Health Care and Private Health Exchanges

The world
is changing for healthcare in large part due to the Affordable Care Act, or
ObamaCare as it is known in the common tongue. One of the key elements
currently driving the market is the concepts of health exchanges, both public
and private. The public exchanges are run by several of the states, and the
federal government also has one that has been historically problematic.
However, this material is dedicated to private exchanges in the commercial
business market.

According to MCOL, private health insurance exchanges are
gaining currency as a way for employers to cut health care costs, reduce their
administrative burden and increase the benefit choices they offer to covered
employees. Multiple studies now indicate that U.S. employers are increasingly
looking at private exchange options for both active and retired employees.
Brokers, consultants, payers and other intermediaries offer private exchanges,
but a mix of vested interests is at play among these service providers.

The second annual study by the Private Exchange Evaluation Collaborative (PEEC)
affirms a continuing interest in private exchanges among employers. The
national survey, based on the responses of 446 employers, reports heightened
interest on the part of employers in private exchanges as a strategy for
full-time active and retirees, but the potential transition must address a
number of critical considerations. The survey is also the first national
assessment that specifically captures the experience of early adopters of both
private exchanges for active employees as well as retirees.

Private
exchanges are flexible and can be customized to address the needs of any
employer group, unlike public exchanges, which are targeted to individuals and
small groups, according to Booz & Company. For instance, private exchanges
can design benefits tiers specific to employer segments with robust
multichannel employee decision support. Another advantage is that private
exchanges can offer a broader range of retail products, such as dental and life
insurance and even non-insurance products, than public exchanges can. Two
private exchange models are emerging:

Single-carrier
exchanges:
These
exchanges are promoted by a single payor and target employers that wish to
maintain some role in choosing both the insurance carrier and plan design.
Depending on how involved employers want to be in benefits design and
negotiation, products may be customized and priced for the employee group or
individuals.

Multi-carrier
exchanges:
These
exchanges, predominantly promoted by third-party intermediaries such as brokers
or benefits consultants, will provide a broad range of payor and plan design
options and encourage employers to take a more hands-off role. For payors,
multi-carrier exchanges that list individual prod­ucts on a menu of offerings
pose com­moditization risk that could squeeze payor margins.

According to Array Health, purchasing health insurance through a private exchange
will become the new normal as more and more employers move to defined
contribution plans and customers become much more comfortable taking more of an
active role in selecting and personalizing their health coverage. However,
insured’s need to educate themselves and understand how the system really
works. Hopefully this technology will help, but if insured’s do not have
“Skin in the Game” they will continue the life habits that cause high
claims.

At the end
of the day it’s still a matter of premium in vs claims paid out. Exchanges are
good at lowering the premium side of the equation by offering less expensive
plans for the low utilizers to take advantage of. However, the exchange really
doesn’t impact the cost impact of the heavy utilizers who really drive the
overall cost of the employer’s plan. If premium goes down and claims stay the
same the outcome is obvious. To
cut costs, you have to cut claims – pure and simple.

According
to Forbes Magazine, a recent report by the Kaiser Foundation underscores
one such lesson – the growing take up of private exchanges has the potential to
be a catalyst for some major revolutions in our health care system. In 2014,
about 2.5 million people across companies of all sizes will be enrolled in
health insurance through so-called private exchanges. These are analogous in
some ways to ObamaCare’s state and federal-based health insurance exchanges but
instead are run by private consultancies like Aon Hewitt or Mercer.


But not all employers are wild about the private exchange
approach. The National Business Coalition on Health produced a survey the
organization said “resoundingly” rejects private exchanges as a way to control
rising health care costs, according to Forbes Magazine. Though the language in
the coalition’s release was strong, its survey showed 5 percent of more than
330 employers already use a private exchange and “8 percent are considering
such a move within the next three years.”

According to Benefits Pro, Bruce Hentschel leads strategy
development for the Specialty Benefits Division of the Principal Financial
Group, and writes that
private
exchanges are here to stay; but for advisors and their small employer clients,
questions still remain about their value. Is the opportunity they offer more
myth than reality? Likely, the answer is a bit of both.
If you are participating or plan to participate in one or
more private exchanges, here are a few suggestions for you to consider:

·        
Define your
strategy first and then seek an exchange that provides the best fit. There are
dozens of types of exchanges all designed to meet different types of
objectives, at varying levels of sophistication, service and support. For
example, some generate a quote for an employer; others don’t. Some offer
ongoing benefit data management; some don’t. Some use defined contribution
concepts exclusively; others don’t offer defined contribution at all.

·        
Practice due
diligence. Even some of the best and most successful exchanges lack the
necessary infrastructure to allow for scale and administrative simplification.

·        
Experiment, and
don’t be afraid to switch exchanges if the one you’re working with isn’t
meeting your needs. Yes, they can be time-consuming and potentially expensive
to implement. But, it’s okay to “fail fast and fail cheap” versus dumping
additional time, resources and/or money into an exchange that doesn’t really
get the result you desire.


Employers must review material and the value proposition
for any participation in the private exchange market. Granted, more
transparency and education are needed. Brokers can play a big part with those
opportunities. If you are considering transferring your health care business
for you and your employees into a private health exchange, it pays to do your
homework and listen to trusted experts in the field. Don’t go it alone, or you
could find yourself with more issues than you imagined.