Forming A Private Purchasing Cooperative For Health Insurance In Texas

As stated by the Texas Department of Insurance, the Texas Legislature enacted three bills that allow small business employers to form cooperatives for the purchase of employer health benefit plans in Dallas, Houston and throughout Texas. All three types of cooperatives are private purchasing cooperatives under state law. Texas Insurance Code Chapter 1501, Subchapter B provides for the formation of Purchasing Cooperatives. Two of the three have special characteristics; for clarity, we will refer to the broader category as "private purchasing cooperatives."

Who may form a cooperative?

Two or more small employers may form a small employer health coalition. Any person - other than a health carrier - may form a health group cooperative. A health carrier may assist a sponsoring entity in forming a cooperative. A health group cooperative must have at least ten participating employers.

How do I start a cooperative?

All three types of purchasing cooperatives must be formed as a nonprofit corporation. For more information on how to form a nonprofit corporation, you should consult the Texas Secretary of State, specifically the Filing Guide for Business Organizations and Non-Profit Associations.

Texas Insurance Code Chapter 1501, Subchapter B provides for the formation of Purchasing Cooperatives. Small business employers interested in assistance with forming or joining a small employer health coalition should also consider contacting their insurance agent or one of the existing small employer health coalitions. Once the cooperative has received a certificate of incorporation or certificate of authority from the Secretary of State, the cooperative must file that document and the cooperative's organizational document with the Texas Department of Insurance. The address for filing these documents is: Filings Intake Division, Mail Code 106-1E, Texas Department of Insurance, P. O. Box 149104, Austin, Texas 78714-9104.

What Type of Cooperative Should I Form?

This decision will be based on the goals for the cooperative and the employers interested in joining. You should consult the description of the types of cooperatives available and review the statutes and regulations associated with each. Things you should consider when forming a cooperative include the potential for growth in the cooperative, the complexities associated with potential growth, interest from a carrier and a sponsoring entity in the cooperative, and carrier requirements, such as participation levels.

How Do I Join a Cooperative?

All of the cooperatives registered and listed with the Texas Department of Insurance (TDI). Contacting a cooperative in your area is the first step you should take in joining a cooperative. For certain cooperatives, there may be an annual open enrollment period, which will limit your opportunities to a certain period each year. Small employers interested in joining a cooperative should also remember that, as individual employers, they are guaranteed issuance of coverage from an insurance company or HMO that offers coverage to small employers. Similarly, a small business employer must be allowed to join a health group cooperative and purchase coverage during the next annual open enrollment period.

What Type of Cooperative Should I Join?

Various factors will influence your decision about the type of cooperative to join, including whether your company is a small or large employer, the rates offered by the cooperatives in your area, a cooperative's administrative or membership fees, and whether a particular cooperative is accepting new members or currently enrolling new members in an open enrollment period. You should review the different types of cooperatives to determine whether a particular type offers advantages for the employer. There is also a revolutionary individual health insurance plan you can offer your employees.

Health Group Cooperative - Sub (p)

SB 805, enacted by the 79th Texas Legislature (2005), created a new type of health group cooperatives with special rights and requirements.

- Any person, other than a health carrier, may form a sub (p) health group cooperative.

- Once a sub (p) health group cooperative is formed, it must have at least ten small employer members to be eligible to purchase coverage from a health carrier that is participating in the health group cooperative market.

- A sub (p) health group cooperative is not required to allow a small employer to join the cooperative if the cooperative has elected to restrict membership in the cooperative in accordance with legal requirements, and after the small employer has joined the cooperative, the total number of eligible employees employed on business days during the preceding calendar year by all small employers participating in the cooperative would exceed 50.

- A health group cooperative must make the election to restrict membership at the time the cooperative is initially formed.

- Employers that join a sub (p) health group cooperative must commit to purchasing coverage through the cooperative for two years, but may cease purchasing coverage upon demonstrating financial hardship.

- A sub (p) health group cooperative is considered to be a single small employer for the purposes of issuance of coverage and rating. Accordingly, a health group cooperative may purchase coverage from any small employer health carrier that is not already providing coverage to a health group cooperative in that county.

- Health carriers providing coverage to a sub (p) health group cooperative may offer a health benefit plan, specifically allowed by SB 10, which does not include state mandated benefits. This freedom from state mandates is specific to SB 10, but it is similar to that which authorizes consumer choice health benefit plans.

If you have a number of temporary, part-time or seasonal employees working for you, cooperatives have a number of limitations and may not be the best health insurance option for your small business. Group health insurance can be unaffordable for many small businesses, not to mention an administrative headache. Another alternative to group health insurance plans is to offer individual health insurance options to your employees. By law, an employer is not allowed to contribute to these plans, or that would be treated as group insurance under Texas state law. But you can still help your employees become insured in a good plan and improve their health and well-being and also improve employee retention in the process.

If you're a small business owner who would like to offer affordable health insurance plans to your employees, but can't afford group health insurance, you should consider offering your employees the revolutionary, comprehensive individual health insurance solutions created by Precedent specifically for young, healthy individuals.

Precedent offers affordable, individual health plans with catastrophic coverage, but without a high deductible, and we'll offer these plans to your employees at a discount. For more information, visit us at our website. We offer a unique and innovative suite of individual health insurance solutions, including highly competitive HSA-qualified plans, and an unparalleled "real time" application and acceptance experience.

About The Author-- Pat Carpenter writes for Precedent Insurance Company. Precedent puts a new spin on health insurance. Learn more at Precedent.com

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