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Health Insurance Private Exchanges: Are They Making the Cut?

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It wasn’t long ago that the Affordable Care Act (Obamacare) swept over the American healthcare landscape, bringing with it a real focus on private exchanges. Consultants, brokers—and anyone with products to sell—were all focusing on these exchanges, which had a dramatic impact on both individuals, and businesses of all sizes, concerning the health care benefits afforded employees.

Fast forward to today.

Have Private Health Exchanges Lived Up To The Hype? 

With the cost of healthcare on the rise, many companies in the United States have been trying to figure out how to cut those hefty employee insurance premiums. Businesses have responded in different ways, with some organizations eliminating coverage altogether.

Of course, that’s only an option for the smallest of businesses due to the Affordable Care Act (ACA) employer mandate and penalty, which go into effect this year.

Another response has been for companies to increase the deductible their employees must pay before employer-sponsored coverage kicks in. Still other organizations have turned to private health insurance exchanges, which emerged in the wake of the ACA as an insurance marketplace for employers.

Private health exchanges allow companies to control contributions while giving employees the ability to choose from different plans and find a policy that best fits their needs. The use of Private health exchanges is an approach to employee benefits which has been thriving over the past few years.

In 2014, the private health exchange market included 2.5 million users. Last year, that number doubled. Industry analysts, such as consulting firms Accenture and Oliver Wyman, expect the market to grow to as many as 40 million users by 2018.

Private health exchanges offer a chance for employers to manage their costs and risks while giving employees control over their health coverage. But exchanges aren’t a revolutionary cure-all, either. To be the solution they could be, there’s still a lot of work to be done.

Private Exchanges Get Mixed Grades

According to a survey by the Deloitte Center for Health Solutions, most employers who’ve made the switch from traditional benefit models to private health exchanges are happy with the result; just eight percent of those surveyed said they were dissatisfied with their experience. The majority of them saw their costs drop and say they now play a less active role in providing benefits that are comparable, if not of higher quality, to what employees had before.

One such example is Sears, which saved $38 million the first year after it made the switch, according to chief human resources officer Dean Carter. Not every organization can provide such a glowing review, however, and that‘s putting a damper on growth.

In fact, one industry expert gave the private health exchange model just passing grades last fall. Mike Smith, of Lockton Benefit Group, said cost savings need to improve to make a meaningful difference to employers. Smith noted that technology needs to work—and work well—for end users (i.e., HR administrators and employees) while platform providers need to offer fee structures that clearly define provider compensation. He also pointed out that right now private exchanges are still figuring things out while the marketplace continues to change.

Some platform providers are making their marks as respected leaders while others are merging with more successful players. New models from outliers, including benefits administrators and payroll companies such as ADP, may further change the way the private exchange marketplace evolves.

What Does a Private Exchange Platform Need to Get Top Marks?

With all the changes in the insurance market, it’s inevitable that there will be hits and misses. Some companies who’ve moved to private health exchanges haven’t seen the cost savings they expected; others have run into problems with service delivery models and little participation.

On the whole, however, private health exchanges are a good option with a lot of advantages. The ones who succeed will have some, if not all, of the following attributes:

  • A forward-looking approach to the ACA. The ACA changes that will take effect this year are only the tip of the iceberg. Many employers are concerned about 2018 when a 40 percent tax—commonly referred to as the “Cadillac tax”—will be applied to what employers and employees jointly pay for coverage above a certain amount. Staying on top of these changes and offering compliance-driven products will set platforms above their competitors.
  • A strong focus on technology. Multiple technological failures set the ACA program back when it launched in 2013. Our expectations as users are high; if a platform doesn’t work well, it won’t last. Exchanges with platforms that aren’t consistent, easy-to-use, and high-functioning will be passed over for more user-friendly options.
  • Demonstrated compensation transparency. For the private exchange system to thrive, all stakeholders need to receive some value, and transparency of data and benefit will play a fundamental role in current and future success. Employers who want to stay on top of costs will gravitate toward providers who offer clear fee schedules and compensation information.
  • Demonstrated administrator experience. Inexperience has been a stumbling block for private exchanges so far. Both benefits and exchange administrators may not have the industry experience or training needed to manage day-to-day operations of the exchange setup effectively. Better training and communication will drive successful relationships between employers and exchange providers in the years to come.

Right now, the private health exchange market is growing and becoming increasingly successful—but not as quickly as experts predicted five years ago. Of course, this doesn’t mean private health exchanges aren’t a solid option; it only means the industry needs more time to evaluate how the new model measures up.

