What is a private healthcare exchange?
“To sum it up…”
- Private exchanges predate the ACA state exchanges
- Private Exchanges are preferred over public exchanges
- Defined contribution is in, defined benefits are out
- Multi-carrier exchanges preferred over single-carrier
- Private exchanges are more about B2C more than B2B
The private healthcare exchange is a health insurance marketplace outside enrollment of the state healthcare exchanges set up as a result of the implementation of the Affordable Care Act. The term “healthcare exchange” is just industry jargon used to refer to health insurance marketplaces or intermediaries. Private healthcare exchanges have been around long before the Affordable Care Act was introduced in the United States.
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Prominent Private Healthcare Exchanges
The International Medical Exchange, one of the first private healthcare exchanges, was initially introduced during the mid-80s. CaliforniaChoice was established in 1996 and is the largest and most successful private healthcare insurance exchange to predate the ACA. By the year 2000, the CaliforiniaChoice exchange was comprised of a membership that included 9,000 business groups and 140,000 individuals.
The Private Healthcare Exchange and Define Contribution
The private healthcare exchange is comprised of a marketplace and other products that allow employers to purchase health insurance and choose health plans offered by the participating payors.
These exchanges help employers maintain a more active involvement in employees’ health care while progressing towards the emerging defined contribution model. This contribution model allows employees to choose from the different plans funded by the savings account of cash contributions made by the insurer.
Defined Contribution Over Defined Benefits
The defined contribution model is now being championed by many as the solution to the developing issues inherent with the conventional defined benefits model. Traditionally, the defined benefits model has involved insurers offering a standard set of benefits and taking on the majority of risks associated with the healthcare costs.
Increasing healthcare costs over the past decade have compelled many to switch to a defined contribution model that allows employers to cap their healthcare costs.
Choosing the Proper Healthcare Exchange
Bolstering private healthcare exchanges and shifting towards defined contribution plans may be interpreted as insurers’ defensive response to the implementation of the public exchanges required by the ACA. I
t’s also worth noting that private healthcare exchanges can function effectively with or without the utilizing the defined contribution model. Contribution model aside, there are still a number of ways that private exchanges differ from public exchanges.
Private or Public Healthcare Exchange
Public exchanges are designed for small groups and individuals, but private exchanges are more flexible and can be fitted to employer groups of any size.
Private exchanges also have a wider range of non-insurance products and retail products available than public exchanges do. The private marketplace supplied by the payors is essentially enhanced by the more diverse product portfolio.
Framework of the Private Healthcare Exchange
The private healthcare exchange primarily operates off of administration support centered on having a retail store, a web chat, and a call center. The private healthcare exchange serves as a one-stop shop for employees that provides access to a number of health and wellness products.
Employers receive a list of members enrolled for each product, contribution levels and a single bill for all the products purchased in the private exchange.
Private Healthcare Exchange Models
When using defined contribution, the two types of models available are the single or multi-carrier private exchanges. The single-carrier model involves one payor promoting the exchange to target employers interested in maintaining a close role in choosing the design of the plan and the insurance carrier.
Multi-carrier exchanges are promoted by brokers, consultants and other third-party intermediaries that offer a wide range of payor plan designs for employers who prefer to be more hands-off.
Single-Carrier Private Exchange
Employers and members are more likely to have access to group products and three to five plan options with the single-carrier model, although individual products may still be available.
This model supports a strong relationship with the carrier, allowing employer involvement to be either passive or more active. Some of the emerging single-carrier exchanges include Towers Watson, Highmark, BlueCross BlueShield Minnesota and BCBS Michigan.
Multi-Carrier Private Exchange
Employers and members are more likely to have access to a wide variety of individual products made available from a number of payors. There are typically 10 or more plan options available across carriers in this model, although employer involvement is more passive and the level of decision support can vary.
Aside from CaliforniaChoice, other emerging exchanges in this space include Walgreens, ADP, AON Hewitt, Extend Health and Health Connector.
Employers on Private Exchanges
Research shows that over half of all employers prefer multi-carrier exchanges to single-carrier exchanges. Less than a third of all employers actually prefer a single-carrier exchange over multiple carriers. The same research study found that 70 to 80 percent of employers prefer purchasing insurance from a private exchange over a public exchange.
The main reasons employers prefer the private exchanges are the superior customer service, design flexibility, and product selection.
Many employers prefer private exchanges because they are immediately wary of government-ran programs. Typically, public exchanges are targeted by lower income individuals so the can receive the premium subsidies sponsored by the government.
Today’s consumers expect private exchanges to be superior to public exchanges, offering real-time admin support and guided purchasing experiences that help make the product and plan recommendations based on need.
Concerns with Private Exchanges
Disintermediation, administrative burden, and margin compression are the three leading concerns associated with running private healthcare exchanges. Disintermediation occurs when the payor loses interactions and influence with the consumer due to the increasingly expansive powers of the exchange administrator.
Administrative burden is a result of customers’ greater need for decision support for selecting from the larger number of plans available. Margin compression may occur if the private exchange encourages a transition to a lower-margin marketplace, comes attached with higher transaction fees or results in less cross-segment subsidization with the healthiest members.
During 2014, the number of members in private healthcare exchanges totaled at least 3 million. By the end of 2015, there were 6 million members, and 2016 was projected to end with at least 12 million members in private healthcare exchanges. Although they predate the ACA, the rising popularity in private exchanges represents the fundamental shift the health insurance sector is making from the conventional B2B model to operations centered on designing effective B2C campaigns.
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