No problem - Just set up an insurance purchasing pool
What Health Insurance Pools Can and Can’t Do
By Rick Curtis and Ed Neuschler
California HealthCare Foundation
November 2005
Introduction
Policymakers are often attracted to purchasing pools as a way to make health insurance less expensive for small employers and individual purchasers. The common assumption is that pools could aggregate a large number of small purchasers and thus realize administrative economies of scale and negotiate favorable rates with health plans. For small-firm workers, purchasing pools could also offer something not normally available in the small-employer market - choice of competing health plans. For individual purchasers, who can already choose among health plans, pools could help to simplify comparison shopping.
Unfortunately, establishing a purchasing pool does not automatically produce the same “market clout” as a large employer. RAND studied the three largest small-group health insurance purchasing “alliances” begun in the mid-1990s and found that they did not reduce small-group market health insurance premiums, nor did they raise small-business health insurance offer rates. Other kinds of voluntary pools are more prevalent, but they generally have not functioned as assertive purchasers and have not reduced costs.
For example, The Health Insurance Plan of California (now operated by the Pacific Business Group on Health as “PacAdvantage”) negotiated and offered lower rates than had been available in the outside market at its inception in the early 1990s. Yet by 1998, analysts found no evidence that its rates were still lower than the outside market. Rather, the data suggested that they were slightly higher.
Conclusion
Health insurance pools can be useful as vehicles to help achieve coverage and cost goals. Yet merely establishing or designating pools holds no hope for reducing the number of uninsured or the costs of coverage available to individuals or small employers. Unless a pool has the necessary cohesion to attract and retain a large enrollment base, it will not be in a position to achieve economies of scale and negotiate effectively with health plans.
However, these goals can be achieved if the pool represents a large natural group that health plans can effectively reach only through the pool, making it similar to a very large employer. One way to create such a group would be to channel subsidies for low-income workers and families, or low-wage employer groups, exclusively into coverage through the pool. In turn, a stable pool can efficiently perform a number of administrative roles that meet the needs of both its participants and the state.
http://www.chcf.org/documents/insurance/
WhatHealthInsurancePoolsCanAndCantDo.pdf
Comment: If you want to understand why a health insurance purchasing pool can never deliver on the promise of lower insurance costs through the economies of scale, you really need to read this report to understand the complexities of purchasing pools.
The authors suggest that pools could work if they were truly cohesive and could attract and retain a large enrollment base. But the only mechanism they suggest that would do this would be to “channel subsidies… exclusively into coverage through the pool.” In other words, purchasing pools can compete with other coverage only if employers and/or the government subsidize the pools while prohibiting subsidies for plans outside of the pools. And for this, the purchasing pools add the expense of an additional administrative layer on top of the health plan bureaucracies. So much for the magic of the economies of scale!
Purchasing pools using private health plans only perpetuate the waste and inequities of our current system. Instead of pools of health plans, we need a single pool of our health care funds. Then we could eliminate the administrative excesses, while establishing equitable access and coverage for everyone.
Why do the policymakers keep going back to the drawing boards to keep crafting more flawed proposals? Why don’t they finally give up and admit that we really do need a single-payer system?