Reform Update: Employers take closer look at private insurance exchanges

With public small-business insurance exchanges opening Oct. 1, two studies released this week show employer interest in private insurance exchanges is growing.

In its annual survey of employer health benefits released Tuesday, the Kaiser Family Foundation found that 29% of employers with 5,000 or more employees are considering private exchanges as an option for buying healthcare coverage for their employees. A day later, consulting firm Towers Watson released its Health Care Changes Ahead survey, which found that 37% of employers think private exchanges are a reasonable alternative to traditional employer coverage in 2014; 57% said they will be a viable option in 2015.

In private exchange arrangements, employers contribute a defined amount for each employee and let the employee select a plan from a number of options, with the employee paying out of pocket if the selected plan's premium exceeds the contribution. This caps premium costs for the employer and gives employees a financial incentive to choose less-expensive plans. Private exchanges are geared toward employers that buy fully insured products as well as self-insured companies. They are being offered by some of the largest benefits consulting firms and insurers in the country. Fully insured plans on private exchanges must comply with the insurance market rules and minimum benefit packages required by the Patient Protection and Affordable Care Act.

For employers with less than 50 employees, private exchanges will compete with the public Small Business Health Option Program (SHOP) exchanges each state is required to have under the ACA. Private exchanges got a boost this year when the Obama administration delayed by one year the requirement that employees buying through the SHOP exchanges in states where the federal government is running the exchange have multiple choices of plans. That's considered a big selling point for exchanges as many smaller employers traditionally offer only one plan.

Employers using private exchanges also can avoid the user fees required by the SHOP exchanges, and insurers may offer plans with richer benefits.

“Since the SHOP exchanges are being delayed and small businesses have no requirements to offer health insurance under the ACA, (plans offered through private exchanges) may be the ideal solution for their employees,” said David Lindgren, a compliance officer at Flexible Benefit Service Corp., noting that employee choice is key. “In fact, there are whispers that private exchanges may quickly become the norm for small businesses.”

But there are concerns that private exchange operators and health plans will find ways to lure younger, healthier employer groups away from the SHOP exchanges, driving up premiums in the public exchanges. One possibility is that private exchanges may offer plans with richer benefits and better out-of-network coverage features, attracting more affluent employer groups.

In addition, they fear that private exchange marketing could confuse small employers and cause them to overlook the availability of the SHOP exchange, the sole mechanism through which they can receive a federal tax credit for buying coverage for their workers.

While officials in states running their own exchanges have touted that 2014 premium rates have come in lower than expected, there is a wide variance in some states between the highest and lower premiums in a given metal tier, according to research conducted by Manatt Health Solution. In a recent Health Affairs blog post, Joel Ario, Adam Block and Ian Spatz found that while the difference between the second-lowest and second-highest silver plan premium for an individual from San Francisco looking for a plan on California's exchange was only 3%, in New York City, that difference was 76%. In Baltimore it was 40%. The authors attribute the differences to the fact that health plans have no experience with exchange enrollees, some well-established plans already have favorable contracts with providers and some plans can offer lower rates by contracting with narrow provider networks.

Insurers will have more time to review how their plans will be displayed on the websites for federally run exchanges in 25 states, according to a CMS announcement on Aug. 15. Until the change, carriers had until Aug. 23 to submit any requests to correct information about their plans. But the CMS now will give them until Aug. 30, citing the need for additional testing of the data from insurers. The purpose of the review is to ensure the information being displayed on a state exchange's website is the same as what was submitted by insurers in their applications and what was approved. HHS says it plans to release approved rates for plans offered on federal facilitated and partnerships exchanges in early September.

Follow Jonathan Block on Twitter: @MHjblock