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Private health exchanges see slower growth

Enrollments curbed by Cadillac tax delay


The two-year delay of the Cadillac tax may take some of the wind out of the sails of private health insurance exchanges, but experts say private exchanges will continue to attract customers.

The Cadillac tax, which is to impose a 40% excise tax on the portion of group health plan premiums over $10,200 for individual coverage and $27,500 for family coverage, has been a boon to enrollment in private health insurance exchanges, several benefit experts say.

Private exchanges have been one way for employers to cut health costs through a defined contribution model, while allowing employees to shop for the lowest price and greatest value.

But Congress last year passed and President Barack Obama signed legislation delaying implementation of the Cadillac tax by two years to 2020.

“There's no question that the Cadillac tax was a tailwind for private exchanges, and with the pause button hit, private exchanges will need to rely on other tailwinds,” said Jeff Yaniga, Chicago-based chief revenue officer for private exchange provider Maestro Healthcare Technology Inc.

For example, Accenture P.L.C. last year predicted a spike in exchange enrollment in 2017 as the Cadillac tax's original 2018 effective date neared.

While Accenture last year projected private exchange enrollment would hit 12 million in 2016 and 22 million in 2017, it reported last month that only about 8 million people enrolled in private exchanges this year.

An Accenture spokeswoman said the firm has “made a deliberate decision” to not predict private exchange enrollment in the future.

While the delay in the excise tax “will have an impact in that spike” in 2017 that Accenture predicted last year, “employers are continuing to pursue and assess various strategies to help stabilize their health care costs,” said Scott Brown, a Chicago-based managing director of Accenture's private health exchanges. “We believe that this is why it's even more critical for private exchanges to deliver meaningful differentiation in the market.”

If the Cadillac tax added allure to move to a private exchange, choice and decision-support tools are the “sticky” factors that will keep them coming, Mr. Yaniga said.

“Ten years ago, the choice you had around health care benefits was "yes or no.' "Do you want them or not?' And I think the millennial generation, and the X'ers and Y'ers especially, are saying, "I need more options,' and that all persists with or without the Cadillac tax,” Mr. Yaniga said.

Still, others don't see the Cadillac tax delay, or even a full repeal, having a significant impact.

Don Garlitz, Salt Lake City-based senior vice president at bswift L.L.C., said the technology that is central to private exchanges will continue to prompt adoption. More than 11 million people used the bswift technology in 2015, up nearly 40% from the year before, he said.

“I think about exchanges as a mechanism for tech-enabled choice,” Mr. Garlitz said in an email. “We see ample evidence that employers of all sizes are embracing technology tools, such as employee self-service and decision-support tools, at a steady clip.”

“Although some people ... have talked about the Cadillac tax being an important part of the growth of exchanges, I have never believed that,” said Alan Cohen, chief strategy officer and co-founder of exchange technology provider Liazon Corp. in New York.

The No. 1 reason clients move to an exchange, he said, is to attract and retain talent, not to cut costs — so the Cadillac tax delay would not affect their decision.

While a private exchange “certainly moderates costs to a degree, (it) doesn't make sick people healthy,” Mr. Cohen said.

For many private exchange providers, most adopters are small and medium-size employers that, through the exchange, can offer benefits choices and an online shopping experience they previously might not have been able to offer, sources said.

But for large employers, moving to a defined contribution model or a high-deductible plan reduces costs without having to move to a private exchange, said Jay Godla, a partner with PricewaterhouseCoopers L.L.P. in Chicago.

A survey by the Washington-based National Business Group on Health last August found that 24% of larger employers were considering moving active employees to a private exchange in 2017, down from 35% in the NBGH's survey a year before. Only 3% of employers actually planned to move to a private exchange by 2016, according to the latest survey.

“When employers look at the most effective tactics to control their health care costs or to minimize the impact of the Cadillac tax, moving to private exchanges does not come up high on the list,” said Brian Marcotte, president of the NBGH in Washington. “There's still not the confidence in large employers that they can manage costs better (through a private exchange) than what they're doing today.”

The private exchange model “hasn't really addressed the fundamental core drivers of medical cost,” such as care management, chronic disease management or value-based care, Mr. Godla said. So until then, “employers are saying, you know, let's just wait and see.”

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