Private Health Exchanges and Reform



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Updated April 2013; article added September 2014

In an effort to control costs and offer workers more health plan options that can better suit their needs, an increasing number of employers are turning to private health insurance exchanges. Unlike traditional employer-sponsored health coverage, under exchanges employers give their workers a defined amount of money and allow them to shop for coverage, often from multiple insurers in the exchange. For employers, the amount a company pays towards coverage is capped; for workers, greater choice exists and the exchange helps promote competition among insurers.

In September 2011, private exchanges became front-page health insurance news when WellPoint and two large Blue Cross and Blue Shield plan operators acquired a majority interest in Bloom Health, which has developed a private exchange platform it offers to employers. The insurers used the platform to launch a nationwide private insurance exchange. In 2012, Aon Hewittt, a national consulting firm, began enrollment in its exchange, which uses a multicarrier platform and target large employers.

NCSL Meeting Presentation at Fall Forum - December 2011: Health Reform Options: Private Health Exchanges.  What role might private health exchanges play in the new world of state health exchanges?  This session will review some of the early thinking about how private health exchanges work in the new and evolving health care system in America. Speaker:  Christopher Condeluci, J.D., Of Counsel, Venable LLP, Washington, D.C. [Slide Presentation for NCSL]


More Resources and Reports

Interest in Private Health Insurance Exchanges, “Defined Contribution” Health Plans Likely to Gain Ground Post-PPACA

WASHINGTON—Federal health care reform legislation and the desire of employers to limit their health insurance costs are likely to fuel interest in so-called “defined contribution” health benefits and private health insurance exchanges, according to a new report by the nonpartisan Employee Benefit Research Institute (EBRI).

The EBRI report says the combination of insurance market reforms, especially the health exchange structure in the Patient Protection and Affordable Care Act of 2010 (PPACA), as well as rising health costs, have brought a renewed focus on limiting employer’s health care cost exposure.

Paul Fronstin, director of EBRI’s Health Research and Education Program and author of the report, said the vehicle that some employers are interested in using for providing coverage is a private health insurance exchange. Through these exchanges, in tandem with a defined contribution (DC) funding approach, employers can accelerate the drive toward a more mass- consumer-driven insurance market and gain more control over their health care contribution costs, capping their contributions, and shifting to workers the authority to control the terms (and to some extent, the costs) of their own health insurance.

“Ultimately, whether and how the movement to private health insurance exchanges and DC health plans will occur is still subject to various influences and remains highly uncertain,” Fronstin said. “But the enactment of PPACA and employers’ interest in reducing the risk of their health benefit costs indicate this is a field that is likely to grow.”  EBRI notes that employers have long been interested in the concept of DC health benefits, but never moved in that direction for a number of reasons, both because they were hesitant to drop group coverage in favor of individual policies, and because they were concerned that many employees would not be able to secure coverage in the individual market. 

Recently, however, the combination of insurance market reforms and the embodiment of the exchange structure in PPACA has brought a renewed focus on an approach that limits employers’ health care cost exposure by providing fixed-dollar contributions that workers could use to purchase individual policies.

The EBRI report notes there are a number of potential advantages to both employers and workers in this structure. Employers could benefit from a higher degree of cost certainty, certainly if they were able to fix their costs at the level of their contributions. Workers could benefit from competition among insurance carriers, greater choice of health plans, and portability.  The EBRI report examines issues related to private health insurance exchanges, possible structures of an exchange, the funding of this approach, as well as the pros, cons, and uncertainties to employers of adopting them. It also reviews recent surveys on employer attitudes and some changes that employers have made to other benefits that might serve as historical precedents for a move to some type of defined contribution health benefits approach. 

The full report is published in the July 2012 EBRI Issue Brief, Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again?” online at

PRIVATE EXCHANGES: A Mini-conference scheduled to be held May 4, 2013 in D.C.

Five hands-on experts discuss current operations and future plans.  {Event details online- registration fees of $595 - $1,200 apply]
Private-Sector Insurance Exchanges: Prototypes already in Operation and Ready to Serve or Compete with State Exchanges

Alan Cohen, MBA
Chief Strategy Officer and Co-Founder, Liazon Corporation, New York, NY
Simeon Schindelman
Chief Executive Officer, Bloom Health; Former Senior Vice President of Commercial Markets, Medica, Minneapolis, MN
Ken Sperling, MBA
National Health Exchange Strategy Leader, Aon Hewitt, Norwalk, CT
Bryce Williams, JD
Chief Executive Officer, Extend Health; Managing Director of Exchange Solutions, Towers Watson, San Mateo, CA
Christopher E. Condeluci, Esq.
Of Counsel, Venable LLP; Former Tax and Benefits Counsel, Finance Committee, US Senate, Washington, DC (Moderator)

Private Exchanges: What Their Product Design and Results Foreshadow for New ACA Marketplaces
AIS Webinar: Tuesday, May 14, 2013

As health plans develop products for the federal and state-run health insurance exchanges this October, many will factor in the results they and others have achieved marketing to consumers through private exchanges. In recent years, an increasing number of insurers have been offering their products under employers’ defined-contribution plans, a model that has gained in popularity as it helps employers better budget for their benefit costs while offering workers direct control over the tradeoffs between benefit coverage and cost. But what sets apart one exchange marketplace from another? What do the actual results from the past several years of private exchanges tell us about the future of this benefit model…and what can we expect in federal and state-run exchanges in the fall?  {Webinar registration fees apply: $271-)

AHIP: Private Insurance Exchanges Will Prevail Regardless of SCOTUS Ruling (June 21, 2012)

Margaret Dick Tocknell, for HealthLeaders Media  (c) June 21, 2012

Private health insurance exchanges will thrive no matter what action the Supreme Court takes on the matter of the Patient Protection and Affordable Care Act. That's the collective opinion three panelists offered during a June 20, 2012 session at the annual conference for America's Health Insurance Plans in Salt Lake City.

