First insurance-buying cooperatives get state OK

Sixteen months after Governor Deval Patrick signed a law clearing the way for small businesses to band together to buy health insurance, the state Division of Insurance said yesterday it has certified two organizations as the first group purchasing cooperatives.

The certification, effective Jan. 1, allows the Retailers Association of Massachusetts and the Massachusetts Association of Chamber of Commerce Executives to begin talking with the state’s commercial health plans about new lower-cost insurance products that they hope will attract tens of thousands of members to their cooperatives.

“If you talk to the retailers and the chambers, they’ll measure success by the savings and satisfaction of their members,’’ said state Insurance Commissioner Joseph G. Murphy. Murphy said insurance regulators are reviewing applications from other would-be cooperatives, and may approve several more in the next three months.


Small business advocates had been pushing a group purchasing initiative for much of the past decade, arguing that employers with fewer than 50 workers are disadvantaged in a health insurance market that favors big businesses with more buying clout. Larger enterprises often pay less because they are self-insured, meaning they manage the risk of their employee pools themselves and rely on insurance carriers to process claims.

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“All of this is to make sure small businesses and their employees and families are no worse off than large businesses and their employees and families,’’ said Jon B. Hurst, president of the Retailers Association of Massachusetts, whose 3,400 members range from jewelers and convenience stores to restaurants and hardware stores. “What our members are asking for is a reduction in rates. Whether that happens or not remains to be seen.’’

It took a slumping economy, and years of double-digit premium increases, before the Legislature opened the door to the group purchasing cooperatives in the summer of 2010. The law allows the formation of up to six cooperatives that collectively can have as many as 85,000 members, roughly 10 percent of the state’s “small group’’ market that covers small employers and individuals.

Though they can’t be self-insured, the cooperatives can negotiate with the health plans, which are required by law to offer discounts from what small employers would pay on their own. Regulators are also encouraging health plans to design new products that offer further discounts if members lose weight, quit smoking, and agree to undergo “wellness’’ assessments.

“We want there to be more comprehensive wellness products in the marketplace,’’ Murphy said yesterday. “Over time, that’s where the savings will be.’’


State health insurers initially opposed the cooperatives, warning they could repeat the practices of association health plans from an earlier era. Those plans were outlawed in the 1990s after some associations sought to sign up businesses with younger and healthier workers, resulting in higher premiums for nonassociation buyers that purchased their insurance independently. Yesterday, insurers said they are taking a wait-and-see attitude toward the new cooperatives.

“Our members look forward to working with these cooperatives to offer products that provide small businesses with affordable options,’’ said Eric Linzer, senior vice president at the industry trade group, the Massachusetts Association of Health Plans. “At the same time, it will be important that the state ensure that these purchasing pools do not operate in a manner that benefits some small businesses at the expense of others.’’

If health plans design new products that are approved by the insurance division, the cooperatives could begin marketing them to their members later this winter or spring. It was not clear yesterday if the products could be ready before April 1, historically the most common renewal date for insurance plans in the small group market.

Tom O’Rourke, president of the Massachusetts Association of Chamber of Commerce Executives, said health insurance costs have become the top issue in recent years for small employers that find it too expensive to hire workers and expand their businesses.

The association is made up of 75 chambers across the state that together represent thousands of businesses with tens of thousands of employees.


“There’s a lot of excitement about this,’’ O’Rourke said. “Because of the number of members we’ll be able to bring to the table, we’ll have more strength and leverage.’’

Robert Weisman can be reached at