Even before the health care reform law's public exchanges become reality, several global human resources consultancies are quickly moving to create a parallel marketplace for employers: private health exchanges.
Lincolnshire, Illinois-based Aon Hewitt, likely the first large player out of the gate, plans to unveil its multi-insurer exchange during this fall's enrollment season. At least two other large vendors, San Mateo, California-based Extend Health Inc. and New York-based Mercer, appear to be close behind.
The private approach mirrors the public exchanges, which are slated to provide an insurance marketplace starting in 2014 for individuals and small businesses—defined as 100 or fewer employees—under the Patient Protection and Affordable Care Act. In the private exchange model, employers will give each worker a set amount of money—typically dubbed a defined contribution—to shop among a menu of insurance options.
For employers, an exchange ideally will expand health benefits choice for workers, while holding down their health costs, advocates for the concept say. "What we need in the health care marketplace is a vehicle to drive efficiency and to drive competition because that will lower long-term costs," says Ken Sperling, national health exchange strategy leader at Aon Hewitt.
But the risks are substantial, starting with whether employees can make wise insurance choices without undercutting their own health and productivity, says Andrew Webber, president and CEO of the National Business Coalition on Health, a nonprofit organization in Washington. If health costs continue to escalate, they also might soon outstrip the set amount each employee is given, he says.
"I think there will be a significant cohort of employers that don't move in this direction," Webber says. "At the same time, I do think that this is a strategic option that's on the table and everyone is talking about it."
While private exchanges are more concept than reality at the moment, employers are clearly intrigued, shows a Booz & Co. survey conducted in early 2012.
If employers were given a choice between public and private exchanges, 82 percent would opt for the private approach, show the survey's findings, based on 253 employers with 50 to 1,000 workers. There's clearly "a lot of jockeying" as emerging vendors strive to position themselves to quickly amass "a big block" of employer business, says Ashish Kaura, a Chicago-based partner at the global consulting firm.
To date, early pioneers have been close-mouthed about specifics. Sperling declined in early September to disclose how many employers have committed to using Aon Hewitt's exchange, which begins January, other than that together they employ about 100,000 people.
Mercer's Tracy Watts, a partner and senior health care consultant, confirmed that the firm also has an exchange-related effort in the works, but Watts declined to share anything further. Extend Health, which already operates a large Medicare exchange that's enrolled more than 550,000 people in the past six years according to company officials, plans to introduce a private exchange in time for the enrollment season of fall 2013. Extend Health was acquired this spring by New York-based Towers Watson.
The exchange's goal will be to connect employees with individual coverage, Extend Health CEO Bryce Williams says. "We are building it right now," says Williams, who wouldn't specify how many employers have signed on so far.
Williams touts his company's expertise on the Medicare side, saying that Extend Health spends significant time with each retiree, including an average of 72 minutes on the phone during the enrollment phase, to locate the best plan. "A website is not an exchange," he quips. "We believe you need guided choice, hand-holding."
Large employers have traditionally offered several plan options, but an exchange could significantly widen that pool. Aon Hewitt's, for example, will offer employees a minimum of 15 plan designs, Sperling says. They will include three insurance carriers, with each providing five tiers ranging from bronze to platinum levels depending upon their coverage breadth, he says.
Based on an analysis by Booz & Co., the marketing "sweet spot" for the emerging exchanges will be midsize employers, those with 500 to 1,500 employees, Kaura says. "Folks who want more [health plan] choice, but are OK with not customizing it."
Aon Hewitt, which is targeting employers with at least 1,000 workers, not surprisingly predicts an even larger business opportunity.
Due to the heightened competition, Aon Hewitt is getting price quotes from insurers for the fully insured exchange that average roughly what a self-insured employer can achieve, Sperling says. "Essentially what an employer can do then is transfer its medical risk to an insurance company at no cost, and eliminate all of the volatility that drives employers nuts."
But participating employers will have to concede some control, including over health plan design and vendor management, Sperling says. They also must agree to offer all plan options, and not pick and choose from the exchange, he says.
Charlotte Huff is a Workforce contributing editor based in Fort Worth, Texas. Comment below or email firstname.lastname@example.org.