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California Nonprofit Drops Small Group Health Coalition

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The Pacific Business Group on Health is ending an influential group health experiment.

The PBGH, San Francisco, is shutting down the Pacific Health Advantage health coverage purchasing coalition at the end of the year because health insurers are no longer willing to participate.

The PBGH continues to run a $5 billion health coverage purchasing coalition for large employers, but it has stopped selling new PacAdvantage coverage, and it is working to help PacAdvantage small group customers, which all have 2 to 50 employees, find new sources of health coverage.

The California Managed Risk Medical Insurance Board formed the forerunner to PacAdvantage, the Health Insurance Plan of California, in 1992, in an effort to hold down health coverage costs for small groups and help small employers offer employees a choice of health plan designs.

The PBGH took control of the program from MRMIB in 1998.

The PacAdvantage program has helped shape the California small group health coverage market.

Word & Brown, Orange, Calif., started a for-profit competitor to the PacAdvantage program, the CaliforniaChoice program, and individual health insurers have responded by giving small employers the ability to offer employees a choice of 2 or more health plan designs.

But the number of PacAdvantage plan members has fallen to 116,000, from a peak of 147,000, and the number of employers participating has fallen to 6,200, from 11,000.

Because of adverse selection problems, the number of participating health plans has dwindled to 3 this year, from 10 in 1994.

After Health Net Inc., Woodland Hills, Calif., and Kaiser Permanente, Oakland, Calif., decided to drop out in 2007, the last remaining plan, Blue Shield of California, San Francisco, also decided to drop out, the PBGH says.

“PacAdvantage exhausted every possible approach to keep the partnership together with the health plans,” PBGH Chief Executive Peter Lee says in a statement. “Unfortunately, market forces kept that from happening.”


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