward the alliance.

HIPC membership should double in the coming year and could grow even faster as word spreads, Ramey and his staff estimate.

Beyond that, the competitive impact of the HIPC is being felt in the rest of the state’s sprawling insurance market, where companies are offering more choices and trying to slow the rate of increase in premiums.

The HIPC is the “standard by which every other health plan’s offerings and prices are compared,” said Mark Weinberg, executive vice president at Blue Cross of California, which covers 5 million Californians and dominates the small-group market.

“If anything, we are having to be more competitive than ever to compete with the HIPC,” he said. It was “no coincidence,” he added, that a slowdown in California insurance inflation began last July when the HIPC opened for business.

At the beginning of the decade, California was grappling with the same thing the President and First Lady Hillary Rodham Clinton, who headed the Administration’s health care reform task force, denounce again and again in speeches attacking insurance companies: the specter of sick people crying in vain for help and uninsured families ruined by costly medical bills.

Many insurers engaged in “cherry-picking”--insuring the healthy but not those who were likely to face big medical bills. This meant seeking out firms with young, educated workers in white-collar jobs and giving them bargain rates. If their medical bills were higher than expected, insurers’ rates would go up or the firm’s coverage might be canceled without explanation.

Some industries were to be avoided. Insurers didn’t like to write policies for restaurants because many cooks, busboys, waiters and waitresses were transients. They avoided lawyers because they might sue and doctors because they would demand a lot of high-cost care.

Addressing this problem, the California law guarantees that no individual or company could be refused coverage for any reason. Any insurance product must be available to all customers.

Premiums may vary with the age, family composition and geographic location of the insured. An insurer may ask a 60-year-old to pay more than someone who is 30, a married woman with three children to pay more than a single woman, and a resident of Los Angeles, where medical costs are high, to pay more than someone who lives in Ukiah.

But insurers may make only small adjustments in rates to compensate for different health conditions. If the cost of insurance for a typical group of five people is $100 a month, the insurer cannot charge more than $120 for a group of five people in which two have cancer, two have heart disease and the fifth suffers from diabetes. A group of four marathon runners in perfect health cannot get a rate lower than $80.

These ground rules enable the HIPC to avoid becoming the dumping ground for companies with sick workers who couldn’t get coverage elsewhere. The HIPC’s aggressively low rates and broad selection of plans make it attractive for healthy as well as high-risk groups of workers.

At LG2WB Engineers in Costa Mesa, for example, the $8,000-a-month premium under the HIPC represents a savings of as much as 20% from the firm’s old insurance plan.

The range of choices is welcome, if a bit intimidating; Marilyn Hall, the firm’s vice president, says the 45 workers have enrolled in 11 networks.

“Some employees come to me and say: ‘Which one should I choose, Marilyn.’ I say: ‘If you have a doctor, find out which network he belongs to.’ Once they understand it, people love the choices.”

Before the HIPC, Steve Levine, who owns an ad agency in Venice, got several calls a week from people trying to sell him insurance. “I would tell them I’m a diabetic who had a kidney transplant, and the phone would go ‘click,’ ” he said.

He paid $1,000 a month for insurance for the four workers at his agency, plus $1,500 out of his own pocket for special drugs to ensure that his body did not reject the kidney.

Now a monthly bill of $851 from the HIPC covers both Levine and his employees--and drugs are part of the package.

The state has kept down costs and avoided building a new bureaucracy by hiring a private firm to act as the HIPC’s sales agent, record-keeper and administrator. Employers Health Insurance won the contract and collects a fee for each person enrolled. The company started with 15 sales representatives and now, anticipating a boom year, has 30.

“We have forced the market to respond,” said Kirk Rothrock, executive vice president of the HIPC, talking about the alliance’s influence far beyond the comparatively small number of people enrolled.

Alliance backers in Florida agree. “You don’t measure success by the number of small businesses they insure but by the impact they have on the market,” said Bill Hirrle, a Florida business lobbyist. “You invent them to bring health care prices down.”

The alliances ultimately could fall short of bringing insurance to everyone. After all, they are voluntary and employers remain free to refuse to spend money on health insurance.

Three-quarters of the HIPC’s enrollees already had coverage elsewhere; only one-quarter come from the ranks of the uninsured. California still has a staggering 6.3 million uninsured people under age 65, and 83% of them are workers and their dependents, according to Richard Brown, director of the UCLA Center for Health Policy Research.

“We will need a national health care plan to complete the job,” Chiles said.

Although he said he is confident the voluntary approach will make progress in his state, “I don’t want to second-guess the President” on the call for mandatory coverage and compulsory alliances.

“I’ve got my hand to play and he has his,” he said.

How the Health Alliance Works

* Who may participate? Firms with five to 50 workers.

* What does it offer? Statewide, a choice of 15 health maintenance organizations and three preferred provider networks. Twelve of the HMOs and all three PPOs operate in Los Angeles; fewer are available in other parts of the state.

* What do the HMOs cost? For workers in the standard plan, co-payments of $15 per doctor’s office visit, $100 per hospital admission and $10 per generic drug prescription.

For workers in the preferred plan, co-payments of $5 per doctor’s office visit, no co-payment for hospital admissions and $5 for generic drugs and $10 for brand names.

The HMO pays if it refers enrollees to outside specialists.

Maximum out-of-pocket cost per year: $2,000 for individuals and $4,000 for families under both plans.

* What do the PPOs cost? A 20% co-payment for office visits to network doctors and hospitals and 40% to outsiders.

For workers in the standard plan, a $500 yearly deductible per person.

For workers in the preferred plan, a $250 yearly deductible per person.

Prescription drug co-payments of 20% for generics and 30% for brand names.

Maximum yearly out-of-pocket payments of $2,000 per person and $4,000 per family in the network, and $5,000 per person and $10,000 per family outside the network.

* How can I sign up? Call your insurance agent or the HIPC directly at 1-800-447-2937.