Benefits consulting firms that made early forays into private insurance exchanges are likely to be rewarded for their prescience, although the competition is growing.
Moody's is viewing the private exchange businesses of a number of top benefits consulting firms and some insurer-owned exchanges as credit positive and likely to grow and succeed -- if they can prove a convincing value proposition contribute to the cost savings.
"We believe the most successful exchanges will be those that minimize growth or generate savings in overall healthcare costs, rather than simply shifting costs from employers to employees," wrote Moody's analyst Bruce Ballentine and colleagues in a new report on private exchanges.
In the last few years, benefits consultants like Aon Hewitt, Mercer and Towers Watson have started private insurance exchanges targeting mostly large corporate clients as well as some mid-size and small employers, while Bloom Health, a joint venture by three Blue Cross companies, is eying small businesses specifically.
Aon Hewitt's exchange, launched in 2011, sells insurance to about 330,000 employees from large companies, as well as supplemental Medicare policies to about 300,000 seniors through a retiree exchange, according to Moody's report.
Mercer, a part of the Marsh & McLennan family of companies, launched an exchange last year for large and middle market companies and for retirees; it now has over 100,000 Americans buying plans through the platform, including about 35,000 seniors with supplemental Medicare plans.
Towers Watson launched its exchange business back into 2006 specifically for retirees before expanding into active employees. Now it has the most enrollees of any private exchange so far: 560,000-plus retirees from Fortune 500 companies, about 100,000 corporate workers, 30,000 seasonal and part-timers, and some 82,000 small business employees participating in an exchange created by a Buffalo-based company Towers acquired last year.
Other private exchange players include Buck Consultants, a Xerox company that's sold plans to more than 120,000 workers at large companies since launching last year. And of course various insurers are launching their own exchanges for their own plans, with Cigna most recently getting into the game.
A number of the nation's Blues plans are also invested in their own venture, Bloom Health, a private small business exchange launched in 2009. In 2011, WellPoint, Health Care Services Corporation and Blue Cross and Blue Shield of Michigan bought a majority stake in the Minneapolis-based company.
Focused on small businesses nationwide, Bloom Health so far has sold Blues health plans and ancillary insurance product to about 106,000 employees.
All of which suggests that the private exchange market is starting to mature. For benefit companies and insurers alike, it won't be as easy as just setting up private exchanges, though, argued Moody's Ballentine.
To avoid just cost-shifting and actually generate savings, Ballantine argued, exchanges have to build strong carrier networks, guide employees through their options, streamline administration and regulatory compliance and find ways to promote successful wellness strategies.
Private exchanges may have to compete for employers with another increasingly attractive option: self-funding. Or they can offer employers the options to self-fund plans, as some are already doing, with employees able to get the same type of defined contribution and benefit selections they'd find elsewhere.
Moody's Ballentine also cautioned that some employers may not be too quick to end their long-term relationships with insurers, especially if they have customized health plans. "Early movers" will likely be companies operating in multiple regions, along with those "facing above-average healthcare cost inflation and/or those struggling with plan administration."
"However," Ballentine argued, "we believe many employers will maintain their existing customized health plans, with the employer closely involved in plan design and employee communications, given that healthcare and related benefits are critical factors in attracting and retaining employees."