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.

The Kaiser report also notes that consultancies Accenture and Oliver Wyman both predict somewhere around 40 million enrollment by 2018. If these projections bear out, that would make the private employer exchange market about 24 percent of the total employer market, based on CBO projections. Much more detail on this info can be found at this site: http://www.forbes.com/sites/theapothecary/2014/10/15/are-private-exchanges-the-future-of-health-insurance/ .

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.”

NBCH said 55 percent of respondents will “never” stop sponsoring health coverage in favor of giving employees money to buy through a private exchange. More material on this topic is available at this website: http://www.forbes.com/sites/brucejapsen/2014/10/08/more-employers-shifting-health-to-private-exchanges/ .

 

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.

Private exchanges will go through tremendous change and in a relatively short period of time, and the options will eventually narrow down to a few winning models. For more details, visit this website: http://www.benefitspro.com/2015/01/29/private-exchanges-myth-vs-reality.

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.

Until next time.