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Private Insurance Exchanges

The business outlook for private insurance exchanges continues to improve. Building on policy and economic imperatives to keep the growth of healthcare costs man-ageable, employers, and health insurance companies are expanding their use of private health exchanges.

BACKGROUND

The Affordable Care Act created the concept of an “insurance exchange” as the new way for individuals and small businesses to buy health insurance. The primary objective of these exchanges is to keep premiums at a reasonable rate through competition among insurers and to allow consumers the opportunity to find a health plan that fits their individual needs.

Private exchanges take this idea and extend it to employers. So a private exchange is an online health insurance marketplace for a company’s employee base. The difference between an exchange and traditional health insurance is that employees choose from a variety of insurers and plans; unlike traditional plans from one insurer. The mechanics are that employers provide their workers a defined contribution toward the premiums. Employee choices are broader and often include vision and dental options from several participating insurance companies.

Aon PLC (traditionally a provider of insurance and reinsurance brokerage, human resources solutions and HR outsourcing services) now offers to run private exchanges for corporations. Aon has noted a significant increase in employer interest saying that more employers have approached them about exchange quotes to see how much money they can save, and more insurance carriers want to be on Aon’s private platform. (The impending “Cadillac Tax” is an additional incentive for employers; see our Second Quarter issue for more details).

SIX MILLION WORKERS GROWING TO 150 MILLION!

The consulting firm Accenture reported that nearly 6 million workers selected their health plans through private exchanges for 2015, doubling the amount of private exchanges from 2014. Though this is a very small amount of the employed market overall, Accenture predicts 40 million of the approximately 150 million people with employer health insurance will be choosing their plans through private exchanges by 2018. This amounts to approximately 25% of the overall adult American workforce and will surpass the number of Americans using public insurance exchanges, which reached roughly 11.7 million for the 2015 enrollment period.1

AT A GLANCE:

- Employers offer Private Exchanges to provide more health care options and to save on costs

- Major firms facilitate the infrastruc-ture

- Barriers are falling away with rapid growth expected

- While concerns still exist, the benefits seem to be carrying the day


1 Herman, Bob, “Employers Warming Up To Private Insurance Exchanges,” Modern Healthcare, July 24, 2015


Private Insurance Exchanges 1


Accenture stated that two limitations on the growth of private exchanges continue to erode. The first is that industry moves such the acquisition of Bswift by Aetna should help reduce the capacity constraints that have limited large-scale rollouts. The second limitation comes from insurance exchange providers developing more specialized products to address the fact that no new large employer customers signed on for the 2015 enrollment period.2

Accenture also noted that the contributing factors to the accelerated growth of private exchanges will include the exchanges’ ability to help small businesses cope with the employer mandate, the Cadillac tax and Affordable Care Act compliance reports. The tepid response to the Small Business Health Options Program could also attract firms to private insurance exchanges.3

BENEFITS AND CONCERNS

According to the results of another survey, conducted by Array Health, 52% of the insurance professionals responding to the survey expressed that private exchanges have proven successful in reducing administrative costs and 48% are saying an exchange has helped increase market share.

Additionally, 71% of the survey participants hold the belief that the majority of insurers will offer a private insurance exchange by the end of 2017 while 44% said a majority of employers will offer benefits through such exchanges within the same time frame. This data supports the previous research from Accenture and the Kaiser Family Foundation.

Along with the benefits foreseen with private exchanges, the survey respondents do see challenges ahead. A large portion of the respondents (78%) said they believe that less than half of private exchanges will offer “a robust and comprehensive set of ancillary products.”

The survey respondents also expressed concern that the defined contribution model is often misunderstood. Employers are aware of the predictable costs it brings but are leery of adoption because for fear of a negative reaction from employees.

