Growing Private Exchange Market Already Serves At Least 2.5 Million People

Fifteen percent of large employers either have adopted or are considering the adoption of a private exchange approach to employee health coverage, according to a recently-released Kaiser/HRET annual employer survey. Furthermore, in a new Kaiser Family Foundation report it is estimated that at least 2.5 million people already get their health coverage through private exchanges, including approximately 1.7 million group plan enrollees, 700,000 individual Medicare enrollees, and 100,000 individual enrollees (not including the purely e-broker individual market). Kaiser further predicts that the market is expected to grow.

Employers who are shifting active employees to private exchanges tend to be those in lower-wage industries. Large employers who are already using private exchanges for active employees include Walgreen’s, Sears, Petco, and DineEquity, which is the parent company of Applebee’s and IHOP. IBM, Time Warner, General Electric, Whirlpool, Caterpillar, and Kinder Morgan are using private exchanges for retirees, and Target is using them for part-time and seasonal employees.

Kaiser clarifies that its analysis of private exchanges does not include traditional technology platforms that only provide online enrollment. The private exchanges analyzed in the report generally contain their own set of health plans, ACA-compliant environments and tools, and the ability to let employers shift to a defined contribution approach for health coverage, wherein an employee is given a fixed amount of money to spend on health or ancillary benefits in the exchange.

In the report, Kaiser explains that there are three major types of companies that are creating private exchanges: (1) carriers, such as Cigna, WellPoint, and Blue Cross; (2) benefit consultants, like Aon, Mercer, and Towers Watson; and (3) technology platform vendors, such as Bloom Health, Connecture, Connextions, hCentive, and ADP. Private exchanges appear to be forming into two types, single carrier exchanges operated by insurance carriers, and multi-carrier exchanges, operated by third parties that contract with multiple carriers to broker health plans. Small employers and employers with up to 1,000 employees seem to be using both single carrier and broker exchanges, and very large employers with more than 1,000 employees are primarily using exchanges created by large benefit consulting firms.

Most major players in the private exchange market appear focused on providing employers with as much flexibility in plan offerings as possible. The Kaiser report provides a detailed analysis of these companies’ exchanges, including:

• Aon, which offers on its multi-carrier exchange only defined contribution plans and fully insured options, and was the first multi-carrier private exchange for large corporations. The Aon exchange plans are categorized much like those on public exchanges, as Bronze, Bronze Plus, Silver, Gold, and Platinum;

• Array Health, which was originally a multi-carrier exchange selling to employers through brokers, but switched in 2010 to a purely single carrier technology platform model. It works with carriers and employers to create a mix of plans for each exchange;

• Bloom Health, with both single carrier and multi-carrier options, and which gives employers a choice between a defined benefit and a defined contribution model, as well as the choice between fully-insured or self-funded models. Since its inception in 2009, Bloom has just about doubled the number of employees using its platform, and has almost 250 employers in 24 different states;

• bswift, also with both single carrier and multi-carrier options, whose Springboard Marketplace allows flexible self-funded or fully insured medical plans. It focuses on employers with at least 1,000 employees, has for the last years sustained an annual growth rate of 40 percent, and serve almost every industry segment

• Buck Consultants’ RightOpt, created in 2013, which targets employers with at least 3,000 employees. It is a multi-carrier exchange, and it has options for active employees, part-time and seasonal employees, and retirees;

• ConnectedHealth, founded by Subimo, which was later acquired by WebMD. It focuses on small and mid-size employers, but also serves the jumbo market, and it allows carriers and employers to design the plans for each exchange. It has both single-carrier and multi-carrier options;

• Connecture, which originally had just a single-carrier exchange, purchased Insurint in 2010 to add a multi-carrier platform, and DRX in 2013 to expand its reach into the over-65 market;

• Liazon Bright Choices, acquired in 2013 by Towers Watson, has both single-carrier and multi-carrier options, and is distributed primarily through brokers and consultants. It also provides services for health plans building proprietary exchange presences, including Blue Cross Blue Shield of Massachusetts. It facilitates the shift for employers to a defined contribution model. Originally, most of its employers group had less than 50 employees, but it currently serves over 700 mid-sized and large businesses;

• Mercer Marketplace, which reached an agreement in April 2014 with GetInsured to provide a brokered connection to the public exchanges and individual off-public exchange market for employers with part-time and seasonal employees, contractors, COBRA beneficiaries, and pre-65 retirees. A multi-carrier exchange, it is marketed to both retirees and active workers of employers with more than 100 employees. It expanded its capacity for retiree coverage when it purchased Transition Assist in March 2014;

• My Plan by Medica, originally a partnership with Bloom Health in 2010. Medica provides product, network, and service, and Bloom Health provides technology and enrollment support tools. It is a single carrier exchange, and, unique to the private exchange world, it offers four different accountable care organization (ACO) networks. Its customer base is split about 50/50 between Medica conversions and new business; and

• OneExchange, also from Towers Watson, (see Liazon Bright Choices above), a multi-carrier exchange that targets medium to jumbo-sized employers. It reportedly works with 80 percent of the Fortune 1000, and it allows employers to choose either self-funded or fully-insured plans.

What are implications of private exchanges for employers? Kaiser estimates that, overall, it appears that the growing trend toward the use of private exchanges could offer the potential for cost stability for employers along with greater health plan choice for employees, as a result of the opportunity within a private exchange to shift plans to a defined contribution model.

Kaiser states that some large employers that wish to join one of the major exchanges such as Aon’s may be required to move to fully-insured plans, as is the case with Aon’s exchange – all 600,000 of their group lives are full insured. This transfers risk from previously self-funded employers to insurers. Kaiser also thinks that private exchanges could decrease employer involvement in the administration of health insurance, since a private exchange could conceivably provide all aspects of necessary health benefits administration.

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