Interest in private exchanges grows
Growth of private health insurance exchanges still faces variety of hurdles
The launch of public health insurance exchanges in the states next year could presage an even broader movement to private insurance marketplaces. And that trend could have far-reaching implications for providers.
The Patient Protection and Affordable Care Act requires publicly operated health insurance exchanges to begin enrolling beneficiaries in all 50 states in the fall of 2013. Some states will run their own exchanges, while the federal government will operate most others, either alone or in partnership with states.
The marketplaces for insurance plans that meet minimum federal standards and the significant federal premium subsidies for enrollees with incomes of up to 400% of the federal poverty level are expected to quickly drive their enrollments to 22 million people by 2016, according to the Congressional Budget Office.
Despite that scheduled launch, the vast majority of privately insured Americans will continue to receive their coverage through employersponsored insurance. Meanwhile, employers face spiraling cost pressures from their health coverage that have spurred many to seek additional steps to reduce expenses. Employer surveys have found up to one-third of organizations may consider dropping their employees into those public marketplaces, a move that would carry its own downsides for those businesses.
But emerging private insurance exchanges could offer some of the same financial benefits for employers as their public cousins, while mitigating some of the problems of the government-run version, health industry analysts are saying.
Through private exchanges, “employers can accelerate the drive toward a more mass-consumer-driven insurance market and gain more control over their healthcare contribution costs, capping their contributions and shifting to workers the authority to control the terms (and to some extent, the costs) of their own health insurance,” according to a July analysis by the Employee Benefit Research Institute.
Providing fixed subsidies for employees to buy coverage in a private exchange would allow employers to use pre-tax funds for that purpose and avoid the $2,000-per-worker penalty under the federal healthcare law if any of their employees seek subsidized pub- lic exchange coverage.
Ashish Kaura, a partner in the North American health practice of Booz & Co., says the launch of public health insurance exchanges will increase employers’ comfort with the concept of exchanges, even as they look for private alternatives because of concerns about the efficiency of a government-run entity.
“If the exchange debate hadn’t started then, I don’t think private exchanges would have been there, but now that it has started I think private exchanges are going to take the lead over public exchanges,” Kaura says.
Paul Fronstin, director of the health research and education program at EBRI and author of the July report, agrees that the public exchanges and cost pressures are combining to spur the growth of private exchanges.
“No employer wants to be first, but everyone wants to be second,” he says in an interview about a possible surge in employer use of private exchanges.
Other healthcare policy experts are less confident about the possibility of large private exchanges emerging where multiple insurers offer competing products to the employees of multiple companies. Most existing exchanges are little more than a single insurer offering different plan options to the employees of a single company, according to market analysts.
“That model in concept exists, but I don’t know anybody in the private exchange side yet who has been able to get the insurers to play in that game because they are kind of competing against themselves,” says Joel Ario, a managing director of Manatt Health Solutions.
One change that could spur the growth of multipleinsurer private exchanges is if federal subsidies offered on the public exchanges were extended to them. That would allow competition among public and private exchanges and prevent market domination by the state-run versions.
Such exchange subsidy expansions have drawn at least some Republican support, according to policy experts, because they minimize government’s role in the healthcare sector and spur private innovation.
“Essentially, we are doing a startup business enterprise, a novel idea, a disruptive innovation and we are expecting it to be the one answer for the entire country,” Dr. Bill Hazel, secretary of
the Virginia Health and Human Resources Department, said about the public exchanges during a July 30 Washington health policy meeting. “And that’s not likely to be the case.”
If multi-insurer private exchanges do take off, hospitals and other providers could face secondary but “significant” impacts from them, Kaura says, because private exchange plans will have cost pressures that large employer plans don’t face. For example, exchange plans for individual employees generally have more administrative costs and smaller profit margins than a single large plan for an employer. Such fiscal pressure will push them to seek more cost-saving arrangements with providers than employer plans traditionally have, he says.
“In order to meet the price and premium needs for these customers, hospitals will need to lower their costs and work more closely with payers to get to that point,” Kaura says.
Those arrangements could look like the network launched in February by Steward Health Care System, Boston; Fallon Community Health Plan, Worcester, Mass.; and the group purchasing cooperative of the Retailers Association of Massachusetts. The plan offered pre- mium savings of at least 20% and plans with no deductibles for covered care provided by the Steward network, Brigham and Women’s Hospital and Massachusetts General Hospital.
“Here is a provider and payer coming together where the payer is saying, ‘We will offer your network as the primary low-cost network because we believe our consumers require 10%-, 20%-, 30%-lower premiums, and we can’t afford to do that unless we start picking our network more selectively,’ ” Kaura says.
Fronstin of the EBRI says the impact of private exchanges on hospitals and other providers is uncertain because they have yet to be implemented on a large scale.
“If you put everyone into this new marketplace and everyone picks the cheapest plans that have the highest cost-sharing, then I think it’s going to trickle down to hospitals and provider groups in the sense that they need to be more concerned about uncompensated care,” he says. “But it’s to be seen how it’s going to play out.”
One of the earliest private insurance exchanges, HealthPass New York, has yet to see any evidence of a spike in uncompensated care sought by some of the 30,000 enrollees that about 4,000 businesses have placed in plans offered by four insurers on the exchange, says Mark Kessler, director of strategic initiatives for the exchange.
“We police very strongly cancellation if people don’t pay on time,” Kessler says in an interview about the 13-year-old exchange. “We’ve not seen any indication of that problem whatsoever.”
Organizers of public and private insurance exchanges will likely need to conduct extensive enrollee education on the newly available insurance alternatives. Illustrating the extent of the need for such education was a July survey of workers by the National Business Group on Health, which found 53% of respondents had little or no confidence in picking a replacement health insurance plan at least as good as the one their employer or union offered, and 37% expressed little or no confidence in their abilities to shop for healthcare insurance on their own (See chart, p. 30).
“Until private exchanges undergo some sort of education and marketing campaign, folks will continue to be leery,” Kaura says.