From 2014 to 2015, enrollment in private exchanges doubled from 3 million to 6 million, with mid-sized employers contributing most to the increase, according to an Accenture report. Enrollment in private exchanges is projected to grow to 12 million in 2016, 22 million in 2017, and 40 million by 2018.
Some experts believe that prediction may be a little too rosy, including Paul Lambdin, director, health plan exchange practice leader at Deloitte Consulting LLP in Stamford, Connecticut.
“The adoption rate is not tearing up the employer marketplace, but I think there will be movement,” Lambdin says. “Benefit managers are cautious people. It has taken 15 years for high-deductible plans to become the sole offering in 20 percent of employers, and many had predicted a more rapid adoption.”
So far, the level of interest for moving to the private exchanges is higher for midsized employers than for larger employers, according to Deloitte’s soon-to-be-published employer survey.
“In some respects, large employers have had many of the basic elements of an exchange for a long time — decision support, greater choice for employees, benefit administration and compliance support for the employer,” Lambdin says. “Larger employers need to see how exchanges would make a difference long-term to their cost structure and the affordability of health benefits, so have a higher standard for taking the plunge and changing where they are today.”
On the other side of the spectrum, smaller employers may only have one plan choice and may “still be working out of a shoebox.”
Making the move
It’s too early to tell which model and sponsor type will emerge as the winner, Lambdin says. Sponsors include exchange companies that were formed specifically to bring those solutions to market, large broker and consulting firms, and carriers. Deloitte’s survey also asked about preferences for the type of exchange sponsor if employers made a move to an exchange. Forty percent said they would prefer their insurance carrier, a third didn’t have a preference or didn’t know, 18 percent said independent, and 8 percent said broker/consultant.
“There’s been so much attention to the consultant or broker-sponsored exchanges, but my hypothesis is that many employers are comfortable taking their first step with their current health plan, and just want to get administrative support, decision support and compliance support for the carrier’s plans through the exchanges,” Lambdin says. “So their first step may be to work with their current carrier and broker rather than going with a different type of arrangement. They want to change, but with less risk.”
Liazon, a unit of Towers Watson, offers its Bright Choices exchange as well as private-label exchanges for brokers and benefits consultants, including Willis, Arthur J. Gallagher, Lockton and Brown & Brown. By mid-year, more than 1,500 employer clients and about 1.2 million covered lives were covered on Towers Watson’s exchanges, including retirees.
On average, one new customer is coming onto the exchanges every day, says Alan Cohen, Liazon’s co-founder and chief strategy officer.
“Employers have to decide what type of exchange is right for them, so we offer a lot of flexibility in insurance and benefit offerings. We can help them build their specific exchange offerings, or they can work with their brokers,” Cohen says.
Employers using Liazon’s exchanges list on average 10 to 12 health insurance plans, as well as voluntary benefits like critical illness, accident, hospital indemnity, dental, vision, disability, personal life, life for dependents, legal insurance and pet insurance.
With so many more choices for workers, employers need to be mindful that change management is necessary, Cohen says.
“They should be upfront that this is a real change on how benefits will be decided, and should be actively engaged in helping employees learn how to use it,” Cohen says. “About 10 percent to 20 percent of employers don’t do it right.”
Liazon provides sample email and website messages, videos and posters that employers can put in their offices to help during enrollment periods, he says.
Willis North America uses Liazon for its primary exchange platform, the Willis Advantage, says Rob Harkins, practice leader, private exchanges, national human capital practice.
The broker and consulting firm worked with Liazon to customize the platform, which included incorporating Willis’ integrated health management offering. Willis has also built a number of customized platforms and programs for its clients with other technology vendors, such as ConnectedHealth, for other types of solutions, such as giving users on the private exchange access to the individual market and public exchange market.
“This is good for employers that may not want to offer health care insurance to part-time employees, seasonal workers and 1099 contractors, but who also don’t want to transition them straight into the public exchanges or leave them on their own,” he says.
Willis also offers Bloom Health, a private turnkey solution platform owned by Anthem for employers who just want to offer choices among certain carriers, such as Blue Cross plans that are available in the employers’ geographical markets.
Willis currently has 35 employers utilizing its private exchange platform, with roughly 80 percent of this business coming from existing clients who have transitioned over to the exchange, and the remainder from new business. Additionally, about 700 employer groups are in the pipeline.
Willis’ solutions predominantly appeal to the midmarket segment, but employees of all sizes use its private exchanges, Harkins says. It generally takes longer for larger clients to move to a private exchange solution because they have to get buy-in across multiple parts of their organization, including the C-suite.
