Private Health Exchange Market Keeps Growing
Although the number of companies that have moved their active workers to private healthcare exchanges is relatively small, experts say there is "a lot of interest" among organizations in evaluating the exchanges as a way to outsource their healthcare benefits.
By Andrew R. McIlvaine
Opponents of the Affordable Care Act claim the healthcare reform law's cost and complexity will crimp the economy. However, the law is proving to be fertile ground for growth in at least one area: private healthcare exchanges.
The number of vendors offering private healthcare exchanges to U.S. companies is growing steadily, with early providers Aon Hewitt and Mercer being joined by Towers Watson, Buck Consultants, Willis North America and Benefitfocus, among others.
Many employers that offer retiree health benefits have successfully moved their retired workers to private exchanges and others are planning to do so, says Mike Thompson, a principal and healthcare practice leader at New York-based PwC.
"For employers that offer retiree health coverage, the private exchanges' value proposition has been very strong," he says.
Nearly 30 percent of employers are facilitating access to an exchange-based solution for their retirees this year, with another 36 percent planning to do so over the next three years, according to the 2013 Employer Survey on Purchasing Value in Health Care, conducted by Towers Watson and the National Business Group on Health.
Yet, when it comes to active employees, most of the NBGH's 364 member companies -- 66 of them members of the Fortune 100 -- are taking a "wait-and-see" approach to private exchanges for now, says president and CEO Helen Darling.
"These exchanges are so new that it's almost like asking how a newborn baby is going to turn out," says Darling.
Although the number of companies that have moved their active workers to private exchanges is relatively small, says Thompson, there is "a lot of interest" among companies in evaluating the exchanges as a way to outsource their healthcare benefits, he adds.
What may be stopping them -- for now, at least -- are concerns about whether the exchanges will be able to help their employees obtain high-quality healthcare at an affordable cost, say Darling and Thompson.
Given that most exchanges currently offer only fully insured products, self-insured employers are concerned they'd be surrendering the control and flexibility they currently enjoy if they moved their active employees to a private exchange, says Darling.
"If you go to an exchange where there are a lot of public employers or employers that offer very rich benefits, you could end up with a pool of people driving up costs and you'd have no control over that," she says.
"All things being equal, the cost of being self-insured vs. fully insured is substantially less and, in fact, the ACA actually increases the cost differential between self-insured and fully insured, so we see that as a potential issue," says Thompson.
Another concern is that employees who are exposed to a variety of plans on the exchanges will tend to "buy down," says Thompson -- in other words, electing less-costly plans that may ultimately leave them with less coverage (and worse health outcomes) -- than traditional employer-sponsored benefits, in which the plan options tend to have "marginal" price differences.
Then there are the worries about how a private exchange could undermine an employer's wellness initiatives, he says.
"Most would say that you're starting to break the linkage between wellness and benefits when you start outsourcing to a private exchange," says Thompson.
Sherri Bockhorst, principal and leader for health exchange solutions at Buck Consultants, says its new private healthcare exchange -- called RightOpt -- includes options for self-insured companies and is based on "driving costs out of the healthcare delivery system" rather than "shifting costs from one group to another."
"A lot of the other models have more than one health plan offered to employees in a certain geography, and when you do that, health plans price against adverse selection, which ultimately increases costs in the delivery system," she says.
Buck Consultants' exchange works with multiple carriers across the United States, but offers only one carrier in each major metropolitan region to guard against adverse selection, says Bockhorst. "We think we have much more aggressive contracts and ratings than other exchanges because we've eliminated the adverse selection for carriers," she says.
At Towers Watson, the company's OneExchange service was officially launched this winter. It offers employers both private and public-exchange-based health insurance options for active employees and retirees, says Bryce Williams, managing director for exchange solutions.
OneExchange is based on an existing private exchange for retirees that Towers Watson acquired when it bought Extend Health last year, says Williams. That exchange operates the nation's largest Medicare exchange and includes approximately 250 employers as clients, he says. OneExchange is designed for employers that wish to remain self-insured, he adds.
"We asked our clients what they wanted, and they told us they wanted to remain self-insured -- it lets them avoid the ACA's excise tax and other fees and gives them more control over plan design," says Williams.
So far, Buck has signed up three clients whose employees will be using RightOpt next year -- one company has 75,000 employees, another has 43,000 and a third has 4,000 employees, says Bockhorst, who declined to name the companies. Williams says Towers Watson is "not disclosing the number of OneExchange clients for active employees at this time."
When it comes to wellness, RightOpt includes features such as lifestyle coaching, an employee-assistance program and biometric screening, says Bockhorst. Clients' employees will access RightOpt via a single-access portal that's designed to "personalize" their benefits options and help them improve or maintain their health over time, she says.
Williams says OneExchange relies on "best-in-class programs" from its employer clients in areas such as smoking cessation and weight management and offers integrated coaching to help employees improve and maintain their health. In addition, it offers personalized coaching services to help clients' employees choose plans that best meet their needs, he says.
Health exchanges that don't offer such services and support to enrollees are ultimately "kicking the can down the road," says Williams.
"Unless you want to massively shift healthcare costs to employees, HR should stay in control of their health benefits, and that means being self-insured and self-managed," he says.
However, private exchanges built along a fully insured model keep healthcare prices down via competition, says Aon Hewitt spokeswoman Maurissa Kanter. Aon Hewitt's Corporate Health Exchange is "the only multi-carrier exchange solution for large companies offering a fully-insured model," she says.
"A self-insured model, however, is not competitive, as the insurer has no accountability for driving quality and efficiency," says Kanter.
The costs of a fully insured model -- state taxes, ACA-mandated insurer fees, etc. -- are offset by Aon Hewitt's "geographic rating structure," she says, which "promotes best-in-class networks, a zero-sum risk adjustment formula, and a competitive market model that drives insurers to use aggressive pricing assumptions they would not ordinarily deploy in a single-carrier structure and would not have to consider in a self-insured model."