WATERLOO - When a business sector is dominated by a few large companies, would-be start-ups may see the climate as a reason to stay away. G. Michael Hammes and James Thomson, however, saw an invitation.

The main - and in many markets, the only - names in the U.S. health insurance industry are Blue Cross and Blue Shield, UnitedHealthcare, Cigna and Aetna. At the beginning of this year, Hammes and Thomson started Cedar Valley Community Health care. The company joins the ranks of the big four as an insurance option for Cedar Valley employers.

The partners say they have no delusions of putting the big four out of business, but they see a niche for a smaller, local company.

"By being smaller we can be a little more responsive, quick and nimble," Thomson said.

"You want people to be able to pick up the phone and talk directly to someone here in Waterloo," Hammes said.

The company launched its first insurance package for Cedar Valley Medical Specialists earlier this year. The CBE Group Inc. signed on this month to bring the total of customers to 1,300 people. Later this summer, the company plans to offer packages for small employers, with two to 50 employees, and individual insurer plans.

"Our hope is that we can get enough people on the plan that we can have the ability to influence health care costs in the Cedar Valley," said Tom Penaluna, CBE president and CEO. Penaluna added, however, that the driving force was the cost of the plan. Hammes and Thomson said regardless of size and location of the company, cost is still customers' top concern when choosing an insurance plan. The two credit local hospitals and health care providers for keeping their fees to the fledgling company competitive.

"In a way, those providers also became investors in this," Hammes said.

One way some insurance providers keep costs low is to contract with exclusively with certain health care providers and hospitals. Hospitals and medical organizations will sometimes give insurers a discount for such arrangements. This strategy, while keeping costs down for customers, limits patients' choices on doctors and specialists.

"A lot of times getting a discount means limiting choices," said David Herberts, CVCH chief operating officer.

Herberts said CVCH has contracted with 95 percent of Cedar Valley medical professionals.

"The fact of the matter is, in the American health care system, the consumer wants choice," Hammes said.

The company also keeps cost low by contracting billing and accounting services instead of hiring a large staff, they said.

Starting a health insurance company, however, takes more than finding a niche market. Thomson and Hammes bring a combined 60 years of health care business experience to help them navigate the industry regulations. The two founded the John Deere Health Plan in 1988. The company grew to include 450,000 people by 1997.

They also spent more than a year raising $2 million in reserve capital to insure the insure the insurer.

Hammes and Thomson also have ties to medical professionals going back more than 20 years, which they said helped in establishing relationships and contracts with area doctors and specialists.

"That allows us to take advantage of the fact that health care is run by the big guys," Thomson said. "We know the community, we know the providers."

Chris Hyers, vice president of the business department at Covenant Medical Center said Covenant is participating in the start-up.

"The more choices available for individuals and businesses in our community, the better," he said.

Hammes and Thomson don't think the bigger companies would necessarily agree that more competition is better for them, but they say the big and small can co-exist, much like large banks and smaller, locally owned banks can occupy and compete in the same market.

"We're pretty confident they won't sit back and do nothing," Thomson said. "But they're definitely not sweating bullets over us."