Get used to hearing the words “insurance exchange” around the water cooler.
Not only are the state-run heath insurance exchanges slated to launch in January as part of federal health reform, but private insurance exchanges are quickly taking root to cater to employers and their workers.
Experts say that private exchanges could have an even greater impact on benefits than public exchanges. That’s because the employer-based insurance market dwarfs the individual insurance market and employers are eager to reduce costs and get workers more engaged in their own health management.
“Exchanges are going to be a permanent, significant part of the healthcare world going forward because they are a powerful, adaptable way of meeting a wide variety of employer needs,” says Chris Bernene, partner at Oliver Wyman, a benefits consulting firm.
Unlike the public insurance exchanges, which will offer only health insurance, private exchanges will sell a wide variety of products. Mercer, a major benefits consulting firm, is launching its exchange called Mercer Marketplace in 2014. In April, Mercer announced its first 10 participating health insurance carriers, which include Aetna, Cigna, Humana, United Healthcare, Health Net and Blue Cross and Blue Shield of Florida. Other participating carriers include major disability, life, dental, vision and even pet insurers.
“There are very few points of similarities between the private and public exchanges beyond the word ‘exchange,’” explains Eric Grossman, senior partner at Mercer. “A private exchange requires an affinity for eligibility. You can’t just walk in off the street.”
Private exchanges will generally offer coverage through defined contributions. The way it works is an employer will pay a defined amount per worker or family annually and then the worker will take that money and purchase insurance on the exchange.
Health insurers participating in Mercer Marketplace are required to offer seven different benefit plans ranging from the bare-bones of just above what is required for carriers to participate in the public exchanges, to a rich plan that covers nearly 93% of total care. Employers are not required to offer all seven to their workers. Employers must have at least 100 eligible employees to participate in Mercer Marketplace.
“We will work with each employer to decide what to offer,” Grossman says.
In private exchanges, products are standardized, cutting down on employer resources necessary to manage benefits. Mercer will use its call center near Des Moines, Iowa, for customer support, fielding calls from employees typically handled by in-house HR personnel.
Other leading consulting firms Aon Hewitt and Towers Watson are also creating private exchanges. As are individual insurance carriers such as regional Blues plans.
Private exchanges offer health plans another avenue to reach customers. Indeed, some insurers will participate in multiple private exchanges. Towers Watson in late April announced the
—called OneExchange—that included insurers also signed up for the Mercer exchange.
Private exchanges also give health plans richer data to create tailored products, Bernene says. For instance, carriers can design products and service bundles geared towards specific medical needs, he says.
Health plans already use claims data to target and stratify members. Pairing claims data with other sources allows for a more complete picture of risk. For instance, appointment-scheduling trends can offer forward-looking information on inpatient facility usage. Shopping patterns in the exchange can offer clues to consumer behavior and socioeconomic status as well, Bernene says.
Early adopters among employers are expected to be large players in retail and hospitality with lower-wage workforces, Bernene says.
“It’s a lot easier to control costs with this model,” he says. “In its most basic form, it’s a lever to shift costs, but to others with a long-term view, it’s about accountability and choice.”
However, employers with higher-wage workers could also jump in. At least half of employers are willing to try a private exchange if it means a
, according to a 2012 Oliver Wyman report.
“Over time, if the exchanges become a mechanism for improving the employee experience, then they could be very attractive to a wide range of employers,” Bernene says.
Grossman of Mercer describes the level of interest from employer clients as “unprecedented.”
An attractive aspect of the private exchange model, Grossman agrees, is cost control.
“An exchange, by definition, creates a retail mindset for the consumer,” Grossman says. “In that way, we do expect the exchanges to accelerate the pace of innovation. There is going to be intense pressure to control costs without taking away benefits. The challenge is, Can we construct networks and manage care in a way that can control costs?”