More firms see pri­vate in­sur­ance ex­changes as a way to con­trol health­care costs

Modern Healthcare - - NEWS - By Paul Demko

Af­ter years of fac­ing ris­ing health ben­e­fit costs, house­hold prod­ucts man­u­fac­turer Church & Dwight in 2012 switched its 3,200 em­ploy­ees from a health ben­e­fit pro­gram with three plan choices into a sin­gle, high-de­ductible health plan. But this year the pub­licly traded Ewing, N.J.based com­pany switched them again.

Work­ing through a so-called pri­vate in­sur­ance ex­change es­tab­lished by Buck Con­sul­tants, Church & Dwight gave its em­ploy­ees three cov­er­age choices with a range of ben­e­fits, pre­mi­ums and out-of-pocket costs. The ex­change of­fers plan op­tions from mul­ti­ple in­sur­ers. The com­pany says it an­tic­i­pates the ex­change will re­duce its health ben­e­fit costs 6% to 8%.

“We were able to put plan choice back in,” said Jim Levine, Church & Dwight’s di­rec­tor of com­pen­sa­tion and ben­e­fits. The em­ploy­ees “loved that.”

Pri­vate ex­changes run by ben­e­fit man­age­ment com­pa­nies and in­sur­ers are not new, but lately they have gen­er­ated sig­nif­i­cant new in­ter­est among em­ploy­ers. A sur­vey of more than 700 businesses con­ducted last year by the Pri­vate Ex­change Eval­u­a­tion Col­lab­o­ra­tive, a busi­ness-backed group, found that 45% of em­ploy­ers have im­ple­mented or are con­sid­er­ing us­ing a pri­vate ex­change for ac­tive em­ploy­ees be­fore 2018.

“Oba­macare with pub­lic ex­changes has been sort of the green light for em­ploy­ers to look at all their op­tions,” said Lori Dustin, chief mar­ket­ing of­fi­cer for High-Roads, a Burling­ton, Mass.based ben­e­fits plan man­age­ment com­pany.

“There’s no doubt the in­ter­est is there,” said Paul Fron­stin, di­rec­tor of the Em­ployee Ben­e­fit Re­search In­sti­tute’s health re­search and ed­u­ca­tion pro­gram.

He cau­tioned, though, that any shift to­ward pri­vate ex­changes will be grad­ual.

Pro­po­nents of the pri­vate mar­ket­places ar­gue they of­fer em­ploy­ees a wider range of choices that bet­ter align with their per­sonal health­care and fi­nan­cial needs, while hold­ing down pre­mium growth by sharp­en­ing di­rect com­pe­ti­tion be­tween in­sur­ers for cus­tomers. If the ex­changes suc­ceed, it will be a god­send to em­ploy­ers and em­ploy­ees be­cause pre­mi­ums for the roughly 150 mil­lion U.S. work­ers and their fam­ily mem­bers who get cov­er­age through work have in­creased by 80% over the last decade, ac­cord­ing to the Kaiser Fam­ily Foun­da­tion.

“A lot of em­ploy­ers have be­come in­creas­ingly con­cerned that the sta­tus quo is no longer sus­tain­able and they need new ap­proaches,” said Eric Gross­man, se­nior part­ner and ex­change busi­ness leader with Mercer, which started of­fer­ing a pri­vate ex­change op­tion to em­ploy­ers for cov­er­age this year.

But some ex­perts are con­cerned that pri­vate ex­changes sim­ply of­fer a con­ve­nient way for com­pa­nies to move from pay­ing a set per­cent­age of each em­ployee’s pre­mium cost to a fixed-dol­lar pre­mium con­tri­bu­tion, shift­ing more costs onto em­ploy­ees as pre­mi­ums rise. They warn that em­ploy­ers could an­tag­o­nize their work­ers if the work­ers see it that way. “If you’re go­ing to stick your em­ploy­ees with the risk of un­usu­ally high pre­mi­ums, they’re not go­ing to want to work for you,” said Mark Pauly, a health­care fi­nance ex­pert at the Univer­sity of Penn­syl­va­nia.

Phar­macy chain op­er­a­tor Wal­green Co. switched this year to a pri­vate ex­change run by Aon He­witt. Pre­vi­ously, the com­pany of­fered two health plan op­tions to its nearly 250,000 em­ploy­ees. Now Wal­green is of­fer­ing 25 dif­fer­ent plans from five dif­fer­ent in­sur­ers, al­though not all plans are avail­able in all parts of the coun­try. Aetna, United-Health Group and Kaiser Per­ma­nente are among the in­sur­ers com­pet­ing for Wal­green work­ers.

