There is a fair amount of hope for private health insurance exchanges in the commercial group market, but a pure defined contribution option will actually require a quite disruptive change.
Last year more than 2.5 million American workers were covered in a health plan through a private exchange, according to the Kaiser Family Foundation. The survey also found that about a quarter of U.S. employers are considering using a private exchange in the next five years.
In an otherwise stagnant national market for employer-sponsored insurance, private exchanges are an area of opportunity for insurers trying to improve their value proposition to retain or grow business with employers trying to control their healthcare costs.
Last year, Cigna launched its own proprietary exchange for small and large employers, selling pharmacy, dental, vision, life and disability plans in addition to health insurance. At the time, Cigna was also participating in a number of multi-insurer private exchanges where workers at large corporations could choose from not just different benefits packages but different issuers.
"The private exchanges may create a sustainable attractive long-term market," said Cigna CEO David Cordani in February. "As such, we positioned ourselves in just about all of the various private exchanges that are in the marketplace today."
Moreso than traditional group plans, private exchanges give employees actual choices among benefit levels, premiums and networks, even if from just one insurer. But, Cordani said, "we've expected this marketplace more broadly to unfold slowly and it is."
Not that the private HIX market hasn't been moving. Last November, Aetna spent $400 million to acquire bswift, a Chicago-based benefits exchange that also has a robust backend administrative platform.
Karen Rohan, Aetna's president, said that both large national employers and middle market business have been asking about using private exchanges. And Aetna's CEO, Mark Bertolini, told analysts in a conference call that private exchanges could be part of a grand individual marketplace clearinghouse for ACA-subsidized plans, other government-funded plans and commercial plans.
"We see a lot opportunity in the public exchange marketplace, particularly as we work through all the issues with the federal government, with private exchange models that connect Medicare, Medicaid, individual and small group, any marketplace, and create ubiquity or fungibility of products through one marketplace and opportunity for private exchanges, including the potential for subsidy in the longer run," Bertolini said.
In the short run, insurers have some good opportunities in private exchanges, particularly when it comes to selling higher-margin ancillary products like life, disability and catastrophic illness plans, said Jonathan Rickert, the CEO of Array Health, a Seattle-based private exchange operator.
Array Health runs single-insurer exchanges for employers, and Rickert argues that that's a safer bet for insurers. "In a single-carrier exchange, insurers control the product shelf to manage adverse selection risk. In a multi-carrier exchange, by contrast, insurers typically offer fewer products and cannot control the other products being presented."
In the long-run, if public and private exchanges and defined contribution models broadly expand, that kind of proprietary exchange would have to compete with platforms offering more choice. Defined contribution models, though, are still restrained by the same the tax exemption that serves as the foundation of employer-sponsored insurance.
"Can I control my costs a little more, can I create a better experience, and have a premium contribution?" Employers across the country are wondering that, 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.
A pure defined contribution model would require a change to the tax exemption for employer-sponsored health insurance, which at an annual value of some $250 billion is the federal government's largest tax expenditure. "We may see that come up again in tax reform, if and when Congress ever tackles tax reform," Phelps said.