Private Health Insurance Exchanges Increasing

Many large employers offer a familiar health insurance model, which consists of 1 to 3 national carriers as well as a regional or local HMO for employees to choose from. The plans are typically self-insured, meaning companies pay for claims as they are incurred.

Aon Hewitt, a human capital and management consulting firm, is attempting to alter that model. Last fall, Aon Hewitt started open enrollment for a private health insurance exchange for its own employees as well as workers from Sears Holdings Corporation and Darden Restaurants. The coverage began on January 1, 2013, and runs through December 31, 2013.

The plans are fully insured, with companies paying a set premium to the insurers. This set-up, shifting the risk to insurers, helps companies to know how much they will spend on healthcare up front rather than depending on how many claims are submitted.

Meanwhile, employees are given a set amount of money for their health insurance and can shop online among 5 plans, giving them more options than before. It is the first exchange with multiple carriers that is aimed at employers covering >5,000 lives.

“To move [companies] into an exchange-like model, move them into an insured product, and put them in a slice offering, that is definitely something new,” Rob Malley, Aon Hewitt’s national health exchange design lead, said in an interview with First Report Managed Care. “Most of the large employer market has been in the self-insured world for a really long time.”

Still, that could slowly be changing. In January, Mercer LLC, a consulting firm, announced the creation of a private exchange similar to the Aon Hewitt model, but one that accepts companies of all sizes. Buck Consultants, LLC, a Xerox company, also plans to offer a private exchange next year for companies with at least 3000 employees. Similar to Aon Hewitt’s exchange, people enrolling in the Mercer or Buck Consultants exchanges will have access to a website where they can compare plans and then choose the best option.

Aon Hewitt began contemplating a private exchange in late 2010 after the passage of the Patient Protection and Affordable Care Act (ACA). Aon Hewitt had already implemented a health exchange for retirees, and the company knew the concept would soon be expanding to other patient groups as firms took a closer look at their healthcare costs.

A major provision in the ACA was the creation of public exchanges for small businesses and individuals to purchase insurance starting in 2014. The government will offer subsidies to people whose household income is ≤400% of the federal poverty level.

“The retiree market works really well from an exchange standpoint,” Mr. Malley said. “[Aon Hewitt was interested in] how you take those concepts from the retiree exchange to a state exchange and how you apply them to an active, pre-65 [years of age] population?”

Tracy Watts, a partner in Mercer’s Washington, DC, office, said in a webcast that whereas the government sponsors the public exchanges and offers medical and prescription coverage, private exchanges are sponsored by employers, brokers, consulting firms, or associations. Private exchanges also offer more complete coverage such as dental, vision, and/or life insurance. In 2017, states will have the opportunity to expand the public exchanges to groups with >100 employees.

Ms. Watts noted that research has shown employers are more open to implementing changes to their health benefits. In 2012, the total health benefit cost per employee increased 4.1%, the smallest increase in 15 years, according to Mercer data. A Mercer survey of employer-sponsored health plans found that 56% of employers in 2012 said they would consider offering a private exchange, up from 18% in 2011.

“I think we will see a lot of players in this [private exchange] marketplace,” Ms. Watts said.

More than 100,000 people enrolled in Aon Hewitt’s private exchange last fall. The plans offered to employees at Aon Hewitt, Sears, and Darden were the same, and many chose high deductible options.

For instance, 39% enrolled in consumer-driven health plans for this year, up from 12% in 2012, while 47% enrolled in preferred provider organizations, down from 70% last year. Enrollment in health maintenance organizations was similar: 14% this year and 18% last year. However, Mr. Malley said he was surprised at the relatively high number of people who enrolled in the 2 most expensive plans.

“We had a fairly good distribution,” he said.

Aon Hewitt is seeking companies to join its exchange next year. Sears and Darden would not comment on whether they would continue in the exchange in 2014, but Mr. Malley said there are several companies interested in joining next year.

The mix of carriers will change next year, too, although Mr. Malley and his colleagues are still determining which insurers will participate in 2014. For health plans, participating in the Aon Hewitt exchange offers the benefit of reaching people and companies they did not have a previous relationship with, but also has the drawback of bearing the risk of covering the costs if the health expenses are higher than anticipated.

“As you move to an insured product, carriers get very concerned about risk,” Mr. Malley said. “The way the exchange has been developed and designed is to make all the carriers feel like they are on a level playing field, so that no one plan is being selected over the others.”