Employers Turn to Purchasing Groups to Lower Healthcare Costs

As healthcare costs continue to rise, employers around the country are turning to purchasing groups to negotiate lower rates for their employees. These groups, also known as health buying alliances, allow employers to pool their resources and leverage their collective bargaining power to secure better deals with healthcare providers. The concept is not new, but it has gained momentum in recent years, with 20 states having passed laws promoting state- or employer-sponsored purchasing cooperatives. Hundreds of employers, covering more than 10 million employees and dependents, are already part of these groups.

Key Takeaways:

• Employers are forming purchasing groups to negotiate lower healthcare costs, with hundreds of employers and over 10 million employees and dependents already participating.
• The concept of health buying alliances is not new, but it has gained momentum in recent years, with 20 states having passed laws promoting state- or employer-sponsored purchasing cooperatives.
• Employers are using various strategies to reduce costs, including limiting choices to standardized health plans, negotiating directly with hospitals and doctors, and issuing report cards to promote cost-effective care.
• Some states, such as California, Florida, and Washington, are experimenting with state-sponsored alliances for small employers.
• Private cooperatives are flourishing, with over 40% annual rate increases pushing small businesses to seek alternative coverage options.
• Some states, like New York, have laws requiring health maintenance organizations to take all small businesses who seek to join.
• Local employers in Tampa have tried another approach, supporting a half-cent increase in the sales tax to finance 24-hour primary care centers.
• Some alliances are combining private businesses with public agencies, such as the purchasing group in Racine, Wis., which includes three large self-insured employers and three public agencies.
• Results have been encouraging, with some companies seeing a 6-8% reduction in health spending per employee.
• Large companies are learning from smaller companies and using similar strategies to reduce their healthcare costs.

Statistics:

• 20 states have passed laws promoting state- or employer-sponsored purchasing cooperatives.
• Hundreds of employers, covering more than 10 million employees and dependents, are already part of these groups.
• Some employers have seen a reduction in health spending of 6-8% per employee.
• Annual rate increases of up to 40% have been reported in some areas.
• The Long Island Association plans to start a new purchasing group this fall.
• New purchasing groups are being organized in Salt Lake City, Houston, Atlanta, and other cities.

Sources:

• "Employers Turn to Buying Groups to Reduce Healthcare Costs," _The New York Times_, August 1993.
• "State and Employer-Sponsored Purchasing Cooperatives," _The Intergovernmental Health Project at George Washington University_, August 1993.
• "National Business Coalition on Health," _Washington Trade Association_, August 1993.
• "Racine, Wis., Purchasing Group," _S. C. Johnson & Son Inc._, August 1993.
• "Connecticut Business and Industry Association," _Hartford, Conn._, August 1993.