January 23, 2012 | last updated April 19, 2012 1:54 pm

Co-Ops May Spell Savings In Health Insurance

For years, the Retailers Association of Massachusetts and small-business members of local chambers of commerce have teamed up with other businesses to use their group purchasing power to buy workers' compensation coverage, electricity, natural gas and pay for other expenses.

Simply put, when businesses pool together to buy in bulk, they lower their costs.

But until recently, small businesses were not allowed to collaborate to buy health insurance, which Jon Hurst, president of the retailers' group, said is ironic: That's the highest cost most businesses have besides salaries.

That is, until the state's Division of Insurance approved two group purchasing cooperatives in December. As of Jan. 1, small businesses can team up and buy health insurance to get more attractive rates. The retailers' association and a statewide group representing local chambers of commerce will run the program.

Business and state officials are excited about the proposition. During a time in which just about everyone is looking for a way to curb health insurance costs, the move is seen as something that could help.

But not everyone is convinced.

Officials with the Massachusetts Association of Health Plans, the statewide group representing most of the state's insurance providers, said they look forward to working with small businesses to create products for their new cooperatives. But they say it's imperative that the process be executed fairly to ensure no business group garners enough clout to put other small businesses at a disadvantage.

Insurance brokers and advisers also have concerns.

Todd McDonald, president of Aisling Partners Insurance Brokerage of Worcester, said simply creating a new distribution channel for businesses to access health insurance doesn't get at the true cost drivers of health care. He said there must be a greater focus on reducing the cost of care.

Purchasing Collaborative

Those who represent small businesses said allowing new collaboratives to pool resources to buy insurance is a victory.

"We'll be able to offer health insurance to our members at a more affordable rate than what they're paying now," said Jeannie Hebert, president of the Blackstone Valley Chamber of Commerce, and a member of the Massachusetts Association of Chamber of Commerce Executives.

It's too soon to say how much savings small businesses could get from participating in the cooperative, Hebert said. But she's confident the savings will only increase over time as the program's administrative functions become streamlined.

"We're still working out some of the bugs and getting the details together," she said.

Some of the details of exactly how the program will be run are what make people like McDonald and members of the health insurance industry apprehensive.

For example, many small businesses work with an insurance broker or adviser to help them negotiate and purchase insurance from a provider. If a local chamber group or the retailers' association is performing that function, it could bite into the work brokers and advisers do, McDonald suggested.

Hebert said the chamber executives group is sensitive to that issue.

"We're not trying to take business away from anyone," she said.

It's also unclear how these new cooperatives will interact with insurers. Dave Przesiek, senior vice president sales and marketing at Fallon Community Health Plan in Worcester, said the insurer would welcome the opportunity to have an exclusive contract to provide health insurance to all members of a local chamber. But Hebert said it's unclear how many health insurance carriers the statewide chamber group will work with and whether a request for proposals (RFP) process will be used to select an insurance carrier.

While state officials said they hope the chamber and retailer groups could begin offering products to small businesses by spring, Hebert said it could take until summer before products are ready for the market.

Once they are, Hebert said she estimates that as many as half of her chamber's 500 members will be interested in the program. Businesses with more than 11 employees are required by law to provide them with health insurance or be subject to a penalty that can cost them as much as $295 per employee, per year.

The state has capped the new cooperative program at 85,000 covered lives, about 10 percent of the size of the small group health insurance market to get the program up and running, state officials said. If it's successful, that number could increase.

Level The Playing Field

However the details will be worked out, program supporters said anything that can help control small businesses' health insurance costs is a good thing.

"Small businesses have been in the very difficult position of being required to offer and provide health insurance for employees and families, yet their increases have been three times the size that big businesses and government have seen," said Hurst, of the retailers' group. "That is a situation that is unacceptable economically, politically and legally."

In fact, according to a state study, insurance rates for small businesses have risen faster than those of larger businesses. From 2008 to 2009, which is the most recent data the state's Division of Health Care Finance and Policy has, the small group market saw an average premium increase of 9.5 percent. Meanwhile, the mid-size market saw an average 7.6 percent hike and the large-group market, 5.4 percent.

Insurance companies don't dislike small businesses though, said Eric Linzer, senior vice president for public affairs at the Massachusetts Association of Health Plans.

As part of the state's 2006 health care reform law, the small group market merged with the "non group" market, or individuals who buy their own insurance. That, Linzer said, has driven up costs for small businesses because individuals are more expensive to cover.

Furthermore, he said, small businesses are disproportionately impacted by benefits the state requires health insurers to provide. Larger businesses can self-insure, meaning they assume the risk of their workforce's medical needs and are able to absorb those costs more easily.

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Where To Buy

A new state rule will allow small businesses to purchase health insurance from 45 organizations, including these groups in Central Massachusetts:

  • Assabet Valley Chamber of Commerce
  • Associated Industries of Massachusetts
  • Blackstone Valley Chamber of Commerce
  • Greater Gardner Chamber of Commerce
  • Marlborough Regional Chamber of Commerce
  • Massachusetts Association of Insurance Agents
  • Massachusetts Farm Bureau Federation
  • Massachusetts Mortgage Bankers Association
  • Massachusetts Restaurant Association
  • MetroWest Chamber of Commerce
  • Milford Area Chamber of Commerce
  • Nashoba Valley Chamber of Commerce
  • Retailers Association of Massachusetts
  • Worcester Regional Chamber of Commerce

Source: Massachusetts Division of Insurance

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