Private health insurance exchanges, embraced by both payers and employers, enable businesses to cap how much they spend on employee healthcare benefits. One report says enrollment in private HIX may exceed public by 10 million members in 2018.
Insurers and employers have historically squared off in an annual battle over premium costs. But as healthcare reform becomes more entrenched and pressure to reduce healthcare costs approaches a fever pitch, health insurers and employers are both embracing private health insurance exchanges as a way to affect healthcare costs by making a paradigm shift in how employers pay for employee benefits.
Private HIX can be used by employers to transition to a defined contribution strategy where the employer puts a cap on how much to spend on employee healthcare benefits. It works like this: Each employee receives a set amount to spend on the exchange to purchase the benefits that meet his or her needs.
Private exchanges are similar to public HIX, which are a central component of the Patient Protection and Affordable Care Act, only in that both are on-line marketplaces that will sell health insurance to individuals.
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While public exchanges will be government operated, private exchanges are being developed by consulting firms, such as Aon Hewitt, Mercer, and Towers Watson, as well as retailers, such Walgreens, and even insurance brokers.
Health insurers are not only joining private HIX, some like Aetna and Cigna have plans to develop proprietary exchanges of their own.
A recent study from Accenture predicts that although enrollment will start slowly—with one estimated million enrollees in 2014—and trail public HIX for several years, private HIX enrollment will catch up by 2017 and even exceed public HIX enrollment by 10 million members in 2018.
There are two private HIX models: single-carrier and multi-carrier. The single carrier is probably the most familiar. The employer selects the carrier, say Aetna or Cigna, and the employee selects from among the benefit plans offered by that carrier. The multi-carrier model allows an employee to select from among several carriers and benefit plans.
Participating in a private HIX provides something of a win-win for insurers and employers. Both have been looking for ways to extract themselves from the annual uncertainty of renewing healthcare benefit contracts. The way that typically plays out is the company CFO waits each year for the insurance quote. Then the CFO has to decide if the company should shop around for a better deal or take other steps—increasing deductibles and copays—to lower costs.
"That's just not much of a strategy," says Austin Madison, vice president of group benefits at The Crichton Group, a Nashville-based insurance broker. The firm will launch its own private HIX on Oct. 1. Blue Cross Blue Shield of Tennessee has signed on to offer seven plans. Aetna and Cigna are expected to join by Jan. 1.
The advantage of defined contribution for employers is that it takes the guesswork out of budgeting for healthcare costs from year-to-year, says Madison. The employer might include an annual cost-of-living increase to the defined contribution but will no longer be "captive to waiting on the insurance company."
Private HIX allow health plans to retain "key employer relationships while transitioning those employers to defined contribution," says Richard Birhanzel, managing director of health exchanges for Accenture. There are also increased opportunities to offer members a broader array of customized products such as dental, life, and disability coverage.
It is too soon to tell if employees purchasing health insurance on a private HIX will reduce their healthcare costs. Consumer groups are concerned of course but employers and insurers are anxious for employees to have the proverbial skin in the game and become more cost conscious about their medical care.
Birhanzel says the marketplace will measure the success of private HIX in a number of ways, including the ability to reduce healthcare costs for employers and the ability to provide consumer choice that leads to more efficient and targeted use of benefits by employees.
Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
