Private exchanges have become an increasingly popular option for employers looking to offer their employees additional health plan options while at the same time controlling costs. Until recently, private exchanges were mainly relegated to jumbo employers and early retiree populations (e.g. IBM and General Electric).
Employer-Sponsored Private Exchanges
In the past few years however, employers, including Sears, Walgreens Darden Restaurants and more recently Time Inc., have expanded their use to include active employees as well. These new private health care exchanges are typically paired with defined contribution models and consumer-driven health plans.
Smaller sized organizations, however, have been much slower to adopt private exchanges – surveys report that while close to 50 percent of smaller employers like the idea of a private exchange, only a small fraction of them intend to offer a private exchange for their employers in the short term. While many small groups still seem to be in the information gathering stage, there is strong evidence that private health insurance marketplace models work well in small employer groups. Professional employer organizations (PEOs) have offered online private exchanges – with a lot of strings attached – in the small group market for over 10 years and currently cover approximately three million employees in small establishments.
As employers of all sizes search for alternatives to increasingly costly group policy coverage, private health insurance exchanges are expected to grow in popularity. In fact, the consulting firm Accenture predicts that “private exchange participation will approach public exchange enrollment levels as soon as 2017 and surpass them soon thereafter.” And that “in 2017, approximately 18 percent of the American public will purchase insurance through exchanges, radically transforming the health insurance landscape.”
Most consultants expect mid-sized and large employers – 100 – 500+ employee size – will drive adoption of these health exchanges in the employer group space. These size organizations employ nearly two-thirds of all U.S. employees and are required to offer health benefits under the Employer Shared Responsibility Provision of the ACA. As individuals become more comfortable with making their own health care purchases, and technology simplifies and supports the shopping process, private exchanges will become an increasingly common solution for buying employer-sponsored health care.
Broker-Sponsored Private Health Insurance Exchanges
Another area where we are seeing adoption of private exchange models is in the broker market. While larger size employers turn to benefit consultants for their private exchange solutions, insurance brokers are also looking to private exchange solutions to support their clients as well. Brokers are under increasing margin pressure because of medical loss ratio (MLR) rules and are increasingly looking to technology to grow the volume of transactions they can manage without having to add staff. The key here is a solution that can effectively handle plans and rates from multiple carriers and ancillary providers. This is one area we have been focused on here at TrueCoverage – building a robust plan and rate repository to manage all this data and make it easy to use for brokers.
Another challenge for brokers is they often have very seasonal sales – especially in the “on exchange” market. With 90+ percent of their business coming in 90 days, they really need to have a streamlined process to shop, compare and enroll members. The group market may have a less compressed sales cycle, but the multi-step sales process and the greater amount of information brokers need to collect create other challenges. A well-designed private exchange can help through the automation of processes, data validation and member self-service tools.
Another part of the equation for brokers is pricing of a private exchange solution. Seasonal business also brings with it seasonal revenues. A broker may see much lower revenues during the summer months, so finding a private exchange solution with flexible pricing is a critical factor as well.
A final space where we are seeing an interest in these health exchanges is in states. As of mid-2015, approximately half of the states are leveraging the federal exchange for individual and SHOP plans instead of setting up their own state-based exchange.
Private exchanges are beginning to pop up as competition to the public exchanges. For instance, Florida has Florida Health Choices and New Mexico has TrueCoverage. These publically available “private exchanges” can offer residents additional plan choices, including ancillary plans that public exchanges do not include. Look for these public/private exchanges to continue to grow in popularity, especially in those states with only a federal exchange option.
Private Exchange Takeaways
- Private exchange adoption is following a “top-down”‘ approach in the employer space, with larger size employer leading the way. Small groups will likely embrace private exchanges as well – just more slowly.
- A private exchange can also support brokers looking to grow efficiently, especially in the more complex group market, but pricing is probably as important as the technology.
- States – especially those who rely on the federal exchange to power their state exchanges – are open to the private sector to offer alternative public/private exchange solutions in their states.
The growth of private exchanges parallels the growth of health care consumerism and the increasing use of technology to support health care shopping. A private exchange solution can really enable a win/win situation for employers and employees by providing education, choice and cost predictability. It also provides a solid foundation for brokers looking to grow, and unique options for states looking for alternatives to costly state-sponsored public exchanges.
No matter where you look, private exchanges are here to stay and will only continue to grow in use.