Co-Op Plans – Will they save employers money?
Pat Haraden
Principal
Massachusetts recently certified two purchasing cooperatives for health insurance for policies effective April 1, 2012. These purchasing cooperatives are unrelated to the federal health care reform law, as they were created as a result of Massachusetts law. For years, small employers (those with 50 or fewer employees) have asked why they could not “join together” to purchase health insurance, theorizing they could get lower rates as a large group, as they may do in purchasing other products or services. This arrangement, with two notable exceptions – The Massachusetts Bankers Association and municipalities – is not allowed by the Division of Insurance.
Although the press releases and news stories promoting these Co-Ops promise savings from 10%-20%, it is important to note that the savings will come from the underlying medical plan offered by the Co-Op, not the Co-Op itself. Since “pooling” of small businesses for purchase of insurance is still not allowed, each small business that joins the Co-Op will be rated individually based on its specific demographics, contract mix and other allowed rating factors. There may be a small “Co-Op” rating factor allowed, no more than .5% - 1%, over time, but this may be offset by the costs of joining the association or Co-Op.
Additionally, the plans offered through the Co-Op are also available outside of the Co-Op, and could generate similar savings opportunities for employers. The savings from the plans are due to the larger deductibles, copayments and co-insurance as well as a “limited” or “select” provider networks. Even if “pooling” of small employers was allowed, it does not guarantee savings. The stability and predictability of a larger group of members may be offset by adverse selection – the reality that those employers who have better demographics and rating factors could receive better premium rates individually rather than as part of a larger group, and would choose not to join the pool.
These Co-Ops are a step in the right direction, but they are not the answer that most employers were looking for. For more information:
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