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Regional health alliance - the new kid on the block?

There may be a new kid coming to your block. And, it's a big kid: the regional health alliance. If you don't know what a regional health alliance is, don't feel left out, just count yourself among the 78 percent of Americans who, opinion polls show, aren't familiar with the term.

Regional health alliances, large organizations which would pool premium payments from employers and employees within a geographic area to purchase health coverage, are one of the key structural elements sought by the Clinton Administration in their health care reform plan.

Why Cities and Towns Should Care

Health coverage for all city and town employees will be provided by regional health alliances and cities will not be able to opt out of their regional alliance like large private employers will be able to do.

Most employers, like cities, will be locked into their regional alliance. The performance of that regional alliance will be more important to municipal employers because they will not be protected by the health cost caps that will cover private employers. These caps, proposed to be set at 7.9 percent of payroll, will shield private employers, but not cities, from disproportionate costs.


Health alliances will have annual operating budgets larger than most city budgets. According to one published report, in 35 states the annual flow of dollars through the health alliance or health alliances (each state will decide how many will exist within their state) will exceed the size of even the state government budget. Health alliances will shape the type and distribution of health care which is available in every community as well as the look of the health care industry as an employer in your community.

Regional alliances will structure health care options for the roughly 80 percent of the population expected to be covered by them. The other 20 percent of the population is expected to be served by Medicare, the corporate alliances (which private employers with more than 5,000 employees may establish), Taft-Hartley labor plans and rural electric and telephone plans serving more than 5,000 employees.

What are Health Alliances?

Health alliances are designed to be powerful new players in the arrangement of health care coverage. The best way to visualize them is to think of a broker that will: (1) receive health care premiums from a variety of sources, (2) conduct a bidding process in order to establish a list of health plans from which individuals can annualy choose to receive their health coverage, (3) disburse payments to health plans based on the number of people select" enrollment in each plan, (4) conduct annual consumer satisfaction surveys to evaluate each plan and (5) keep health care spending in their area to a level set by a National Health Board.

Why Health Alliances?

The benefits that health alliances are intended to produce are multiple.

First, by grouping a majority of all individuals within a geographic area, the alliances will have purchasing leverage. The alliances are intended to allow all purchases of medical converge to occur at lower group rates. This is designed to eliminate the price differences between individual rates, small group rates and the lower rates which are now offered to large groups.

Second, the health alliance will be a centralized agency to conduct evaluations of health plans within a geographic area and disseminate this information to consumers.

Third, the health alliance will exercise budgetary control over health spending in an area through its power to select the health plans that may be offered within an area.

Who Governs? What about Boundaries?

State governments are charged with deciding how many regional alliances to establish within their state. The challenge will be to draw boundaries wide enough to attract a large number of health plans to offer coverage (for reasons of price competitiveness and consumer choice) and small enough so that the enterprise can be managed.

A concern for city and town officials will be ensuring that boundaries of alliances are not drawn in a discriminatory manner. Cities located near state boundaries will have a big stake in ensuring that a good coordination exists between state governments and alliances since alliances will not be allowed to cross state lines.

States may choose to operate the alliances as non-profit corporations, state agencies or independent public corporations. The boards of regional alliances will be required to be composed of employers, employees, self-employed persons and other consumers. Individuals with any formal role in the health system will be precluded from service on these governing boards. Advisory boards composed of medical professionals will be established to provide advice to each governing board.

The regional health alliance will receive the mandatory premium payments made by public and private employers as well as the employee share of such compulsory premiums. In addition, the alliances will receive from state and federal governments an amount intended to cover the costs of serving the Medicaid-eligible population located in the area, any federal payments required to pay for private employer subsidies, and subsidies for low income people within the alliance boundaries. The alliance will also receive payments from self-employed individuals and those employee/employer payments made for all part-time workers.

Based upon enrollment choices made each year from among health plans offered within the alliance, the alliance will pay out the amounts to which each health plan is entitled based on enrollees' ages and other risk-adjustment factors, intended to compensate for differential costs anticipated for different consumer groups.

The Role of Alliances in Other Health Proposals

Among the leading Congressional proposals, those of Sen. John Chaffee (R-R.I) and Rep. JimCooper (D-Tenn.) would require states to establish purchasing cooperatives to provide health insurance purchasing leverage for smaller employers, but employer premium payments under both these plans would be voluntary. Representative Bob Michel's (R-II) proposal would allow the establishment of voluntary insurance purchasing cooperatives, while that of Sen. Phil Gramm (R-Tex.) makes no mention of purchasing cooperatives or alliances. Under the plan of Rep. McDermott (D-Wash.), a single-payer proposal, no alliances or cooperatives would be required.
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Author:Peterson, Doug
Publication:Nation's Cities Weekly
Date:Oct 25, 1993
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