Collective Buying Power Could be Key to Lowering Health Care Costs

A new study, Banding Together to Lower the Cost of Health Care? An Empirical Study of the Peak Health Alliance in Colorado, published February 28 in the Journal of Risk and Insurance, provides compelling evidence that collective action through purchasing alliances can drive down health care costs. The research, led by Mark Meiselbach, PhD, assistant professor in Health Policy and Management, analyzed the impact of Peak Health Alliance, a public-private health care purchasing initiative in Colorado, and found that it led to a 13–17% reduction in health insurance premiums for enrollees in counties where it operated.

Using plan data from the Colorado Department of Regulatory Affairs Division of Insurance (2017–2021), the study applied difference-in-differences, event study, and synthetic control methods to examine the impact of the Peak Health Alliance on health insurance premiums. The results indicate that Peak was able to successfully increase insurer market power and obtain lower premiums, driven by reduced prices for health care services, leading to significant cost savings for enrollees.

“Our research provides compelling empirical evidence that purchasing alliances like Peak Health Alliance can indeed lower the cost of health care,” said Meiselbach. “By pooling bargaining power and focusing on reducing health care prices, Peak was able to lower premiums for consumers in Colorado.”

The research also examined potential mechanisms behind Peak’s success. Findings indicate that lower health care prices—not changes in plan design or utilization—were the primary driver of reduced premiums. The research team also accounted for policy and market changes, such as Colorado’s state reinsurance program and Kaiser Permanente’s market exit, confirming that Peak’s impact on premiums remained significant even when these factors were controlled for.

Key findings:  

• The implementation of Peak Health Alliance was associated with a 13–17% decrease in average premiums, depending on the empirical method used.
• Premium reductions persisted when Peak expanded to seven additional counties in 2021. Lower negotiated prices—rather than reductions in service utilization or changes in plan design—were the primary mechanism behind cost savings.
• Insurer market power in Peak counties increased substantially, suggesting that collective action was crucial in cost reductions.

Though Peak achieved short-term success, long-term sustainability of such initiatives is yet to be observed. Notably, the initial carrier partner, Bright Health, exited the market in 2023, though Peak has since relaunched through a partnership with Elevate Health Plans.

“The effectiveness of purchasing alliances depends on several factors, including market conditions and insurer participation,” Meiselbach said. “Our findings suggest that such models can successfully drive down costs, but continued evaluation is needed to understand their long-term viability.”