Overview of Purchasing Pools

Create and/or Expand Purchasing Pools

What is it?

There are approximately 47 million Americans without health insurance. Approximately 55 percent of uninsured Americans have sufficiently high incomes to be ineligible for public insurance programs such as Medicaid but, nevertheless, cannot afford health coverage on their own (Dubay, Holahan, and Cook, 2007). Purchasing pools are intended to target this group, many of whom work for employers that do not offer health insurance; are ineligible for benefits because they are new, part-time, or temporary employees; or cannot afford the premiums for the health insurance offered by their employers. The theory behind purchasing pools is to give small firms or individuals the same market power advantages that large firms enjoy when they purchase health insurance (GAO, 2000). Purchasing pools are intended to decrease premiums for their members through greater bargaining power, more stable health costs as a result of risk pooling, and lower administrative costs (Wicks, 2002). Lower premiums in turn are expected to encourage small employers that did not previously offer health insurance or uninsured individuals to join the purchasing pool.

Purchasing pools potentially provide other benefits to their members. Pools can make it easier for small employers to offer choices in terms of health plans, plan types, and benefits packages. Purchasing pools may play a role in improving dissemination of information to consumers and encouraging quality from health plans. Finally, some proponents of purchasing pools argue that purchasing pools can increase competition in the broader small group market, leading to more far-reaching effects on cost and access (Long and Marquis, 2001).

The effects of purchasing pools on health care are highly dependent on the specific characteristics of the pool and the insurance market in which they operate. There are a number of key design elements for a purchasing pool that may vary across policy proposals. These include the following:

• Who is eligible to participate (e.g., small firms, individuals)
• How the pool is financed (e.g., subsidies for participation)
• Who governs the pool (e.g., public agency, publicly chartered and privately run, private)
• Who chooses the plan (e.g., employer or employee)
• Whether there is a standardized benefit across all plans offered through the pool.

The specific combination of pool design elements that are chosen will have a significant impact on the ability of the purchasing pool to achieve the goals of lower premiums and increased coverage.

At the same time, the characteristics of the insurance market (e.g., state regulations, competition) in which the pool operates are also critical to its viability and vary substantially across states. For example, one factor that significantly affects the performance of purchasing pools, and varies from state to state, is the extent to which insurers have the ability to decline customers or rate differentially based on health status. Because insurance is primarily regulated at the state level, national proposals for implementing purchasing pools will have to consider the wide range of existing state regulations and address complex issues such as whether a national reform effort would preempt state laws.

How would it work?

States could create or expand access to employer or individual purchasing pools, or Congress could authorize implementation of a national purchasing pool. Health insurance tax credits can also be combined with access to purchasing pools to provide coverage for individual consumers (Curtis, Neuschler, and Forland, 2001). The most recent proposal regarding purchasing pools, the Small Business Health Options Program Act of 2008 (H.R. 6210), would pair a national small business purchasing pool with tax credits for small employers who participate.

Has it been tried before?

Employer purchasing pools come in a number of different varieties, including health insurance purchasing cooperatives (HIPCs), Association Health Plans (AHPs), and HealthMarts. All are intended to give small employers more choices and bargaining power, but they differ in design details. HIPCs typically limit membership to employers with 2 to 50 workers and have been established either by private organizations or through state legislation (Hall, Wicks, and Lawlor, 2001). Many HIPCs were established by states in the 1990s, along with other reforms aimed at improving health insurance access and affordability for small employers, including guaranteed issue and rate restrictions (GAO, 2000). As of 2000, more than 20 states allowed for HIPCs (GAO, 2000).

AHPs differ from HIPCs in that they can limit participation to members of a trade or professional association (Hall, Wicks, and Lawlor, 2001). They also tend to be less restricted by state regulation. HealthMarts would be operated jointly by employers, providers, insurers, and employees; would be exempt from state-mandated benefits; and could operate in more than one state (GAO, 2000). HealthMarts have been considered by Congress.

Massachusetts included a purchasing pool, called the Commonwealth Connector, in its recent health care reform legislation. The pool is open to those who do not have an insurance offer from an employer or are ineligible for public insurance programs. The purchasing pool was paired with an individual mandate.