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Private Exchanges a Solution, but Not for All Insurance Agents

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Arthur J. Gallagher’s launch of a private insurance exchange platform marks a start to brokers seeking solutions for their employee benefit clients as the healthcare reform law takes effect, but this strategy will not be easily duplicated by other insurance brokers, notes an industry watcher.

The private insurance exchange will be an alternative to state exchanges—which are to begin offering coverage in 2014—envisioned under the Patient Protection and Affordable Care Act (PPACA).

The problem is that launching a private insurance exchange will require a broker of considerable  size in order to provide the services needed to coordinate an exchange, something only national brokers are capable of, says Rob Lieblein, executive vice president with the agency consulting firm Marsh, Berry & Co.

Gallagher is generally regarded as the fourth largest insurance brokerage firm in the United States after Aon, Marsh and Willis Group Holdings.

“The [private exchange] protects the relationship of the broker, or consultant, with their client, the employer. It gives the employers other opportunities to provide healthcare benefits for their employees,” says Lieblein. “Without that, employers will have to decide to pay or play—pay the penalty [under PPACA] and not offer insurance.

“I think many employers, particularly in that 200 to 250 life space, recognize that providing benefits is a key benefit to attract and retain talent. So I think they are looking for other options than the traditional markets have today.”

Another advantage for brokers is that offering a private exchange will protect their revenue streams, notes Lieblein.

Under PPACA, health insurers are required to spend 80 to 85 percent of premium on healthcare. That requirement is already cutting into agents and brokers commissions. And even though agents have access to state exchanges for their clients, the compensation formulas have yet to be developed, says Lieblein.

Earlier this week, Gallagher announced it would partner with Liazon Corp., a provider of private insurance exchanges. They will offer clients the Bright Choices Exchange, an online benefits store for employers to select health, dental, vision, life and disability coverage, among other benefits, from various national and regional insurance providers.

Sean Schubert, vice president of sales and marketing strategies for Gallagher Benefit Services (the employee benefit operation of Gallagher), says since passage of PPACA, the firm has “focused on the implications for the client” and sought to develop programs that will meet those needs.

The expectation is that small- and mid-size employers (200 lives or less) will be most attracted to the private exchange as they seek to control their healthcare expenses through defined contributions.

Under a defined contribution plan, employers give employees a set amount of funds to purchase insurance on their own, presumably through the exchange.

Schubert says the program will be launched in August in selected markets in metropolitan areas. Gallagher plans to take a phased approach to introducing it, anticipating that each client will have different needs that will need to be addressed individually.

“As more and more employers purchase their benefits through the exchange, and because [the purchase] is personalized, it will be interesting to see what kind of decision [buyers] make,” says Schubert.

Bruce Ballentine, senior credit officer for the rating service Moody’s, says that of the major brokers that the rating services monitors, Aon stands out as being the only other insurance broker to say they are developing a private insurance exchange.

Aon’s Aon Hewitt human resource consulting division said in April that it would develop a private healthcare exchange targeting companies with 1,000 or more employees. Ballentine says there is nothing surprising about a broker developing such a program, especially considering that healthcare insurance programs are expected to remain employee-based, and “brokers will remain heavily involved in that space. It’s a logical extension that their efforts would move into the realm of private exchanges.”

A Moody’s broker-focused report in June underscored the involvement of brokers, noting employee benefits remains a significant piece of their business, and that employers rely on brokers for “a broad range of placement, administrative and advisory services, including human resource and general management consulting.”

The article by National Underwriter staff writer Mark Ruquet originally ran in


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