Gov. Pete Wilson today will launch a promotional campaign for the nation's first statewide health insurance purchasing pool, a state-run venture designed to use market forces to deliver coverage to small businesses at reasonable rates.
California's effort, which has raised skepticism over whether it can work, will be closely watched. Such health insurance purchasing cooperatives--HIPCs in industry parlance--are expected to be a keystone of the federal health care reforms being developed by the Hillary Rodham Clinton task force.
Purchasing pools are part of the "managed competition" model devised by economists such as Stanford University's Alain Enthoven. The idea is that by speaking with one voice--in this case, the state's--small employers can flex the same kind of muscle as big corporations in bargaining for health coverage.
To set up the cooperative, the state negotiated with 18 private insurance carriers to provide standard health insurance packages for small businesses (defined as five to 50 employees) in six geographical areas throughout California. The rates will vary depending on the company's location and the ages of its employees.
Although its coverage will not take effect until July 1, the cooperative has generated controversy.
Some private insurers question whether it is good public policy--or fair competition--for the state to be active in the market as a regulator and competitor.
The 18 carriers in the cooperative include several of California's largest, but there are also some major carriers who opted not to join, notably Blue Cross of California, Foundation Health and Pacificare.
Insurance brokers say that the cooperative offers skimpy commissions compared to private sector carriers.
"You need brokers and agents to reach out to the small group market," said Blue Cross Chairman Leonard D. Schaeffer. He and others believe that without cementing its ties to the broker community, the cooperative could have trouble finding customers.
A potentially more serious concern is that the cooperative might be flooded with small groups that until now have not been able to get coverage at any price because of severe health problems in their work force. Such "adverse selection" could cause the cooperative to run at a loss. Except for $3 million in start-up promotional costs, the cooperative is legally required to operate at break-even or better, with no state subsidies.