The respondents also agreed that the term “single-insurer private insurance exchanges” needs attention as well, as it confuses those outside the insurance industry and fails to take into consideration that an insurer’s exchange will include ancillary offerings.4

The growth in private exchanges is not limited to active employees: companies are looking at private exchanges for their retirees, in addition to the current staff. The BCBS Association is building an exchange for all of its affiliate plans with the goal of enrolling retired workers in Medicare Advantage, supplemental Medigap policies or Part D prescription drug plans. In 2014, AT&T moved its Medicare-eligible retirees to a private exchange run by Aon.

2 Eastwood, Brian, “Private Health Insurance Exchange Enrollment Tops 6 Million,” FierceHealthPayer, April 8, 20153 Millman, Jason, “The Coming Revolution in How Employers Provide Health Insurance,” The Washington Post, April 7, 20154 Eastwood, Brian, “Business Outlook for Private Insurance Exchanges Remains Strong,” FierceHealthPayer, May 26, 2015




PRIVATE EXCHANGES IN 2016

Nearly 2.5 million people have enrolled in private health insurance exchanges so far. Employee Benefit News reported that industry experts expect that number to grow by three times that amount in 2015. PwC’s most recent employer survey from December shows that 47% of respondents are interested in private exchanges while 20% are considering them for 2016. These experts predict if more consumers sign up for private exchanges as well as public marketplaces, competition among the insurers will increase, likely forcing the companies to focus on quality and price in order to attract customers.5

A report from Leavitt Partners recognized that “employers have a value problem and they are demanding a solution from the market. They want streamlined administration, lower cost, expanded choice, higher employee recognition of employer investment in benefits, improved market efficiency and innovation.”

According to their report, Leavitt suggests insurers can offer solutions by enhancing efficiency and choice in private exchange plans by including centers of excellence, telemedicine and wellness programs. “Private exchanges will be the economic and service resource that can fulfill employer value requirements, meaningfully engage consumers and strongly contribute to the long-term viability of the employer-sponsored insurance market.”6

One such step insurers can take is to collaborate with providers to form private exchange networks that promote clinical integration with unique access to certain delivery systems. For example, Aetna announced plans last year to establish a private exchange that’s connected with its ACO models. Meanwhile, Highmark partnered with Array Health to create different medical product bundles available on their private exchanges that target different consumers.

MAJOR EMPLOYERS WITH PRIVATE EXCHANGES

Firms that migrate to a private insurance exchange can see big savings. Sears saved $38 million in the first year that its employees enrolled in insurance using a private exchange. In 2015, Hallmark Cards sought predictability in its healthcare costs and a less complex role in offering health benefits and moved 6,100 full-time, active employees to Aon’s fully insured private exchange.

One of the biggest employers to jump into a private exchange, drugstore operator Walgreens Boots Alliance, has used Aon’s private exchange for two years now. Of the 200,000 eligible Walgreens employees, nearly three-quarters have chosen a bronze or silver plan, with UnitedHealthcare enrolling the most members this year. 39% of Walgreens employees making less than $25,000 per year chose a bronze plan while only 21% of workers with annual salaries above $100,000 picked a bronze plan. Not surprisingly, the price of health plans is a dominant consideration for lower-wage workers.7



5 Overland, Dina, “Experts predict private exchanges could see 300% growth this year,” FierceHealthPayer, February 16, 2015

6 Overland, Dina, “Private Exchanges May Promote Payer-Provider Collaboration,” FierceHealthPayer, July 20, 20157 Herman, Bob, “Employers Warming Up To Private Insurance Exchanges,” Modern Healthcare, July 24, 2015




Still, Private exchanges remain far from common. Numerous studies and surveys have shown that consumers and employees place more value in their doctors and provider networks than the actual number of coverage choices they have. Companies and their staff worry private exchanges indirectly encourage plans where employees shoulder more out-of-pocket costs and some employers are reluctant to shift their workers into fixed-dollar benefit structures.

Despite some apprehension, those employers who have adopted private exchange plans are noticing a change in engagement amongst employees. In the past, employees would often spend a couple of minutes browsing over their health plan options, or in some cases, ignore the process entirely. The private exchanges have spurred employees to take the annual enrollment period more seriously and to be much more aware of their care options.

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