Coalition purchasing: pathway to real benefit performance.

• Author: Anastasio, Louis N.
• Position: Benefits

Decades of supply-side mergers and acquisitions by benefit vendors have gradually eroded employers' bargaining power. Increased regulation and growing product complexity have likewise placed a considerable burden on already strained HR resources, saddled by budget cutbacks and staff downsizing. The combined effect can seriously compromise the ability of benefit managers to deal effectively with large suppliers.

There are signs, however that employers are trying to fight back. In an effort to re-establish and broaden negotiating clout, buyers are organizing product demand into efficient local and national buying cooperatives -- and they're starting to have an impact. Long considered the province of smaller firms, purchasing coalitions are becoming a standard procurement tool of mid-to-large companies, in all major public and private industrial sectors.

Purchasing coalitions can consist of private businesses, public entities and even groups of Taft-Hartley funds banding together to buy employee benefits and support systems. Since the mid-1980s, experimentation with various forms of group governance, operational structures and day-to-day management has produced a wide variety of workable models. Regardless of the product or nature of the sponsor's HR culture, purchasing coalitions exist today to suit almost any company's needs.

Leverage buying power

Aggregating demand to achieve market leverage is not new. What is new is the manner in which employers from all sectors have begun to embrace purchasing coalitions to control benefit price and performance. Historically, companies relied on vendors to provide best pricing and to operate efficiently. Group buying was widely ignored, especially by many large and mid-sized employers confident in their ability to achieve good value at the bargaining table. Recent trends in health care spending, however have triggered renewed interest in coalitions amid reports that even the largest employers can produce gains they can not win on their own.

Suppliers, too, view the growing coalition market as a means of increasing profitable market share. They see coalitions as a prime means of reducing outlays for marketing and sales support, to simplify negotiations and to help contain claim costs, administrative fees and communication expense. Savings produced through operating efficiencies and the pricing discounts they can represent create significant incentives for companies considering group purchasing.

Cost-containment strategies that overlook waste and inefficiency buried in the purchasing model itself miss significant upfront opportunity. Cost-shifting strategies centered upon benefit redesign, tightening eligibility and adjusting contribution levels focus only on part of the problem. (In fact, if left unchecked, these approaches can seriously undermine...