More plans act on private insurance exchanges

Worried that small employers might drop their group health plans and shift employees to the individual market, Highmark, Inc. launched its private health insurance exchange in 2010. Initially, the Blues licensee targeted employer groups of 100 or fewer lives, and then in 2013 expanded its online platform to accommodate all group sizes.

Highmark created separate platforms: one for commercial groups of active workers and one for group retirees. And while the model first attracted employers who liked the idea of online enrollment, its single-carrier exchange's tools, capabilities and product lines have kept evolving-to the point where consolidated billing and online payments will be featured for 2016.

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Brown"Obviously, our goal is to keep group 'group,'" says Bill Brown, Highmark's manager of digital distribution who focuses on private exchange offerings."[I]n our region a lot of web-based brokers are trying to break up groups and enroll them as individuals in the public exchanges." He says Highmark wants an intermediate step for small employers, offering defined contribution and employee choice, as it works to "leverage broker partners so they can use our technology to help keep groups in group." 

At first, Highmark "thought just of private exchange and defined contribution," Brown says. But now its model also includes a defined benefit (traditional 70% to 80% coverage) and integrated self-funding for smaller groups. "What we've seen over the last two years is that people like the technology. They want to do enrollment, make payments online [etc.], so we're looking at private exchanges more as e-commerce now, beyond defined contribution," he says.

NEXT: Optimism despite slow growth

Brown cites slower-than-anticipated enrollment growth in Highmark's private exchange, partly from delays under the Affordable Care Act (ACA) affecting employer groups' coverage decisions. Yet Highmark sees strong potential in the private-exchange market for employers with up to 1,000 lives, he says, especially among businesses with 500 or fewer employees where "the owner does it all," and thus likely would realize the model's potential administrative advantages.

"It's going OK. It's not jumping off like we thought it would yet. We’re close to that point," Brown says of private-exchange enrollment. "...We've had about 100 groups this year [for 2015 coverage] going to ACA plan designs just to take advantage of online technology." But, he says most employer groups in western Pennsylvania are staying with their traditional plans, waiting to figure out a transition model, since the ACA allows groups of up to 100 lives to keep grandfathered plans through most of next year. (Highmark also covers West Virginia and Delaware as well as central Pennsylvania.)

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Still, Highmark expects 10% to 15% of employer groups of up to 100 workers to migrate to private exchanges-likely soon after 2018 as employers get a better sense of the model's benefits, Brown says.

Nationwide, about 5 million Americans are enrolled in health coverage through single- or multi-carrier private exchanges. Analyses by Accenture and others predict private-exchange enrollment will climb dramatically and quickly: up to 25 million to 40 million by 2018. A national survey of large employers released in June by Pacific Resources cites cost as the main driver toward private exchanges, with most employers wanting to stay self-insured if they make the shift.

NEXT: Industry experts voice skepticism

Industry experts say they are skeptical that private-exchange enrollment will soar that high-at least within the next few years. Yet all see momentum building.

Carriers have aimed to offer more in a private exchange than what a Small Business Health Options Program (SHOP) exchange can offer at similar cost; thus, a group's employees, instead of being overwhelmed with an array of medical products, might choose from several medical options plus ancillary products-such as dental, vision, and accident insurance -in a more controlled environment.

Private exchanges were expected to complement the ACA's state-based public exchanges launched in 2014 and become the norm, replacing many employer-sponsored group plans. Some forecasts, including a recent survey by Array Health, still anticipate this shift.

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(The ACA's public exchanges target subsidized individuals; the federally facilitated SHOP exchange hasn't gained much traction and isn't expected to pick up steam any time soon, though it is expected to open to groups over 100 lives in January 2017.)

Highmark is among those carriers that began using private exchanges as an alternative distribution channel. Others, including WellPoint, Inc., bought into platform companies with the technological know-how to help employers shift from group coverage to a defined-contribution model. And many insurers waited to figure out whether to participate in private exchanges-and if so, to what extent.

NEXT: Poised for extreme growth

But healthcare consultants stress that now is the time for carriers to act on private exchanges-and every insurer ought to be in the game.

"Health insurers need to become informed of what private exchanges mean in their marketplace and what their competitors, old and new, are doing ... and need to make decisions quickly on how to position themselves," says Matt Graham, a director at Leavitt Partners who helps manage the Private Exchange Coalition (PEC) launched in June. The PEC seeks to promote data interoperability standards and best practices, along with the idea that private exchanges improve selection, administration and use of employee benefits.

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Graham says Leavitt Partners, believes the private-exchange industry is poised for "extreme growth." And, citing technological advances, he describes the private-exchange mechanism as long overdue. "We believe the winning model will likely be something similar to the travel industry," with KAYAKs, Expedias and other multi-carriers in the mix alongside single carriers, he says.

Graham says private exchanges are paving the way toward a better flow of information that could allow newcomers, such as accountable care organizations (ACOs), into various markets. It's almost a non-starter for an ACO to offer its product alone, he says, since an employer likely would have employees for whom the ACO won't work. But that same employer may look at an ACO's high-performance network as attractive to offer, along with other health plans and perhaps ancillary products, on a private exchange.

