Health care purchasing and market changes in California

This paper analyzes the process and outcomes of collective negotiations among large private employers and health maintenance organizations (HMOs) in California. In 1994, prior to collective negotiations, differences in benefit packages, risk mix, and volume of purchasing accounted for only one-third of the variance in premiums among firms and HMOs. The 1995 collective negotiations reduced the variance by 22 percent and the enrollment-weighted mean premium by approximately 9 percent, while enriching the standard benefit package. Savings for the eleven participating firms totaled $36.5 million. Large purchasers are reducing the number of health plans offered to their employees, standardizing the benefit package, using collective negotiations to contain costs, and shifting from vendor to partner relations with HMOs.