The future of public and private exchanges

Change has proliferated how health insurance is offered in recent years, and experts predict that private exchanges will now seek to emulate the e-commerce format that public exchanges have embraced.

Public exchanges-such as HealthCare.gov and state exchanges-are the sanctioned websites where residents can get guaranteed issue and community-rated health plans with assistance from the federal government if they qualify for subsidies, explains Devon M. Herrick, PhD, senior fellow and health economist, National Center for Policy Analysis, Dallas, Texas.

HerrickPrivate exchanges, on the other hand, are owned and operated by private sector companies-such as health insurance companies, brokers, or consulting firms. Individuals, small and large groups, and retirees can purchase health insurance through a private exchange, notes Jonathan Rickert, chief executive officer and co-founder, Array Health, Seattle, Washington.

“Employers are quoted a price for various options, and their employees can choose among competing options within the private exchange,” Herrick says. This type of private exchange is generally a defined contribution plan, with the exchange administrator underwriting a price for an employer plan.

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While private exchanges have been around for some time, it was the advent of the Affordable Care Act (ACA) that spotlighted the concept of online marketplaces as a place to purchase health insurance.

Looking ahead, Rickert sees an enormous opportunity in the coming years to extend an e-commerce business model to health insurance through private exchanges. “Private exchanges will close the gap between consumers and insurers and allow insurers to embrace the consumer-centric world we live in,” he says. “Just as other industries use multi-channel approaches, health insurers will also adopt multi-channel strategies and will offer their products on both single and multi-insurer platforms.”

NEXT: The status quo

RickertThe early health insurance exchanges, introduced in the late 1990s, only addressed the individual market, which is a small sliver of the overall market. “Almost 90% of Americans have health coverage through either their employers, Medicaid, or Medicare,” Rickert says. “While online shopping and enrolling for health insurance isn’t a new concept, applying an e-commerce approach to employer-sponsored health insurance is.”

Other types of private exchanges have also emerged as a way to allow large employers or groups of small employers to band together and allow workers to select the coverage of their choice. “It is part of the movement to define contribution in employee benefits,” Herrick says.

The status quo

More than 2.5 million individuals enrolled in health insurance through a private exchange in 2014, according to the recent Kaiser Family Foundation’s (KFF) report, “Examining Private Exchanges in the Employer-Sponsored Insurance Market." KFF’s research found that 20% to 33% of employers will adopt a private exchange approach over the next three to five years.

Rickert notes that “the future looks bright” for private exchanges. Array Health conducted a survey of health insurers in 2014, and more than 75% of respondents said they believed that most health insurers will offer single-insurer exchanges by the end of 2016.

“There are many reasons for the optimism,” Rickert says. “Single-insurer private exchanges are now offering a breadth of choice through various contribution models--defined contribution, defined benefit, and combinations of the two--as well as a robust array of ancillary insurance options.”

Herrick reports a trend in employers reducing part-time workers’ hours and shifting some full-time workers to part-time. “While it’s too early to tell, I expect more small firms to drop coverage entirely because they will not be fined for not providing health insurance,” he says. “Over the next few years, I also expect more restructuring to occur.”

Large employers that employ low-wage workers (e.g., hotels with housekeeping staffs) will lease custodial workers rather than employ them. The firms they lease from would likely be small firms that are not required to offer coverage. The workers would be free to get subsidized coverage in the exchange.

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SmithAccording to James R. Smith, FACHE, senior vice president, The Camden Group, Rochester, New York, with private exchanges many employers are seeing an advantage in meeting their compliance requirements under the ACA while capping their cost at a certain dollar amount and giving their employees more options and the ability to purchase insurance through a private exchange. “Employees may be advantaged by either greater coverage options or multiple insurance company options,” he says.

“On the downside, employees will have to make more decisions regarding what services to seek and how to pay for their share of a larger deductible plan.” To help, many employers are paying health plans or other companies to have health navigators assist their employees in helping them to find the best value for their health and healthcare needs. This is driving a greater need for transparency of price, quality, and service.

Smith predicts that private exchange use will grow for both small and large employers as many employers move to a defined contribution strategy to cap their healthcare expenses and comply with the law. “More people will have high-deductible plans and may struggle to maintain their health and their personal solvency,” he says.

NEXT: An unstable future

An unstable future

FronstinIn July, the US Supreme Court will rule on whether providing subsidies for health insurance is constitutional. “If it rules that subsidies aren’t allowed, then you will see an affordability issue and some people will discontinue their insurance with the exception of those people with chronic conditions,” says Paul Fronstin, PhD, director, Health Research and Education Program, Employee Benefit Research Institute, Washington, DC. “So rates will increase, because the healthier people dropped out. There will be a cycle of instability.”

Karen Appold is a freelance writer in Lehigh Valley, Pennsylvania.