One of our partners recently moderated a panel discussion at the AHIP Fall Forum to predict the staying power of health insurance exchanges. The panel included a leading broker, a strategist from one of America’s largest health plans, and an executive from one of the nation’s most successful and longest-standing private exchanges. The panel concluded that exchanges are here to stay, although the short term impact will be greatest in individual and small group markets.
The success of the individual public exchanges is all but certain with the re-election of President Obama. Public exchanges will be buoyed by the exclusive availability of premium tax credits and cost sharing subsidies, made available to those Americans whose household income is at or below 400% of the federal poverty level and who cannot access affordable coverage at work.
What is less certain is whether group-based exchanges will succeed, and which markets will embrace the concept. Small groups, mid-market groups and larger “jumbo” employers will look at exchanges differently, in large part because of differences in how insurance is underwritten and priced. Small groups will be guaranteed issue and prices will be set according to a modified community rate (all groups belong to the same pricing pool regardless of claims experience). The rates large employers pay under traditional defined benefit plans depend on the relative wellness of their own populations, and the same will be true in large group private exchanges.
Any exchange that endeavors to place insurance companies in a head-to-head competition for enrollment at the employee level will inevitably need to deal with risk selection, or the likelihood that one insurer may land higher risk, higher cost consumers compared to other insurers. Exchanges such as Aon Hewitt’s that cater to jumbo employers are no exception. Starting in 2014, small groups will benefit from a built-in, market-wide risk adjustment mechanism called for in the Affordable Care Act. Large groups will not participate in this program. As a result, any large group exchange will need agreement from participating insurers to participate in risk sharing, unless the product offerings are very similar in benefit design and network, which is unlikely. Obtaining agreement from multiple carriers about risk sharing will be a tall order satisfied only when many large employers can be aggregated into a single exchange.
Ironically, small group markets may have an easier time achieving the “scale” needed for multi-carrier exchanges than mid-market groups.
Ironically, small group markets may have an easier time achieving the “scale” needed for multi-carrier exchanges than mid-market groups. The availability of multi-carrier exchanges for small groups will probably hinge largely on whether the public SHOP exchange embraces the idea, in which case, the private market should follow. Mid-market employers will be challenged to achieve the scale needed to attract insurers to a multi-carrier, employee-choice private exchange. The more likely short-term “exchange play” for mid-market groups will be the single-carrier approach, where the employer offers a defined contribution and gives the employee access to a variety of products offered from one carrier.
Whether an employer is on one of the book-ends of the market (small or jumbo) or somewhere in the middle, the technology to administer a fresh new way of thinking about benefits will include defined contribution, intelligent decision support, and access to a variety of products, including ancillary and voluntary benefit offerings. Let us know what you think.
Workforce Benefit Solutions, a Louisiana-based company that offers software and services that streamline benefits, HR and payroll administration. Their state-of-the-art Software-as-a-Service (SaaS) technology and Business Process Outsourcing (BPO) solutions significantly reduce administrative costs and time- consuming paperwork, making life easier for administrators. For more information, visit www.getworkforce.com.
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