Photo Credit: sinclair.sharon28 via Compfight cc

Are Private Exchanges the Future of Employer Health Insurance?

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Mention health insurance to friends or colleagues and everyone has a different opinion—and the conversation isn’t much different up in the C-suite. When private health insurance exchanges launched onto the corporate radar a few years ago, moving from a small business and individual marketplace to a solution for large-scale corporate benefits, they were heralded as revolutionary.

The health insurance environment is changing—but not in the way, or at the pace, the industry has expected. Instead of a sprint, private exchanges have made a slow climb. And with the launch of public health exchanges under the Affordable Care Act as well as all the other new options in the marketplace, employers, and insurance professionals are wondering whether private exchanges are the best fit.

I think they are—here’s why.

What Sets Private Exchanges Apart?

Employers have always held a high level of control over employee health insurance. They’ve typically partnered with one or two major insurance carriers to provide employees with defined insurance options. In the past, this arrangement allowed employers and insurance carriers to manage costs within a simple relationship and gave employees limited control over their health coverage.

But today, companies want better and simpler ways to control cost and risk, administer benefits, and be compliant. At the same time, offering more flexible coverage options is an important strategy to engage—and retain—employees in a competitive job market.

Burgeoning healthcare costs have made fully traditional models unsustainable for many organizations, and they can’t easily adapt to meet employee needs. The potential of the private exchange system is its intermediate status, which allows organizations to cap health care expenditures while providing employees with the same level of support, and more autonomy, within their benefits plan. Organizations can choose an exchange platform that suits their budget, product, and administrative needs.

Companies such as Walgreens, Sears, Petco, Target, and General Electric are some of the large employers that moved to private exchanges as early as 2013 and 2014 for various groups of employees (e.g., retirees, active full-time employees, or part-time/seasonal workers).

Selection of Private Exchanges Available to Employers

Companies can choose from several types of private exchanges. Some insurance providers offer their own single-carrier exchanges, which offer a few plan options from one provider. Third-party companies also partner with various insurance providers to offer multi-carrier exchanges; these include technology vendors and insurance consultants or brokerages, such as Aon’s Corporate Health Exchange, which enjoyed a 100 percent retention rate for employers and insurers in 2015.

Answering the Question: Are Private Exchanges Here to Stay?

While private exchanges may not have stimulated the revolutionary health insurance changes predicted by industry watchers, they do offer meaningful, value-driven support. They aren’t going anywhere, but the pressure is on for private exchanges to prove their value.

When approached with the right technology and support, private exchanges have proven to be cost-effective and easy to use for both employers and employees. Lockton Benefit Group, for instance, has had success with private exchanges, but even the group’s assistant vice president and director of exchange solutions sees this time as one of both setbacks and growth.

In other words, everyone is getting to see what does and does not work.

Like the launch of the public Affordable Care Act (ACA) exchanges, third-party exchange providers and insurance companies are still hammering out support, technology, and financial structures. End users (i.e., employees and employers) are apt to scrutinize an exchange provider whenever applications hit a glitch. The model’s newness means each exchange provider creates its own commission and fee schedule; some employers have switched back to traditional models after noting cost-transparency concerns.

This state of trial and error is one factor that’s been a barrier to en masse conversion. Many companies hesitate before converting to see how competitors iron out the kinks—and rightly so. But that doesn’t mean organizations should be slow to get on board.

Getting Your Feet Wet: Approaching Private Exchanges as a Business

PwC Health Research Institute and other health insurance research programs are keeping tabs on the overall success of private and public exchanges. In 2014, a PwC survey reported 32 percent of employers were considering a shift to private exchange models before 2017. This level of sustained interest indicates growth for the adoption of private exchanges. It is, in all likelihood, the future of enterprise health insurance.

Most mid-large companies should start weighing the benefits and risks of a switch to private exchanges. It never hurts to run the numbers, and some companies can save considerable time and money with early adoption.

As you start looking at various private exchange setups, remember that many don’t directly offer products themselves—they provide a marketplace for insurance products from a range of carriers. Make sure you evaluate user experience, long-term exchange goals (i.e., market shares, growth projections, etc.), and transparent payment structures.

In addition to private exchange platforms, companies must also review new ACA provisions this year, such as the information reporting mandate for employers with 50 active full-time employees. Compliance is critical as transitional rules start to phase out.

Remember, the corporate health insurance landscape is changing, and now is the time to start exploring your opportunities.

 

photo credit: Education Health Insurance via photopin (license)