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Life Health > Health Insurance > Health Insurance

Private exchange firm: PPACA should help us

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The venture capital arm of Bain Capital — the private equity company that Mitt Romney started — helped round up $12.6 million in financing for Liazon Corp. in April 2011.

Liazon is a private exchange company — a company that offers employers a vehicle for offering a long menu of benefits options from many different carriers, rather than a choice of just a few health plans.

Ashok Subramanian, the chief executive officer (CEO) of Liazon, and Alan Cohen, the chief strategy officer, who has worked for companies such as Cigna, do not immediately mention the Bain Capital connection, let alone the friend-of-a-friend connection with Romney.

But they are clearly hoping, like others in the health insurance exchange infrastructure market, that the “train has left the station” when it comes to exchanges, and that exchanges will be coming an increasingly important part of the U.S. health insurance market no matter who is in the White House in 2013, and no matter what happens to the Patient Protection and Affordable Care Act of 2010 (PPACA).

The executives came to the Hoboken, N.J., offices of today to talk about their vision of the future of private exchanges.

When Liazon started marketing the private exchange concept to employers, and to insurers, five years ago, Subramanian had to lobby hard to get the insurance company executives to consider the idea of offering their products alongside products from other insurers.

In the past two weeks, Subramanian said, three carriers have come to Liazon and suggested that Liazon should offer their products through a multi-carrier exchange.

Because of the PPACA public exchange provisions, “each of the health plans is going to have to learn to live in this new world,” Cohen said.

The shift should create great opportunities both for exchange companies like Liazon and for the health insurance agents and brokers who market the exchanges, Cohen said. 

Many people are working hard through many channels to whack PPACA.

If the law takes effect as written and works as drafters expect, the PPACA public exchanges are supposed to create “one stop shopping” for individuals and small groups that are using new federal tax credit subsidies.

Despite suggestions that state and federal regulators have been slow to set up the exchanges, Cohen said he believes that five to 10 states will have public exchange programs functioning a from now, and that the U.S. Department of Health and Human Services (HHS) will succeed at providing exchange services for residents who have no access to state-created exchanges.

The public exchanges should be great for the companies and individuals that qualify for the PPACA subsidies, but only some individuals and companies will qualify for the subsidies, and many companies will be shut out of using the small business exchanges at first.

Liazon has been competing companies like Word & Brown and Aon Hewitt to offer exchange-style one-stop shopping for employers that must or want to operate outside the public exchange system.

If the PPACA exchanges work as expected, employers that want to attract top talent may have to shift to exchange-based programs to offer the kind of rich, flexible benefits programs that free-lancers and others have been getting through the PPACA exchanges, Subramanian and Cohen said.

Aon Hewitt made waves Thursday by announcing that it has persuaded employers with 100,000 employees to give the employees fixed amounts of cash and have the employees used those fixed amounts of cash to buy coverage through private exchanges, through a “defined contribution” health coverage system.

Liazon itself already provides exchange programs for 2,000 employers and a total of about 50,000 plan enrollees in about 25 states.

Today, one challenge is that the word “exchange” is more a metaphor than a legal reality: In most cases, because of state-by-state variations in prices and insurer underwriting requirements, Liazon must set up a separate exchange for each employer. The company has developed technology it can use to create an employer’s exchange with little extra cost, but setting up multi-employer exchanges is still difficult, Cohen said.

If PPACA succeeds at restricting insurers’ ability to use health information when pricing small group coverage, Liazon and its competitors may be able to offer true multi-employer exchanges, Cohen said.

One knock against multi-employer buying programs is that the best risks soon try to leave the group and make better deals on their own, but, so far, Liazon has had a 99 percent renewal rate and seen no evidence of any problems with antiselection, Cohen said.

One reason may be that, when employees choose their own coverage, they often choose high-deductible plans, plans with narrow networks, and other affordable plans that do a good job of holding down claims, Cohen said.

The rise of exchanges should help brokers, because working with an exchange is a way for a broker to serve a small, “micro group” that would not be a profitable traditional health plan client, Cohen said.

One organization that conducted a survey found that 80 percent of employers are interested in using exchanges, and that 13 percent of the employers want to get exchange services from insurers and 26 percent from agents or brokers. Another 61 percent have no idea where they’d get their exchange services, Cohen said. 

“That’s an opportunity and it’s also a threat for insurance agents and insurance brokers,” Cohen said. “Employers don’t want to get this from their health plans. they want to get this from their trusted advisors.”

Going with an exchange with high-tech systems may also be a great way for employers, producers and insurers to avoid having to deal with the new summary of benefits and coverage (SBC) requirements, Cohen said.

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