Preparing for Private Health Insurance Exchanges
Private exchanges' rapid growth has slowed recently, but is still strong. Hospitals and health systems should monitor private exchange growth locally and have a plan for how to deal with the disruption they can bring.
This article first appeared in the October 2016 issue of HealthLeaders magazine.
Private health insurance exchange enrollment continues to grow, albeit at a slower rate in 2016. Yet as the growth continues, hospitals and health systems need to understand how private exchanges are different from traditional insurance plans in order to make informed decisions about whether and how to negotiate deals with them, and how to compete as their influence grows. The ultimate fate of these exchanges is uncertain, but will hinge on a couple of key points: Will hospitals and health systems be willing to accept rock-bottom rates in return for incremental volume? Will employees and their beneficiaries accept extremely narrow networks in return for lower premium costs? So far, the answer seems to be a qualified yes.
Private exchanges were envisioned to mimic the Patient Protection and Affordable Care Act Health Insurance Marketplace exchanges in at least one key way—by injecting consumers into decision-making about healthcare expenditures, and making them choose a narrow network in which to consume services. By creating these networks, intermediaries, like AON Hewitt, Mercer, and Willis Towers Watson, among others negotiate big discounts in return for guaranteed volume. Like HMOs, private health insurance exchanges tend to heavily restrict where a beneficiary has coverage in a local market. The big difference is that instead of the employer forcing limited choice onto the employee, the employer makes a defined contribution to an employee's annual health costs, and asks the employee to choose from a few combinations of costs and benefits. This allows the employer to cap its healthcare costs, an extremely attractive feature for it. The employee, frequently, chooses the low-cost, narrow network option.