NEXT: Three types of private exchanges

Dr KingsdaleJon Kingsdale, PhD, managing director at Wakely Consulting Group, says there are three basic types of private exchanges: broker- or consultant-led multi-carrier exchanges aimed at large employers and generally focusing on the active workforce (although some participate in Medicare for early retirees); single-carrier exchanges; and independent web-based entities with their own products, such as eHealth.

He cites increased enrollment and plan participation in the public state exchanges and "substantial growth" in multi-carrier private exchanges. "My sense is web-based entities are kind of shrinking," he adds, citing recent layoffs and downsizing at some companies.

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Kingsdale, a former executive at Tufts Health Plan and founding director of the Commonwealth Health Insurance Connector Authority in Massachusetts, says he is unsure how carriers are doing with their proprietary exchanges. But, he says insurers ought to be involved in the model as a defensive strategy at the very least.

An insurer can promote its single-carrier exchange as an alternative to multi-carrier exchanges, telling price sensitive employers, "'You can stay with us and not go outside of the plan you know and love,'" Kingsdale says. "...Say, 'We have employee choices for you [with] much easier administration than going to a multi-carrier private exchange."

NEXT: Multi-carrier exchanges

Typically, multi-carrier exchanges are geared toward large insured employer-group accounts and require switching from self-insured to insured status, which involves "real costs," he says.

Moreover, Kingsdale says, most employers give defined contributions so there is no immediate cost reduction with multi-carrier platforms. An employer might decide to contribute a certain percentage of premium to employees instead of a fixed-dollar amount, which would result in immediate savings, he says, "but I think this is a big obstacle to the growth of multi-carrier exchanges ... because you can get a single carrier to offer limited networks and [different] benefit designs to your employees without having to go from self-insured to insured."

In some markets in states including California, Colorado and Oregon, an employer may want to offer different carriers to its workforce because of distinct differences among plans, says Kingsdale. But corporate human-resource directors elsewhere, in less diverse markets, are looking for simpler solutions.

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The bottom line? Plans "must have their own exchange technology," he says. "That's just a competitive must-have; and they probably would do well to participate in multi-carrier exchanges that have a distinct value proposition in the market."

"The highest priority, it seems to me, is putting your own exchange technology on your website," he says. "That's kind of a must-have these days, and developing the suite of health plan offerings [with different benefit designs and networks]. And the third priority is probably to participate in the public exchange [for individuals] because that gives you access to a subsidized population." Beyond that, he says, the extent of a plan's involvement in exchanges depends upon its technological capabilities.

NEXT: An argument for private exchanges

Paul Lambdin, director, Deloitte Consulting LLP, and exchange practice leader, says a private-exchange's components-enhanced benefit administration for employers, more offerings for employees and decision-support tools to help them make good choices, and better transparency throughout the process-are a compelling argument, especially for small- and mid-market employers without such administrative support already at hand.

Yet Lambdin doesn't anticipate employers' rapid adoption of private exchanges, partly because human resource executives and benefit managers "aren't real risk-takers, and they want to be cautious and make sure changes work for their employees."

According to a new Deloitte survey, still unreleased at press time, the interest among employers not yet adopting private exchanges-but expecting to do so within the next two years-is much higher among businesses with 2,500 or fewer employees than those of larger size, Lambdin says.

NEXT: Two proactive steps to take

Against this backdrop, he urges plans to take two proactive steps to avoid putting themselves at risk:  

Consider what third-party private exchanges you want to participate in and selectively do so if it makes sense.

Lambdin describes some exchange models as "very unfriendly to a plan's value proposition." He notes, for example, that many mid-market regional health plans differentiate themselves with an integrated value proposition: We can do the best job of managing your workforce when we can manage the whole person end-to-end (including health and wellness programs, handling the pharmacy benefit, etc.). But some broker-sponsored private exchanges may put their own PBMs, wellness vendors, and so on into the exchange, and care only about a plan's price discounts and provider network. "So unless it's a new market, plans may want to sit that private exchange out," he says.

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"Many regional plans are under pressure from brokers, consultants, and their own sales teams to jump on an exchange, and many don't take the time to think about how they'll manage many exchanges coming to their door," Lambdin says. "Plans must be discriminatory. I have one health plan that's the 'just say no' health plan ... Another jumped on a few exchanges and now is wondering why."

Consider setting up a proprietary exchange offering as a "way to control your own destiny."

This advice is especially relevant for plans with a lot of current group business, says Lambdin. Plans can tell small employers that they have worked well with them for years and want to manage their populations by working with their current producer on a model offering more employee decision support and other advantages. "It's smart for plans to lock down as much of this business as they can," he says. "If you can help give the employer more transparency on what they contribute ... this could meet a lot of employer need as we see how these models perform over time."

In three to five years, he says, there might be better cost and quality outcomes from certain private-exchange models; and a proprietary exchange might help plans keep employers as clients until then.

In Deloitte's new survey, Lambdin notes that 40% of employer-respondents said that they would prefer using a health-plan sponsored private exchange. Less than 20% preferred broker- or consultant-sponsored models. "There are still a lot of producers without their own solution yet, so plans can go on the offense," he says.