Data Points to Boom in Private Health Insurance Exchanges

Many employers are looking at private exchanges not just as a way to just save money in the short-term, but as part of a long-term strategy to lower costs, says a PwC executive.

Growing numbers of larger employers are looking at private health insurance exchanges for their employees as a means of addressing rising regulatory requirements, providing more nuanced coverage options, and containing costs, according to PwC's Health Research Institute.

A PwC survey this summer of 1,200 employers across 35 different industries found that 32% of them are considering moving employees to private exchanges within the next three years.

Barbara Gniewek, principal at PwC's Human Resource Services practice, says the move by employers to adopt private exchanges will likely be a more drawn out and measured process than the recent rush to sign up eight million enrollees under the public exchanges that were created under the Patient Protection and Affordable Care Act.

"There is an incredible level of interest in private exchanges from large employers," Gniewek says. "If you go back about 12 years when consumer-driven healthcare and high deductible plans started to emerge in the market, most employers said they would never do it. Now we see in our survey that 44% of our employers are considering having only high deductible health plans."

Gniewek says many employers are looking at private exchanges not just as a way to just save money in the short-term, but to form a long-term strategic play at trying to bend the cost curve and creating a better experience for their employees.

"Some employers look at exchanges as a way of saving money and moved to defined contributions so they [could] control their costs on an ongoing basis, which they can do with or without an exchange," she says. "It's a way for them to put a stake in the ground and change the way they're doing things."

Switching employees to private exchanges will foist more of the decision-making onto employees. Gniewek says that's not unique to exchanges. Employees already have been taking on more of the cost of their care in traditional benefits plans but that exchanges will provide more benefits and price options that meet individualized needs and budgets.

"'Skin in the game' was happening anyhow. The difference with exchanges is there is a lot more transparency," she says. "Some exchanges have good tools in understanding which providers are more cost effective and have better outcomes as well. Giving employees more information to make them better consumers is a good thing. Without that just putting them into high-deductible plans you had this cost-shifting going on anyhow."

The growing interest in private exchanges comes as a new Kaiser Family Foundation/Health Research & Educational Trust 2014 Employer Health Benefits Survey shows that annual premiums for employer-sponsored family health coverage reached $16,834 this year, up 3% and continuing a recent trend of modest increases.

Workers on average paid $4,823 annually toward the cost of family coverage this year. Worker-only premiums averaged $6,025 this year, of which workers averaged $1,081 of the cost, according to the survey, which was published in Health Affairs.

In the longer term, the Kaiser/HRET survey and analysis found that premiums grew slower over the past five years than the preceding five years (26% vs. 34%) and well below the annual double-digit increases recorded in the late 1990s and early 2000s. These premium increases are roughly in line with this year's average annual 2.3% increase in workers' wages and a 2% increase in general inflation.

"The relatively slow growth in premiums this year is good news for employers and workers, though many workers now pay more when they get sick as deductibles continue to rise and skin-in-the-game insurance gradually becomes the norm," Foundation President and CEO Drew Altman said in prepared remarks.

In 2014, 80% of workers had an annual deductible, with the average at $1,217. Workers typically must pay this deductible before most services are covered by their health plans. Since 2009, the average deductible has risen 47% from $826, Kaiser/HRET reported.

"The deductibles for workers have crept higher over time, topping $1,200 on average this year," study lead author Gary Claxton said in prepared remarks. "Today, four in 10 covered workers face at least a $1,000 deductible, nearly double the share from just five years ago."

Gniewek says employees will be motivated and have the ability to find value and savings in the private exchanges, more than they would with a traditional one-size-fits-all package of benefits.

"Employers typically provide insurance for the average of the population. They try to offer a portfolio of benefits that meets the needs of everybody, but nobody is average. Everybody is different," she says.

"An exchange gives more options so people can buy what they want. Very often they will buy down. There is the savings that comes with people buying lesser coverage because they didn't need the level of coverage they had for whatever reasons."

"The savings also come from enhanced consumerism, the ability to have better-integrated wellness programs, and so all of the other things that employers are trying to do to engage their employees to become real consumers of healthcare, a lot of that can be facilitated through an exchange."