Blue Shield of California, whose 3-year-old health maintenance organization controls barely 1% of the state's managed-care market, has sharply cut prices and revamped its management structure in an aggressive effort to recruit more small-business customers.

Taken in isolation, the maneuverings of so tiny a blip on the health insurance radar screen might lack much significance.

But Blue Shield is one of numerous players that have identified California's small-group market as a place where an insurer might not only expand its overall business but also hone some of the techniques that it will need to survive in the world after national health care reform.

Big changes are ahead for small-group health insurance in California, thanks to a law enacted last fall designed to encourage small-business owners to obtain coverage for their workers. The law takes effect July 1.

"The small-group legislation is the biggest single change in the California health insurance market in the last half-decade," declared Jonathan Lewis, executive director of the California Assn. of HMOs, a Sacramento-based trade group.

It has been estimated that more than half of California's 6 million uninsured residents are "working uninsured"--small-business employees and their dependents.

"This is the largest untapped market in health insurance," said Richard Figueroa, deputy director of California's Major Risk Medical Insurance Board.

The new law requires, among other things, that any insurer participating in the small-group market (defined initially as companies with five to 50 employees) must offer insurance to any employer that applies, regardless of its employees' medical history or perceived risk of illness.

The law also contains pricing provisions meant to prevent insurers from "cherry-picking" only the healthiest customers.

Under the terms of the law, the state Major Risk Medical Insurance Board is structuring a statewide health insurance purchasing cooperative designed to give small employers the same kind of bargaining clout that big companies wield in shopping for health insurance.

It also aims to give employees of small companies a choice of health insurance plans, another benefit that many of those who work for big companies have long enjoyed.

Health insurance purchasing cooperatives--"hipics" in health policy parlance--are expected to be one feature of the changes envisioned for the nation by the health reform task force headed by First Lady Hillary Rodham Clinton.