“In the midmarket space, the HR folks are generally closer to the ideas and concepts, so uptake can move quicker,” he says. “As a rule, larger and mid-market clients are more strategic in building employee benefit programs, compared with smaller companies that are interested in a more turnkey solution.”
Geographically, there are certain pockets of the country that are really embracing private exchanges, including the Midwest—particularly in the Chicago area and Ohio—the Southwest and a lot of the Mid-Atlantic, Harkins says. Willis is starting to see “a little pickup” in California, while the Northeast “is always a little bit slower.”
“We believe we have the right approach, in that our model does not rely on ‘selling’ private exchanges,” he says. “Instead, we are focused on a more agnostic consultative approach to best meet clients’ needs. We want to educate employers on the potential value a private exchange can offer to help control costs through a defined contribution approach, with the extra value of giving employees more benefit choices and decision support tools that help them navigate those choices.”
Ken Sperling, Aon Hewitt’s national health exchange strategy leader in Norwalk, Connecticut, said that 33 companies representing 850,000 covered lives are on the Active Health Exchange, and about another 400,000 covered lives are on the retired exchanges, for a total enrollment across exchanges of 1.2 million. Moreover, roughly 30 percent of its other clients across all industries, geographies and sizes said they would consider using private exchanges.
Aon Hewitt’s exchange offers a standardized menu of options—bronze, bronze plus, silver, gold and platinum plans—and while employers do not have to list all five, most do, Sperling says. The exchange lists 30 carriers across medical, dental and vision plans, and also offers voluntary benefits. Typically, most employers offer medical, dental and vision, and some choose to offer voluntary benefits as well.
The vast majority of individuals (87 percent) who completed enrollment through the Aon Active Health Exchange website last year said they liked being able to choose among multiple carriers, according to Aon Hewitt’s post-enrollment survey.
To accommodate those wishes, Aon Hewitt is striving to add more carriers and plans to its exchange—even as insurance companies are now starting to actively acquire other carriers, Sperling says.
“We see continued consolidation in the health care industry and will be looking for additional plans to add to the menu to make sure we offer access to quality plans at attractive price points,” he says. “We are adding regional plans where that makes sense.”
As new health insurance models, such as accountable care organizations, evolve over the next several years, Aon Hewitt may add those to the menu as well, Sperling says. The broker and consultant firm is also continuing to improve the user experience, making it easy for consumers to shop and have all the information to make better decisions. Narrow, or “high-performance” networks are also becoming more popular.
“They are great, high-quality networks at lower price points, but we also want to make sure every employee has access to hospitals and doctors, even if they have to pay more than in a smaller network,” he says.
Aon Hewitt offers a “fully-insured model,” to foster greater competition in the marketplace to help drive prices down.
“Choice is great, but at the end of the day what we’re really after is driving down the cost of health insurance for everyone,” Sperling says.
Businessolver, in Des Moines, Iowa, provides a combination of benefits administration technology and “high-touch” service. Jon Shanahan, company president and chief executive, says that some employers are moving from being self-funded to fully-funded. The first question he asks them is whether they are trying to increase the products available to their employees with a consumer-based model.
He also asks whether they are thinking of moving to a defined contribution program, where the employers would fix their contribution with fixed dollars amounting to a percentage of salary, and then offer a broader array of consumer-based tools.
“Employees can go in and set the amount of spend on how they want to use those dollars across the program,” he says. “The employer wins because they’ve fixed their expenses; the employees win because they can spend dollars across a broader benefit program.”
MetLife offers voluntary benefits products on more than a dozen exchanges, including basic and supplemental life, dental, vision, accident, hospital indemnity and critical illness plans, says Jessica Moser, vice president, channel development, at Metlife in New York.
Generally, the midmarket and smaller market decided to offer voluntary benefits “right off the bat,” while the upper end of the market did not, though they are recently moving more in that direction, Moser says.
According to MetLife’s 13th annual Employee Benefit Trends Study, roughly one-third of midsize and large companies agreed that health insurance exchanges offer lower-cost options for employees compared to what they currently offer. By contrast, only 17 percent of small companies agreed, “perhaps indicating a lower level of awareness about exchange options in this segment,” according to the survey report.
“Private exchanges continue to grow as an additional viable channel to distribute benefits, though it is a fairly small percentage compared to our traditional business,” Moser says. “We are looking to partner with brokers and technology platforms that have the right types of services and ease of administration that can help us maintain close service relationships with our customers.”