Publications

Pooling Health Care Resources — A Good Idea? (2001)

By Ginny Cady

Health care premiums increased an average of 13 percent in 2001 and increases in 2002 are expected to be even higher. While state government plan costs are increasing, local governments, particularly those with smaller populations, are the hardest hit. Some local governments have experienced increases of 30 percent or more.

In an effort to make health care coverage more affordable for local government employers, and to increase their own purchasing power, some states have opened their health plans to city, county and/or school district employers. Other than the prospect of lower costs, employers may elect to participate in pools because they offer employees a greater choice of plans. Whether statewide pools help keep costs down is unknown because it is difficult, if not impossible, to quantify savings. Many believe that allowing local governments to participate in state plans on a voluntary basis invites adverse selection. That is, only local governments with less healthy populations will choose to join the plan. Even so, the pooling of such a large group could offset the higher costs of unhealthy or older participants.

Statewide pools are very similar to health care purchasing coalitions (see "Health Care Purchasing Coalitions" in Collective Bargaining Reporter No. 2, 2000). Similar to coalitions, statewide pools must decide whether to base premiums on the utilization experience of state employees alone or the combined experience of the entire covered group. Pooling risk may increase bargaining power and provide administrative economies of scale but may also increase the state’s plan costs because of adverse selection.

That is what happened in Kentucky. The state allows university and local government entities and their retirees to participate in the state’s health care program. Everyone covered is in the same risk pool. Most local government and university employers elected to have their retirees covered by the state plan, but not their active employees. As a result, active state employees are subsidizing the coverage of local government and university retirees but do not enjoy the offsetting lower costs of local government and university active employees. The state is currently working to resolve this issue by requiring employers that cover their retiree population through the state program to also cover their active employees.

  • Following are some facts common to many statewide health plan pools:
  • Most statewide programs are created through statute.
  • Public employees must participate in the state’s pension plan to be eligible for coverage under the health care program.
  • Retirees must have participated in the plan as active employees.
  • Employers covering their retirees must also cover their active employees.
  • Local governments wishing to participate in the state’s plan may be required to pass a resolution.
  • Some states require that a minimum number of employees from each local government participate in the plan.

For more information on statewide pools, email the Department of Research and Collective Bargaining Services or call (202) 429-1215.

Print Version