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Health Care Coalitions
Coalitions are formed by multi-employer, single employer, public or private health plans. Because health care providers offer price discounts and administrative efficiencies to large purchasers in exchange for patient volume, coalitions can purchase health care services for less money than individual funds could on their own and, at the same time, maximize employee choice. Most coalitions are formed by employer groups. While many larger coalitions include unionized companies and public employers, union involvement in coalitions is generally limited. Of the union coalitions that do exist, most are Taft-Hartley funds. The majority of these funds are in construction, retail and the service industry. Coalitions vary in size and geographic coverage. For example, the Cooperative Health Network in Ohio covers 14,000 people and includes four health funds while the Health Care Cost Containment Cooperative of the Mid-Atlantic Region covers 350,000 people in Washington D.C., Maryland and Virginia, and includes 55 funds. Most coalitions include 15 to 20 member funds. Funds considering participating in a coalition need to consider a number of design issues including the level of benefits standardization, the degree of risk pooling, and whether to self-fund the benefits or to contract with a health plan on a fully-insured basis. Following are questions and answers that address these and other issues. Q: What is the role of coalitions?A: Health care coalitions seek to contain cost and provide health care quality by enhancing their bargaining strength, increasing competition among insurance plans and medical service providers, sharing information on the cost and performance of providers, and sharing information on the terms of contracts. Roles of coalitions vary. Some only collect information on clinical quality or sponsor member satisfaction surveys. Others may share information and jointly purchase services. A few negotiate PPO networks, prescription drug care programs, and mental health and substance abuse networks. These can be progressive stages of development, although some coalitions form specifically to share quality information, with no intention of becoming a purchasing body. Q: How are coalitions designed?A: Coalition design varies considerably. Some offer individual funds more autonomy than others. "Loosely organized" coalitions maximize the autonomy of fund members while "tightly organized" coalitions limit independent activities.
Q: Can a coalition require its member funds to participate in a standardized benefit plan?A: While the coalition may negotiate standardized contracts with providers, trustees of each participating fund make the final decision concerning benefits offered by their fund. Trustees are not permitted to delegate their fiduciary responsibilities.Q: Is it difficult to coordinate different benefits for different funds?A: Although funds can realize significant savings due to the bargaining power of group purchasing, most do not feel that savings are worth changing the benefits structure of individual funds. If a fund decides to participate in a standardized plan, it will likely have to modify the current benefit structure to take advantage of discounts. This can be difficult where existing benefits and/or cost sharing arrangements vary drastically among the coalition's member funds.Q: Do insurers and health care providers require that a minimum number of coalition members participate in the program?A: Plans and providers are less willing to negotiate favorable terms, unless they have agreements on minimum participation. Coalitions deal with this in a couple of ways. Many use discounts negotiated with providers and insurers to fund financial incentives that steer plan participants toward using those plans. Another alternative is for plans and provider networks to agree to a schedule of discounts that can be adjusted based on the number of employees that enroll in the plan.Q: Should a coalition self-insure its benefits or purchase a fully-insured plan?A: By self-insuring, a coalition maintains more control over health care costs and benefits. A coalition that self-insures pays health care claims out of a trust fund or other account set aside for this purpose. Coalitions typically use a third party administrator (TPA) to handle duties such as enrollment, claims payment and utilization review. Also, self-insured entities usually purchase "stop-loss" insurance to protect then from unexpected high claims costs. A self-insured coalition can purchase "individual" stop loss coverage, which covers claims of an individual when they reach a specified level and/or "aggregate" stop-loss coverage, which covers claims of the entire group when they reach a specified level.Self-insurance offers many advantages including relief from state premium taxes (typically 2-3% of the total premium), the elimination of risk charges, the retention of earnings from the investment of funds until used to pay benefits, and the ability to spread the risk among the larger coalition group. Self-insurance also poses some risks. If a group experiences higher than anticipated costs, they may be forced to move back into a fully-insured arrangement and pay unusually high premiums. This risk can be reduced or eliminated by purchasing pooled stop-loss coverage (see below). Self-insurance may also be burdensome administratively and politically. Q: Should funds in the coalition pool their risks?A: Risk pooling (also referred to as community rating) may increase the coalition's bargaining power and provide administrative economies of scale. Also, risk pooling might allow small funds to join together and self-fund their benefits. When claims are significantly different among funds, however, risk pooling can be difficult, both technically and politically.Some coalitions partially pool their risks. This can be done in several ways:
Generally, smaller funds favor group purchasing and risk pooling because such arrangements offer them greater bargaining clout than they would have otherwise. Conversely, larger funds are less likely to grant contracting authority to the coalition, because they already have bargaining clout in the health care market and prefer to retain their autonomy. Q: Which is more desirable — negotiations with the employer for a defined benefit or a defined contribution?A: As health care costs rise, employers are increasingly proposing a shift from bargaining over health benefit levels and cost sharing requirements (defined benefits) to bargaining over dollar contributions (defined contributions) that can used to purchase benefits. A change to a defined contribution plan offers both benefits and risks.Benefits:Employers may be concerned about the cost of a plan, but not about the quality of care provided. A defined contribution arrangement allows the coalition to move forward in its efforts to offer quality benefits at reduced costs. Any savings achieved by the coalition might be used to provide employees with additional wages or improved benefit levels.Risks:Because health care costs are expected to increase substantially in the next few years, a defined contribution scheme poses the risk that the employer contribution will not keep pace with increasing costs. To reduce this risk, some unions tie increases in the employer's contribution level to some measure of local medical costs, such as the medical CPI. The problem with this method is that it focuses on medical inflation alone and does not consider increased utilization. Instead, or along with the medical CPI, the union may want to tie increases to actuarial projections. Typically, health plans hire actuaries to estimate how much their health plan costs will increase in the next plan year. The actuary establishes a medical care trend which measures the change of cost after weighing inflationary changes, changes in utilization, technology, the age of the employee group and benefit levels.Q: What is direct contracting?A: Direct contracting is a relatively new way of buying health care, in which purchasers, such as self-insured employers and coalitions, buy services directly from providers, such as physicians and hospitals, or contract directly with a provider-sponsored network. Proponents believe that eliminating involvement of insurers can lower administrative costs and eliminate the profits that are built into insurers' premiums. Proponents also believe that direct contracting gives more control and authority to the health care providers, who are in the best position to lower costs and improve outcomes. Some coalitions begin by contracting with providers that offer ancillary benefits, such as dental or vision care, while a few negotiate for full medical coverage. Others have contracted directly with "centers of excellence" for specific services, such as cancer treatment or open heart surgery. Negotiating jointly for a subset of a medical benefits package allows member funds to maintain their autonomy as purchasers while they begin working together on individual contracts.There are two major concerns with direct contracting. The first is the question of who is liable for care that results in poor outcomes – the health care provider or the coalition. The law is unclear, so a coalition may find itself charged with malpractice and/or denial or delay of appropriate medical care. Second, requiring plan participants to obtain care through contracted providers is key in direct contracting. Unless a sufficient number of providers bid for the coalition's contract, access to care could be unreasonably limited. Q: What other benefits do coalitions negotiate?A: In addition to medical, prescription drug, vision and dental, following are other benefits that coalitions provide:
Q: How can a coalition improve the quality of the plan(s) offered to its members?A: New coalitions often start by sharing information on providers, terms of contracts with insurers and satisfaction with care and services. Some collect information on clinical quality or jointly sponsor member satisfaction surveys. Coalitions push for systems that reduce long-term medical costs and improve standardization and quality measurement in plan design. For example, several years ago coalitions began collecting data on issues such as consumer satisfaction and clinical outcomes. Now with several years of data, they can increase their impact on quality of care and negotiate performance guarantees with insurers and health care providers.For more information on health care coalitions, contact the Department of Research and Collective Bargaining Services at 202/429-1215 or visit our website. ENDNOTES Framework for Joint Union Initiatives in Health Care, The Lewin Group, 2/18/97 Health Care Coalitions Frequently Asked Questions, IFEBP Coalition Notes "Cooperative Purchasing Expands Health Benefits Horizons for Public Employers", Spencer's Research Reports, 2/7/97
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Health care coalitions (sometimes referred to as alliances or cooperatives) are established by purchasers who wish to use their collective strength to buy the best benefits at the lowest price. Most coalitions are self-governing not-for-profit membership organizations. Generally, coalitions assess each member group minimal fees to cover operating costs. Only a few have hired staff. The remainder use volunteer management committees made up of representatives from each fund. 