Ac­cord­ing to Wal­green, roughly 75% of

el­i­gi­ble em­ploy­ees work­ing at least 30 hours per week signed up for cov­er­age, a rate con­sis­tent with prior years. Roughly one-third of em­ploy­ees opted for plans with lower pre­mi­ums than they pre­vi­ously were pay­ing, while one-fourth chose plans with higher pre­mi­ums.

The con­cept of em­ploy­ees brows­ing mul­ti­ple plan op­tions with the aid of con­sumer-sup­port tools has been dis­cussed in ben­e­fits man­age­ment cir­cles for at least a decade. But only fairly re­cently have in­for­ma­tion tech­nol­ogy tools made this model pos­si­ble.

The move­ment to­ward pri­vate ex­changes is be­ing driven by ag­gres­sive mar­ket­ing from com­pa­nies like Buck Con­sul­tants, Aon He­witt, Tow­ers Wat­son and Mercer that op­er­ate these mar­ket­places. “Ev­ery con­sult­ing firm was send­ing out in­vi­ta­tions to come

The move­ment to­ward pri­vate ex­changes is be­ing driven by ag­gres­sive mar­ket­ing from com­pa­nies like Buck Con­sul­tants, Aon He­witt, Tow­ers Wat­son and Mercer that op­er­ate these mar­ket­places.

hear about their pri­vate ex­change,” Church & Dwight’s Levine said.

Still, ev­i­dence on whether em­ploy­ers are mov­ing to pri­vate ex­changes in sig­nif­i­cant num­bers is murky. An anal­y­sis by Moody’s In­vestors Ser­vice re­leased in March es­ti­mated that fewer than 1 mil­lion ac­tive work­ers with job-based cov­er­age at the start of 2014 were en­rolled through pri­vate ex­changes.

Those num­bers are likely to grow, ac­cord­ing to mar­ket ob­servers and com­pa­nies run­ning ex­changes. Aon He­witt re­ports that the num­ber of people cov­ered through health plans sold on its ex­change in­creased to more than 600,000 in 2014, up from about 150,000 the prior year. That was spurred by the num­ber of em­ploy­ers us­ing its mar­ket­place in­creas­ing from three to 18. Mercer says it has 67 com­pa­nies par­tic­i­pat­ing in its pri­vate ex­change in 2014, its first year of op­er­a­tions, cov­er­ing nearly 300,000 work­ers and re­tirees. Moody’s con­cluded that en­roll­ment in pri­vate ex­changes could grow to “tens of mil­lions of ac­tive em­ploy­ees” by the end of the decade.

The struc­ture of pri­vate ex­changes is sim­i­lar in many ways to the Oba­macare pub­lic ex­changes, but there is no sin­gle tem­plate. In most pri­vate ex­changes, mul­ti­ple in­sur­ers of­fer a va­ri­ety of plans for work­ers to choose from. They can range from low-pre­mium, high­d­e­ductible plans to high-pre­mium plans with more com­pre­hen­sive cov­er­age.

In most pri­vate ex­change ar­range­ments, in­sur­ers pay the ex­change op­er­a­tor a per­cent­age of pre­mi­ums for plans sold on the ex­change, said Robert Laszewski, a Wash­ing­ton-based con­sul­tant who works with in­sur­ers. In some pri­vate ex­changes, the op­er­a­tor can re­ceive a straight fee for its ser­vices. “It’s all over the place,” he said.

Ex­change oper­a­tors some­times earn com­pen­sa­tion through “suc­cess shar­ing” ar­range­ments, whereby they’re re­warded for re­duc­ing ben­e­fit costs. “Em­ploy­ers want to see the ex­change oper­a­tors have some skin in the game,” said Dave Ostern­dorf, Tow­ers Wat­son’s chief ac­tu­ary for health ex­changes.

As in tra­di­tional em­ployer-based plans, all em­ploy­ees of a com­pany have ac­cess to the same plan choices on the ex­change and pay the same pre­mium for a par­tic­u­lar plan, re­gard­less of their health sta­tus. But be­cause in­sur­ers face the risk of ad­verse se­lec­tion with mul­ti­ple car­ri­ers com­pet­ing for cus­tomers, some pri­vate ex­changes have es­tab­lished risk-ad­just­ment mech­a­nisms to pro­vide fi­nan­cial pro­tec­tion to par­tic­i­pat­ing in­sur­ers.

