Future Of Private Exchanges Bright, According To Aon Hewitt

In contrast to the public health care exchanges run by states or by the federal government, private exchanges are marketplaces operated by insurance companies and brokers through which employees can choose from among various types of health care plans. In a recent article, Can Private Health Care Exchanges Improve the U.S. Health Care System?, Tina Provancal, vice president of product development for exchanges at Aon Hewitt, describes a bright future ahead for private exchanges.

Design features are key. Private exchanges will result in lower costs, greater efficiency, and better quality, Provancal predicts, and they will be successful, she says, if they adopt a number of recommended design features. These include the implementation of a risk-adjustment mechanism, whereby the enrolled population is measured using a pre-defined risk-adjustment methodology. Carriers that enroll a better-than-average risk would reimburse carriers that enroll a worse-than-average risk.

Private exchanges that offer choice and flexibility are also more likely to be successful, says Provancal, so they should allow employees to select which particular plan and insurance company is best for them. Robust decision-support tools also should be included, she adds, to educate consumers about their coverage needs and costs.

Provancal also recommends the establishment of a regional rating area, stating that it would result in best-in-marketing contracting, along with optimal value for employers and employees.

The transfer of risk, especially by self-insured large employers, to insurance companies, who are probably best equipped to handle it, will enable employers to obtain more predictable annual health care costs, and exchanges with multiple insurers with standardized designs would encourage competition, Provancal adds.

Provancal also predicts that an increase in the number and use of private exchanges could spell the end for COBRA, especially if exchanges transition from group-based models to models that provide employees with individual insurance policies. Employees’ health insurance would then be portable and decoupled from the employment relationship she says.

For more information, visit http://www.aon.com/attachments/human-capital-consulting/2013_Q4_BenefitsQuarterly_PrivateHealthCareExchangesImproveSystem.pdf

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