“Obamacare with public exchanges has been sort of the green light for employers to look at all their options,” said Lori Dustin, chief marketing officer for HighRoads, a Burlington, Mass.-based benefits plan management company.
“There's no doubt the interest is there,” said Paul Fronstin, director of the Employee Benefit Research Institute's health research and education program.
He cautioned, though, that any shift toward private exchanges will be gradual.
Proponents of the private marketplaces argue they offer employees a wider range of choices that better align with their personal healthcare and financial needs, while holding down premium growth by sharpening direct competition between insurers for customers. If the exchanges succeed, it will be a godsend to employers and employees because premiums for the roughly 150 million U.S. workers and their family members who get coverage through work have increased by 80% over the last decade, according to the Kaiser Family Foundation.
“A lot of employers have become increasingly concerned that the status quo is no longer sustainable and they need new approaches,” said Eric Grossman, senior partner and exchange business leader with Mercer, which started offering a private exchange option to employers for coverage this year.
But some experts are concerned that private exchanges simply offer a convenient way for companies to move from paying a set percentage of each employee's premium cost to a fixed-dollar premium contribution, shifting more costs onto employees as premiums rise. They warn that employers could antagonize their workers if the workers see it that way. “If you're going to stick your employees with the risk of unusually high premiums, they're not going to want to work for you,” said Mark Pauly, a healthcare finance expert at the University of Pennsylvania.
Pharmacy chain operator Walgreen Co. switched this year to a private exchange run by Aon Hewitt. Previously, the company offered two health plan options to its nearly 250,000 employees. Now Walgreen is offering 25 different plans from five different insurers, although not all plans are available in all parts of the country. Aetna, UnitedHealth Group and Kaiser Permanente are among the insurers competing for Walgreen workers.
According to Walgreen, roughly 75% of eligible employees working at least 30 hours per week signed up for coverage, a rate consistent with prior years. Roughly one-third of employees opted for plans with lower premiums than they previously were paying, while one-fourth chose plans with higher premiums.
The concept of employees browsing multiple plan options with the aid of consumer-support tools has been discussed in benefits management circles for at least a decade. But only fairly recently have information technology tools made this model possible.
The movement toward private exchanges is being driven by aggressive marketing from companies like Buck Consultants, Aon Hewitt, Towers Watson and Mercer that operate these marketplaces. “Every consulting firm was sending out invitations to come hear about their private exchange,” Church & Dwight's Levine said.
Still, evidence on whether employers are moving to private exchanges in significant numbers is murky. An analysis by Moody's Investors Service released in March estimated that fewer than 1 million active workers with job-based coverage at the start of 2014 were enrolled through private exchanges.
Those numbers are likely to grow, according to market observers and companies running exchanges. Aon Hewitt reports that the number of people covered through health plans sold on its exchange increased to more than 600,000 in 2014, up from about 150,000 the prior year. That was spurred by the number of employers using its marketplace increasing from three to 18. Mercer says it has 67 companies participating in its private exchange in 2014, its first year of operations, covering nearly 300,000 workers and retirees. Moody's concluded that enrollment in private exchanges could grow to “tens of millions of active employees” by the end of the decade.
The structure of private exchanges is similar in many ways to the Obamacare public exchanges, but there is no single template. In most private exchanges, multiple insurers offer a variety of plans for workers to choose from. They can range from low-premium, high-deductible plans to high-premium plans with more comprehensive coverage.
In most private exchange arrangements, insurers pay the exchange operator a percentage of premiums for plans sold on the exchange, said Robert Laszewski, a Washington-based consultant who works with insurers. In some private exchanges, the operator can receive a straight fee for its services. “It's all over the place,” he said.
Exchange operators sometimes earn compensation through “success sharing” arrangements, whereby they're rewarded for reducing benefit costs. “Employers want to see the exchange operators have some skin in the game,” said Dave Osterndorf, Towers Watson's chief actuary for health exchanges.