For decades, the way employers offered health insurance coverage to their employees and retirees changed little. Now more and more companies are moving to a new health benefits delivery model using private health insurance exchanges.
Under the old model, employers, often with the assistance of consultants, brokers and agents, decided the insurers from which they would purchase coverage, the number and types of health plans they would offer employees, and how much they would contribute toward the cost of the coverage.
In addition, employers were deeply involved in plan administration, arranging and holding open enrollments for employees to choose one of the plans offered.
By contrast, with private insurance exchanges, employees and retirees select from a variety of health care plans and designs, with the employer's role largely limited to deciding how much of the premium it will pay.
While the move to private exchanges is not entirely new, there has been an accelerated shift in the past year, said Michael Thompson, a principal with PricewaterhouseCoopers L.L.P. in New York.
In the past few weeks, big and well-known industry-leading employers, including IBM Corp. and Walgreen Co., have disclosed that, starting next year, their employees or retirees will choose health care plans offered by insurers participating in private exchanges. One exchange alone — the one unveiled a year ago by Aon Hewitt — has seen the number of participating employers leap sixfold to 18 from three, with total enrollment more than doubling to about 600,000.
Other private exchanges also are growing quickly. Eleven employers with 400,000 employees and dependents have signed up with an exchange offered by Buck Consultants L.L.C. that will start next year. Mercer L.L.C. said nine employers with 35,000 enrollees have signed up for its new exchange, with an announcement expected soon that additional employers have opted for the exchange.
And OneExchange Retiree, a Towers Watson & Co. exchange offering coverage to Medicare-eligible retirees, has seen the number of clients jump nearly 50% this year alone to 300.
The recent growth spurt may be just the beginning. “In the future, exchanges will be the standard business model” for providing coverage, said Alan Cohen, co-founder and chief strategy officer in New York with Liazon Corp., which operates the Bright Choices private insurance exchange.
“It is reasonable to expect that the overall marketplace will double every year for the next five years,” said Ken Sperling, Aon Hewitt national strategy leader in Norwalk, Conn.
Others are more cautious in their growth predictions.
“It might be premature to give some sort of projection that this is going to be the model of the future. What we can say is that there seems to be great interest from corporate America,” said Mercer President and CEO Julio Portalatin in New York.
That corporate interest in private exchanges is being driven by several factors, according to employers who have signed up:
• A desire to give their employees or retirees more health care plan options.
“Choice was an important factor,” said Steve Heckert, vice president of human resources in Clearwater, Fla., for GFI Software. The company offers employees up to six health care plans, compared with just one plan previously, through the Bright Choices exchange. “Employees are able to select a health plan that works for their pocketbook with coverage appropriate for them.”
A spokesman for Deerfield, Ill.-based Walgreen said, “We are trying to provide more options for our very diverse workforce that covers 240,000 team members across all 50 states. With more options, employees can choose a plan that is more personalized for their health care needs.”
About 35% of Walgreen employees are single and under age 30, and “with the flexibility of our new program, they can choose a plan that provides the kind of coverage they need — 100% of their preventive care with premiums as low as $5 a month for a high-deductible plan,” the spokesman said.
Walgreen employees will be able to choose from up to 25 different plans offered by the five insurers participating in the Aon Hewitt exchange. This year, employees could choose from only two insurers who each offered two plans.
• Reduction in overhead.
“For clients, we take on all the contracting and negotiating,” said Sherri Bockhorst, national practice leader of health exchange solutions for Buck Consultants.
“In an environment where HR staff resources are severely constrained, the ability to go to an exchange and say, "You handle compliance. You handle employees' questions,”" is a big resource saver for employers, Mercer's Mr. Portalatin said.
Employers agree. “That allows us to concentrate on meeting the many other needs of our people,” said Al Rapp, vice president of corporate health care in Atlanta with United Parcel Service Inc., which has offered health care coverage to Medicare-eligible retirees through an Aon Hewitt exchange since 2012.
• Making employer costs more predictable.
When employers adopt the exchange model, they typically set a fixed premium contribution amount they will pay. Previously, “the amount of the annual benefit rate increases drove our benefits strategy more than we liked. With the exchange delivery mechanism, we're able to decide on our strategy and associated budget independent of the rate increases,” GFI Software's Mr. Heckert said.