Private HIX Show the Way to Transformed Benefits

A test of consumer behavior shows many employees willing to give up healthcare benefits for lower premiums, and ready to spend defined-contribution money on other benefits.

With so much attention focused on the travails of the federal and state health insurance exchanges, it has been easy to overlook a third HIX model: Private health insurance exchanges. They have more or less been operating under the radar and away from the glare of the nightly news.

Yet the way in which these private exchanges are organized and run—by the likes of Aon Hewitt, Mercer, Towers Watson, and Walgreens, as well as insurers such as Aetna, Cigna, and Highmark Health Services—gives me hope that this new-fangled insurance marketplace can actually succeed.

Employers are turning to these private exchanges as a way to (hopefully) reduce their healthcare costs by shifting from a defined benefit to a defined contribution model. Enrollment is estimated at just one million this year but is predicted to increase to 10 million by 2018.

Of course it is much too early to measure any success in terms of lower healthcare costs, but a new survey from Accenture focuses on consumer buying behavior in private HIX (PDF) and provides some food for thought for health plans.

The 2,006 survey participants, all with existing employer-sponsored coverage, were set up with a mock private HIX and asked how they would spend a defined contribution on insurance in the HIX. In real life, defined contribution works something like a gift card for healthcare insurance. Each employee receives a set amount of pre-tax dollars from their employer to spend on the HIX to purchase whatever level of coverage is preferred.

And remember, this is cold, hard cash. Not cash-in-hand money, but a defined benefit, be it $2,000 or $6,000, is more tangible than a monthly premium that just disappears from a paycheck each week. Did that make a difference in how survey participants spent the money?

Yep. Survey respondents selected lower coverage levels with lower premiums than their employer-sponsored insurance provided. In fact, 25% of the survey respondents say they would trade healthcare benefits for a lower healthcare premium.

"The survey is about the propensity for employees, when given the opportunity, to make benefit trade-offs," says Rich Birhanzel, managing director of Accenture Health Administrative Services. "That 1 in 4 employees would be willing to make that benefit trade-off is significant. It impacts the level of coverage the average employee is going to have and [creates] opportunities to sell other benefits to those individuals who are spending less on their medical benefit."

Okay, if people are willing to give up some benefits to lower their premiums, what else are they willing to trade? Here are some of the survey highlights:

• Employees are most likely to trade a higher deductible for premium savings. Some 83% of respondents say they would pay a higher deductible to save $900 annually in premium costs. Almost three-quarters would pay a higher deductible to save as little as $300 on their premiums.
• Three-quarters say they would pass on wellness benefits to lower their premium.
• Employees are much less likely to forgo provider choice, with only 26% saying they would be willing to have less network flexibility in return for a lower premium.
• Only 23% are willing to trade a lower premium for higher copayments or coinsurance, which are very visible to consumers because they have to pay every time they get service at a pharmacy, a clinic, hospital, physician's office, etc.

What happens to the savings? Defined contribution also permits employees to cash out once they have purchased their insurance. So if an employee has $2,000 to purchase health insurance and only spends $1,500, then the remaining $500 is "found money"—albeit taxable. But 57% of survey respondents say they would not take the cash-out option, and instead would spend those dollars to purchase ancillary health benefits such as vision and dental coverage, and even life insurance and disability benefits.

We are talking billions of leftover cash—what Birhanzel terms "discretionary premium dollars." Accenture estimates this new pool of money will grow to $4 billion by 2018.

"We see interesting growth opportunities in this ancillary benefit space that didn't really exist before for this population because it didn't have the opportunity to make these trade-offs," says Birhanzel.