Sev­eral large in­sur­ers, in­clud­ing Aetna and Cigna Corp., of­fer their own pri­vate mar­ket­places to em­ploy­ers, fea­tur­ing more plan choices than tra­di­tional em­ployer ben­e­fit pro­grams of­fer. Michael Thomp­son, a prin­ci­pal with Price­wa­ter­house-Cooper, said in­sur­ers have launched these ex­changes be­cause they re­al­ized ben­e­fits man­age­ment firms with ex­changes are threat­en­ing to steal some of their busi­ness by pro­vid­ing em­ploy­ers with ad­min­is­tra­tive ser­vices. “The lines be­tween a pri­vate ex­change and a health plan are start­ing to blur,” Thomp­son said.

But sin­gle-in­surer mar­ket­places raise ques­tions about how dif­fer­ent pri­vate ex­changes are from tra­di­tional em­ployer health-ben­e­fit pro­grams. “If it’s just one car­rier of­fer­ing (its) plans in one lo­ca­tion, it prob­a­bly isn’t go­ing to be a whole lot dif­fer­ent from the cur­rent ex­pe­ri­ence that large em­ploy­ers have,” High-Roads’ Dustin said.

A sell­ing point for pri­vate ex­changes is they make it eas­ier for com­pa­nies to switch to a de­fined-con­tri­bu­tion model, al­low­ing firms to more ac­cu­rately an­tic­i­pate and con­trol their spend­ing. This is sim­i­lar to the trans­for­ma­tion in re­tire­ment-ben­e­fit plans over the last four decades, from de­fined-ben­e­fit pen­sion plans to de­fined-con­tri­bu­tion 401(k) plans.

A sur­vey of more than 800 em­ploy­ers re­leased by Aon He­witt last year found that just 2% were cur­rently us­ing a de­fined-con­tri­bu­tion model for health­care ben­e­fits. But 28% of re­spon­dents in­di­cated that they in­tended to adopt such a plan in the next three to five years. The sur­vey of businesses con­ducted by the Pri­vate Ex­change Eval­u­a­tion Col­lab­o­ra­tive found some­what less in­ter­est in mak­ing that switch. Just 13% of re­spon­dents said they have al­ready adopted or are likely to adopt this ap­proach in the next two years.

PwC’s Thomp­son ar­gues that most em­ploy­ers aren’t look­ing at pri­vate ex­changes solely as a way to shift costs. They’re also try­ing to bet­ter meet em­ployee needs through health plans that more pre­cisely fit their health­care uti­liza­tion, as well as drive down costs by spurring com­pe­ti­tion be­tween in­sur­ers.

In­deed, Mercer says its data show the pri­vate ex­change model is ef­fec­tive in nudg­ing em­ploy­ees into less ex­pen­sive plans. It found that for em­ploy­ees in its ex­changes, the aver­age ac­tu­ar­ial value of plans they selected dropped from 80.4% un­der their prior cov­er­age— mean­ing 80.4% of to­tal med­i­cal costs cov­ered—to 71.9% on plans pur­chased through the ex­change. That re­sulted in an aver­age per-em­ployee re­duc­tion of $800 in the to­tal cost of ben­e­fits.

Some ex­perts cau­tion, how­ever, that giv­ing em­ploy­ees a wide range of cov­er­age op­tions through pri­vate ex­changes— rather than hav­ing their em­ployer’s HR depart­ment guide them through a more limited set of choices—is not nec­es­sar­ily a good thing. Re­search shows that many Amer­i­cans lack the knowl­edge needed to make smart choices and don’t un­der­stand ba­sic in­sur­ance con­cepts such as de­ductibles, co-in­sur­ance, co-pays, and out-of-pocket max­i­mums. In ad­di­tion, the cur­rent state of de­ci­sion­mak­ing tools to help con­sumers se­lect plans is not par­tic­u­larly good.

“The fu­ture is go­ing to be sell­ing di­rectly to con­sumers,” said Kather­ine Hempstead, a se­nior pro­gram of­fi­cer with the Robert Wood John­son Foun­da­tion. “It will make the is­sue of hav­ing a re­ally good plan choice tool for con­sumers more im­por­tant than ever.”

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