This is the final installment of a three-part series on the burgeoning field of private health-insurance exchanges.
Private health-insurance exchanges offer a plethora of potential benefits to corporate plan sponsors, as discussed in the first and second installments of this series. The number of credible ones that offer plans for use by active employees (as opposed to retirees) is not yet large. But that is likely to change as 2014 approaches.
Many companies, especially smaller ones, are now thinking about whether to continue offering health benefits as of that year — when the state and federal exchanges to be created under the Affordable Care Act are expected to become available — or 2015. For companies engaged in that thought process, private exchanges could emerge as a key complementary source of employee health benefits.
But for now, Bloom Health, Liazon, eHealthInsurance, and, most recently, Aon Hewitt make up a big portion of the field that targets active employees. There are also some long-established regional exchanges, such as HealthPass New York and California Choice. Individual insurance carriers are dabbling in the space, too, but many only recently licensed technology platforms to deliver the service or are still building one themselves.
The vendors’ client bases differ markedly. Bloom has 140 corporate clients with an aggregate 106,000 employees, or an average of 757 per company, and one with more than 20,000 workers, according to CEO Abir Sen, who declined to identify the big client. Aon Hewitt, which recently signed up Sears and Darden Restaurants as the first customers of its new exchange for large companies, plans to stay focused on Fortune 1,000 companies for the time being, though it expects eventually to move down-market.
The bulk of Liazon’s 2,000 corporate customers have fewer than 50 employees (although one has 3,000, CEO Ashok Subramanian says), and the same is true for clients of eHealthInsurance (which is the only publicly held company whose main business relates to exchanges; its market capitalization is $385 million and present annual revenue is $151 million, although a majority of that comes from products for the individual market).
A perhaps more interesting competitive battleground involves the breadth of choice the vendors provide for users. “Until now we’ve seen mostly the one-carrier option,” says Thomas Mangan, CEO of United Benefits Advisors. “The carriers are not yet sure how to price this for a multiple-carrier exchange, and anyway, they don’t want to compete with each other on that platform for an average group. To do that, they want Fortune 1,000 companies.”
Liazon and Bloom mostly or exclusively offer single-carrier plans. Bloom provides clients a single Blue Cross Blue Shield carrier, but sometimes adds plans from Medica, a Midwestern regional insurer. Aon Hewitt’s exchange includes five carriers.
eHealthInsurance has a different business model than the other vendors. Each corporate client evaluates multiple plans from multiple insurers but picks one plan for its employees, so it’s the company, not the employees, who have a broad choice. And unlike the others, the eHealthInsurance exchanges are based on a traditional defined-benefit model, in which benefits for doctor visits, hospitalization, prescription drugs, etc., are predefined but employees’ total annual out-of-pocket costs are uncertain. The others facilitate a defined-contribution model, in which the employer contributes a certain amount of money that employees can use to buy the type of insurance that best suits their needs.
An exchange for retirees called Extend Health, recently acquired by human-resources consulting firm Towers Watson, offers 80 carriers. Towers Watson plans to launch an exchange for active employees over the next couple of years, and it will have the same massively multicarrier approach, insists Bryce Williams, Towers Watson’s managing director of exchange solutions. He calls the single-carrier products “faux exchanges.”
Others feel differently. For small companies, a multicarrier exchange could add significant value, says Martin Graf, a vice president with global management-consulting firm L.E.K. But when it comes to large companies, the difference between single-carrier and multiple-carrier exchanges “is more perception than anything else,” he says. Even with their traditional health-benefits offerings, most large companies make available plans from multiple carriers, but they are largely noncompeting. “You don’t see two similar products competing at different price points, or two similar price points with differing benefits structures,” Graf says. “That will very likely also be the case with a multicarrier exchange.”
Subramanian adds that the range of plan types available in an exchange, with variations in provider network, covered services, deductible amount, and maximum out-of-pocket expenses, is what provides meaningful choice. And, he says, “both single and multicarrier exchanges can be successful if there is sufficient variation of these criteria.”
Graf further notes that “the economics are often better with one carrier. Single carriers tend to do a better job of integrating all the elements of the health-benefits plan and managing it.”
Still, he believes, private exchanges, of both the single- and multicarrier variety, are destined to develop into “a major piece” of the company-sponsored health-insurance arena. “It won’t happen overnight,” he says, “but when it does, it will do away with a good portion of what benefit consultants and brokers do today.”