How far can private exchanges go? New data suggest a large migration is in the works, even as the model brings some uncertainties for employers and insurers.
Some 6 million Americans are enrolled in health plans through private exchanges this year, double the number from last year, according to a new analysis by Accenture.
The consulting and IT firm said that "vast adoption" by midsize employers with staff of 100 to 2,500 contributed to most of private exchange enrollment this year and will continue to generate strong demand.
"We remain optimistic on the growing private exchange market and expect key market drivers to catalyze growth through 2018," said Rich Birhanzel, managing director for Accenture's health administration services.
"We believe factors limiting growth will dissipate as the market matures, employers gain more control of benefit design, and evidence continues to mounting on the tangible benefits of private exchanges."
Based on its research, Accenture is expecting private exchange enrollment to grow to around 12 million lives in 2016 and 22 million in 2017. By 2018, total enrollment in private exchanges could surpass state and federally funded exchanges and reach 40 million, Accenture estimates.
One of the major contributors to that forecast, the company argues, is the looming penalties for Cadillac plans, which could impact as many as one-third of all large employers, many of them being local governments and unionized firms.
But employers looking to avoid the Affordable Care Act's Cadillac tax, a levy of 40 percent of the cost exceeding certain amounts starting in 2018, may not find the ultimate solution in private exchanges if they're still offering the option of plans with high actuarial benefit values, noted Milliman actuaries Troy Filipek, Greg Herrle and Paul Houchens in a study last year.
The Cadillac tax applies to plans with pre-cost sharing costs above $10,200 for individuals and $27,500 for families--and it applies "regardless of the portion of the cost borne by the employer or the employee," Filipek and colleagues wrote.
"Thus, a defined contribution approach that requires a significant employee contribution for a plan that has relatively low cost sharing may still generate an excise tax, which will increase employer or employee costs even more."
This could lead to employers trying to avoid the tax by offering lower actuarial value plans, or increasing the worker-share of the premiums to shift the cost of the tax. Either way, "the availability of these richer plans in early years will likely not continue without at least shifting additional costs to employees," Filipek and colleagues argued.
Among other risks, moreso for the insurers, is the fact that for now at least, private exchanges can increase the likelihood of higher-cost members enrolling in more generous plans, while healthier and younger individuals migrate towards lower premium, higher deductible plans. "While a standard group health plan offering multiple choices may face similar selection dynamics, adverse selection may be enhanced in a private exchange offering a wider range of plan choice," Filipek and colleagues argued.
And then there is the ultimate barrier to private exchanges realizing their potential in the defined contribution model: the tax exemption for employer-sponsored insurance.
"Can I control my costs a little more, can I create a better experience, and have a premium contribution?"
Not entirely, or not yet at least, said Anne Phelps, a principal with Deloitte's healthcare practice. "What they cannot do yet is a pure defined contribution, just give a worker $5,000 and let her shop on an exchange, private or public." Even if health plans are being offered to workers in more varieties through a private exchange, employers still "have to set up group plans," Phelps said.