Are Private Exchanges the Future of Employer Health Insurance?
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)