Midsize Companies Move to Private Health Exchanges

Mercer announces 33 new users for its active-employee exchange product, most with between 100 and 3,000 employees.

The market of private health-insurance exchanges got another strong boost today, with human resources consulting firm Mercer announcing that 33 companies will use its exchange for their active employees starting Jan. 1.

The announcement comes less than a month after Mercer competitor Aon Hewitt revealed it had signed 15 new large corporate clients for its exchange, on top of the three that were already using it.

Unlike Aon Hewitt, which so far has limited its exchange product to employers with at least 3,000 workers, Mercer is targeting those with as few as 100 employees. “There are so many more of those kinds of companies, and their time frames for making decisions on benefits changes tend to be shorter,” says Eric Grossman, the firm’s exchange business leader.

Still, the 33 companies new to the Mercer exchange come in widely varying sizes. Their aggregate employee count s about 75,000, an average of 2,273 per customer. One, though, employs 30,000 people, skewing the average. Some of the new entrants have barely more than 100 workers, Grossman says.

He notes that on average, larger companies are more often driven by a desire to provide an enhanced employee benefit with a greater choice of health plans, while for smaller employers cost-saving opportunities are often the bigger motivator.

Also notable is the extreme variability of industries in which the 33 companies operate. Such diversity marks Aon Hewitt’s group of new customers as well.

Until now, virtually all companies publicly known to be using private exchanges for active employees are in industries populated mostly by low-wage, often part-time workers, such as retail, hospitality and food service.

Mercer revealed the names of nine of the 33 companies: Addison Group, which provides professional-level IT and finance staff on temporary assignment; Cosentry, a provider of data-center and server-monitoring services; Kraus Flooring, which makes carpet, vinyl and hardwood flooring; PAS Technologies, a provider of maintenance and repair applications and components for manufacturing equipment; Sanborn Maps, which publishes maps of U.S. cities and towns; Surgical Specialties, a manufacturer of microsurgical knives and other medical equipment; and Vistronix, a federal contractor that provides national-security solutions and services.

“This really puts to rest the myth that private exchanges appeal to a narrow range of companies,” Grossman says.

Just two of the named companies fit the narrow range in terms of worker pay: Petco, the pet-supplies retail chain, and DineEquity, parent of Appleby’s and IHOP.

Addison Group pays its IT professionals, who generate about half of the company’s $180 million in revenue, an average of $50 an hour, or about $100,000 a year, says CFO Patrick Jones. The high pay is because the supply of highly qualified IT professionals is thin. “The unemployment rate is very low for those folks, so we wanted to give them more options and a better benefits experience,” Jones says. “That’s important to continuing our company’s growth.”

Until now they’ve had only two health-plan choices, one in-network and one out-of-network PPO plan. In surveys of the company’s 2,100 employees, Addison Group heard of dissatisfaction with the benefits, Jones says. Young and healthy people who would prefer an HMO or high-deductible plan comprise much of the population. They will have those options in the Mercer exchange, which will have plans from five insurance carriers.

But while enhancing benefits may be Addison’s primary motivation for the move, cost savings expected to flow from it are not unappreciated. The company’s head count rose by 50 percent during 2013, so 2014 health costs are going to be much higher no matter what. But on a per-employee basis, Jones estimates that the company’s health-care tab will run 15 percent to 18 percent lower next year.

The savings will come from the healthy employees’ ability to be better consumers, says Jones. “People will get the plan that fits their individual needs, versus being overinsured and having the company pay a big piece of that.”

And the 15-18 percent  savings level is expected in spite of the fact that Addison will increase the share of insurance premiums that it pays by 6 percent, another strategy aimed at attracting and retaining employees.

Like many other private-exchange customers, Addison will be making direct contributions (DC) to employees for use in buying insurance through the exchange. They will get to keep any money they don’t use for that purpose, though it will be taxable to them.

Grossman said just less than half of its exchange customers will be taking the DC approach, instead continuing to deduct employees’ share of the premium cost from their paychecks. About two-thirds of the customers are fully insured as opposed to self-insured.

Mercer also announced that 19 companies that pay for retirees’ health care have joined its Medicare-based retiree exchange.

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