The future doesn't look quite as rosy for government-run exchanges, which could lose their funding mechanisms if the Supreme Court's decision results in significant changes to the Obama administration's healthcare reform law. Private exchanges are commercial health insurance marketplaces typically run by insurers and employee benefit consulting firms. While government-run exchangess are very prescribed, private exchanges have more freedom to define the benefits and services they offer.

The panel looked at three potential Supreme Court outcomes and offered scenarios depicting how private exchanges would likely be affected:

Scenario #1: The ACA is struck down
"Private exchanges will have a future with or without national healthcare reform," says John Rich, CEO of NPH Health, which operates a private exchange with 150,000 lives in Massachusetts, New Hampshire, and Rhode Island. NFP Health was in business before national healthcare reform was enacted.

Rich explained that there's a strong push in the health insurance market to provide self service tools that enable consumers to access and manage their healthcare benefit functions and purchases. He says private exchanges are freer to meet those needs than government-based health insurance exchanges.

He noted that wellness programs are being weaved into private HIE and offer individuals and small groups access to a service they normally wouldn't receive. Also the private exchange platform can provide data about providers and hospital networks. Educational programs that are normally the purview of large companies with human resource departments can be scaled for small companies and individuals on a private exchange platform.

Chris Condeluci, an attorney with law firm Venable, with experience on Capitol Hill, notes that private HIE like NFP Health, existed before the healthcare law, so "obviously there's a market for them." He says private exchanges will survive even if the ACA is struck down because the exchange mechanism itself has bipartisan support in Congress. Condeluci served as tax counsel for the Senate Finance Committee when the healthcare reform law was being crafted.

If the law is overturned, he says policymakers who like the exchange concept will encourage its private market development over the more regulated model now in place.

Scenario #2: Individual mandate is struck down but the ACA stands
This is a worrisome option for insurers. Rich predicts that if the individual mandate were to disappear and guaranteed issue were to remain, then "health insurance prices will sky rocket."

If both the mandate and guaranteed issue disappear, he expects that consumers will need more help in making their healthcare purchases. He sees private exchanges as filling that gap. Consumers, he says, would be open to different shopping experiences and insurance carriers will be in a position to be more creative in their product offerings such as bundling and offering discounts to keep consumers engaged in the HIE over the long term.

Condeluci notes that one of the goals of healthcare reform is to make the individual market more functional. If the mandate is struck but guaranteed issue and community ratings remain, he contends that private HIEs could become something of a "safe harbor" for consumers and small groups to navigate the market, especially if the exchanges include education tools and decision support systems.

Condeluci doesn't expect the group market to be affected if the individual mandate is struck down. If prices increase, then private exchanges could be "an appealing option" for employers who want to move from a "one-size-fits-all insurance benefit model" to a defined-contribution model, which allows employers to simply subsidize coverage. The exchanges would take on everything else associated with the coverage.

Scenario #3: The ACA is upheld
This scenario would be the green light for private exchanges to accelerate development, says Sanjay Singh, CEO of hCentive, a healthcare technology provider. "I see hundreds of these exchanges developing. The floodgates will open."

When he was with the Senate Finance Committee, Condeluci says he worked with Sen. Grassley (R-Iowa) and Sen. Baucus (D-MT) to develop a model for the exchanges. "We wanted to model the exchanges after private exchanges with private market solutions as opposed to what became part of the law."

If the Affordable Care Act is upheld, he says there may be some concern that the private exchanges will compete with public ones. Condeluci says it's more likely that states will view the private exchanges as an additional distribution channel and develop partnerships with the private exchanges. "They can tap into those exchanges in order to get more people covered by health insurance."


Other experts and practictioners on private exchanges are

  • Abir Sen from Bloom Health,
  • Ken Sperling from Aon Hewitt and
  • Bryce Williams from Extend Health, which has been operating the nation’s largest private Medicare exchange for five years,

In November 2011, these experts detailed their work on private exchanges and how it is expected to change the health benefits marketplace. They outline their plans for expanding private exchanges and project how the exchanges are likely to impact insurers, employers and enrollees. This includes perspectives on key questions such as:

  • What are the pros and cons for health insurers of establishing or participating in private exchanges?
  • Why are private exchanges expected to help employers provide health benefits while driving costs down and offering greater choice to their workforces?
  • What market conditions provide the most fertile environment for private exchanges to succeed?
  • How will exchanges help employees take more control over their health spend?
  • How will private exchanges handle the transition of employees from group to individual plans?
  • How are private exchanges expected to fare in the face of state-run insurance exchanges in 2014?

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