For small businesses in need of affordable health insurance, purchasing alliances and association plans are alternatives to traditional group insurance. Health purchasing alliances, also called purchasing pools, are private, nonprofit organizations that bring small businesses together to buy health insurance as a group.

The idea is simple: strength in numbers. Because of their high numbers and purchasing clout, pools are also in a better position to negotiate premium rates with insurers. While some purchasing alliances allow individuals to join, most pools serve businesses with two to 50 employees. Premiums and rates are reasonable because more people are purchasing insurance, which brings down the risk to the insurance company.

Purchasing alliances are the result of three parties working together:

1. An owning company. The owner of the alliance is a company that operates on behalf of the smaller companies that make up a purchasing pool. Its purpose is to set the rules of the alliance; for example, it decides who is eligible. The owning company is also responsible for negotiating with insurance companies. Very often a state agency or a chamber of commerce takes on this function.
2. Health plans. Owning companies contract with insurance companies to provide coverage to members. A pool may contract with several insurers and offer individuals a wide choice of insurance options, including health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point-of-service plans (POSs).
3. A neutral third-party administrator. This is usually a company that specializes in health care administration. The administrator manages the day-to-day operations of providing benefits to members, and performs tasks like enrolling new members and providing customer service.

Legislation at the state level makes purchasing alliances possible. To find out if there is a health purchasing alliance in your area, call your state department of insurance, health and human services department, or local chamber of commerce.

If a purchasing alliance is not available to you, consider group health coverage through an association plan. Associations that offer health benefits to members must have a purpose for existing other than providing health benefits to members. Such associations include labor unions, credit unions, professional associations, alumni associations, trade associations, and lodges.

Association plans tend to have higher premiums and offer fewer plan choices than purchasing alliances. In addition, members must pay dues to the association to be eligible for insurance coverage and any other benefits the association might offer.