To add health-plan choices, small firms hop into pools

As a roofing contractor who gets contract employees from an agency, Lindsay Smith was limited in the health insurance choices he could afford to offer workers.

But about a year ago, the Sacramento contractor joined a growing number of small-business owners who get health insurance through a purchasing pool. The move gave him more clout, more choices -- and less complaining from his workers.

Spurred by state legislative reform, healthcare purchasing alliances are rising in popularity because they offer a variety of plans to small businesses, and because the employer pays one bill.

"The needs of employees are not all the same," said E.J. "Rusty" Brown, co-founder of CaliforniaChoice, a small-business purchasing alliance based in Southern California. "Some are young people raising kids, while others are 55 and have no kids at home. In a nutshell, one-size-fits-all healthcare doesn't work."

But until the alliances came along, small businesses often felt stuck providing one-size healthcare to their employees. On their own, small businesses with two to 50 employees typically can afford only one low-priced managed-care plan, forcing employees into plans that don't include their physicians and leaving employers defenseless against rising healthcare costs.

500 area businesses in one pool: John Grgurina, executive director of PacAdvantage purchasing pool, said today's pools stem from the Small Group Health Insurance Reform Bill, passed by the Legislature in the fall of 1992. It responded to complaints by small-business owners about unfair treatment by healthcare systems.

"Healthcare was wide open in the small-business market," Grgurina said. "Many small businesses were denied membership. There were complaints of `cherry picking,' or health plans finding the healthiest groups and offering them discounted rates."

Even if a small business managed to get affordable health insurance, he said, a major medical expense could hike rates dramatically.

The reform provides businesses with guarantees that health plans must offer products to all businesses. The law also eliminated limits on pre-existing health conditions of workers and stabilized rates. Grgurina said the law provided for the creation of a purchasing pool, with the idea of offering small businesses a variety of plans and products.

PacAdvantage was the prototype purchasing alliance, and was managed by the state until it went private in 1999. It covers 500 small businesses and 6,000 people in Sacramento County. Statewide, the alliance covers 11,000 businesses and 140,000 workers.

Grgurina said the biggest benefits to purchasing pools are the variety of options and one bill to the employer.

"Usually, the decision of a health plan is made by the business owner or the owner's spouse, and everyone else has to get that," he said. With a pool, the employee picks a health plan, picks a product line, such as a preferred-provider, point-of-service or health-maintenance plan, and picks co-pay schedules.

Also key, in these times of rising healthcare costs, is the annual open enrollment. It lets employees switch plans and coverage every year if they want.

250 in another: In the early 1990s, Brown and his partner, John Word III, both healthcare insurance brokers, began to realize that most of the grumbling about managed care centered on a lack of choice in health plans.

That realization led the two entrepreneurs to develop an "employee-choice" health program, modeled after large group and government employee plans, that give more than one choice of plans. In 1996, CaliforniaChoice became the first private, multi-plan, small-group health insurance program launched in the state.

Today, the program provides benefits to 10,000 employers and 150,000 workers in the state. The program has tripled in size during the past two years, becoming the fastest-growing small-group plan in California for businesses with two to 50 employees. In the Sacramento area, CaliforniaChoice serves 250 small businesses with 4,100 members.

CaliforniaChoice contracts with eight HMO networks that compete for members, depending on the network, price, service and value-added health and wellness programs, Brown said recently from his office in Orange.

Health Net has been pleased with its participation in CaliforniaChoice, said Brad Kieffer, public relations manager.

"We think it's good for employers, because it's a tool for offering greater choice to their employees," Kieffer said. "It's a way to give small-group employers big-group benefits."

Employer just gives money ...: Shopping for health insurance can be a big headache to small employers. Many small businesses want good coverage for their employees, but can wind up spending big bucks and harming morale if they annoy employees.

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