Assessing the Potential Value of a Purchasing Group
Is a Purchasing Group the Right Move?
Employers of all sizes and sectors consistently battle with a balancing act between needing to meet budget numbers and attracting/retaining talented staff. This balance is especially true for public entities experiencing tightening budgets, an increased need for employee mobility, and the implementation of health care reform.
In a market where attracting and retaining talented employees is at a premium, public entities need their benefit plans to be both high quality and financially sustainable. Employers should consistently review the market in search of options to help them achieve this goal. One option often discussed is a health insurance purchasing group. This mechanism allows entities to join a risk pool that is larger than just their employees and dependents. Although group purchasing plans have existed for decades in Wisconsin, they have recently come back into vogue with the passage of the Affordable Care Act (ACA). M3 has been working with group purchasing entities for over twenty years. Our professionals are experienced in helping an employer determine if creating or joining a purchasing group is a good fit in meeting the unique goals their organization.
The two types of health insurance purchasing groups currently available under Wisconsin law are:
- Cooperative: This is a legal entity that is owned and operated by its members. The purpose of a cooperative is to purchase insurance on behalf of its members. Any and all benefits created by the cooperative are available only to the members of the group. By forming a cooperative, members are able to increase the size of their risk pool and, therefore, their leverage when negotiating contracts. In Wisconsin, health insurance cooperatives are defined by Wisconsin Statute 185.99. A cooperative created to purchase health insurance has very specific legal requirements, including membership, a board of directors, and approval from the Wisconsin Office of the Commissioner of Insurance.
- Consortium: This is an informal group of organizations who join together to purchase insurance. Like cooperatives, consortiums allow organizations to pool their risk. In theory, this provides groups greater leverage when negotiating contracts. As an informal group, rather than a legal entity a consortium has greater flexibility than a cooperative. However, the lack of a formal structure does limit their appeal to insurance carriers.
When considering a purchasing group, entities should recognize that cooperatives and consortiums are not “one size fits all” solutions. Rather organizations should research and understand the structure of each to make an informed decision as to whether or not such a purchasing group fits their needs.
Deciding whether to join, or create, a purchasing group isn’t a cut and dry decision. It is important to fully consider the pros and cons of entering into such an arrangement. Doing so would need to provide you with unique value for the commitment, and potential loss of complete autonomy. Working with an expert who has experience and a track record of setting up viable purchasing groups is vital to succeeding. You need to not only meet legal requirements, but also set up an organizational structure, and negotiate with insurance carriers to meet your goals.
Jeff Ireland and Cindy Van Asten are M3 Account Executives who serve public sector clients throughout Wisconsin.