THE RISE OF PRIVATE HEALTH EXCHANGES: IMPLICATIONS FOR CONSUMERS, EMPLOYERS AND INSURERS

 

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Updated April 2014; articles added March 2016
 

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 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.

 

2015: About 6 million workers selected their health plans through private exchanges for 2015, double the amount from 2014 but still a very small amount of the employed market overall, according to consulting firm Accenture. Accenture predicts 40 million of the roughly 150 million nonelderly people with employer health insurance will be choosing their plans through private exchanges by 2018.

      Drugstore operator Walgreens Boots Alliance was one of the biggest employers to jump into a private exchange. Walgreens has used Aon's private exchange for two years now. Almost three-quarters of the 200,000 eligible employees have chosen a bronze or silver plan. UnitedHealthcare enrolled the most Walgreens members this year, said Tom Sondergeld, vice president of global benefits at Walgreens.
      Price was a dominant consideration, especially for lower-wage workers. For example, 39% of Walgreens employees who make less than $25,000 per year chose a bronze plan for this year. Only 21% of workers with annual salaries above $100,000 picked a bronze plan.  - Read article in Modern Healthcare, 7/24/2015.

 

  • Private Health Insurance Exchange Annual Enrollment.  The mid-size employer segment of 100 to 2,500 employees is driving initial growth, as evidenced by the expansion of the consultant-led exchanges servicing this market. Accenture forecasts enrollment of employees under 65 years old and dependents will grow to 12 million in 2016 and 22 million in 2017. Authors project "growth will remain on track to reach 40 million enrollees by 2018."  Study published by Accenture, Inc, 2015
  • 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|
     
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 was 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 www.ebri.org.

2016: Fidelity Investments Touts Private Exchanges as Bridge to Better Health Consumerism
Nearly 20% of Fidelity Investments' 31.5 million retirement plan participants have made a hardship withdrawal from their 401(k) retirement accounts to pay for medical expenses. The investment firm estimates a married couple will need another $245,000 in savings to handle health care costs in retirement. Health care exchanges could help employees understand the relationship between health and money, according to Joe Laurin, president of Fidelity Health Marketplace, a multicarrier private insurance exchange.  At the U.S. Chamber of Commerce's Capital Markets Summit on March 16, Laurin offered his assessment of private exchanges and their potential to help consumers make smarter decisions about saving for future health expenses. Fidelity recently announced that it has added a private insurance exchange to its portfolio. The exchange is aimed at fully insured small and mid-sized employers and offers medical, dental, vision, disability and life insurance from national and regional carriers. A handful of customers in Massachusetts and New York already offer coverage through the exchange, which has been operational for a year, according to the company (HEX 2/2016, p. 1). For more information, read full article, as posted by U.S. Chamber of Commerce 3/2016.

  • 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]
  • Zenefits’ Leader Is Rattling an Industry- Sept. 20, 2014.  The NY  Times reported,  "Zenefits signed up 2,000 small businesses that employ a combined 50,000 workers in just its first year of operation, the company says." The broker process "has been derided as needlessly complex, inefficient, opaque and antiquated. It is also extremely lucrative: The national health insurance brokerage market on which Mr. Conrad set his sights is worth, by one estimate, $18 billion.
  • HCentive Private Health Exchange products -2013
  • Mercer Company Private Health Exchange products - 2013
  • Oliver-Wyman Private Health Exchanges - FAQ -2012

PRIVATE EXCHANGES: A Mini-conference held May 2013 - Five hands-on experts discuss current operations and future plans.  

  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 

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