Reprinted from INSIDE HEALTH INSURANCE EXCHANGES, a
hard-hitting newsletter with news and strategic insights on the development and
operation of public and private exchanges.
March 2015 Volume
5 Issue 3
Last June, technology firm Accenture
predicted 9 million people would select benefits through private health
insurance exchanges in 2015 — triple the number in 2014 — and 40 million would
participate by 2018. Despite a sustained buzz around private exchanges over the
past few years, employer adoption is lower than expected. Industry observers,
however, remain optimistic that participation will continue to increase among
employers.
“The predictions were overly
ambitious,” says Paul Fronstin, Ph.D., director of the Employee Benefit
Research Institute’s (EBRI) Health Research & Education Program. EBRI
estimates just shy of 3 million active employees participate in multi-carrier
exchanges offered by the “big four” — Mercer, Towers Watson, Aon Hewitt and
Buck Consultants. Another 3 million collectively enrolled in coverage through
other private exchanges.
One explanation for the slow take-up
rate could be the improving job market. Five years ago, unemployment topped 10%
and some employers eyed private exchanges and defined contribution as a way to
stabilize coverage costs. Now that unemployment has dropped to 5.5%, employers
are leery of any change that could impact their ability to attract and retain
workers, Fronstin says.
More than 70% of employers are taking a
wait-and-see approach when it comes to private exchanges, and just 8% plan to
join in 2015 or 2016, versus 16% of employers expressing no interest in this
strategy, according to a March 2 research note from Christine Arnold, an
equities analyst at Cowen & Co. Interest among small employers, however, is
growing — to 32% this year versus 15% last year — while large employer interest
is stable at around 25%, she wrote.
During recent conference calls to
discuss earnings, CEOs from Aetna Inc. and Anthem, Inc. noted limited interest
in multi-carrier private insurance exchanges among large employers (HEX 2/15,
p. 9).
Large employers are likely waiting to
see how private exchanges — and sustainable cost growth — play out beyond the
initial years “where rate guarantees and vying for market share may mean lower
premiums,” says Steve Wojcik, vice president of public policy for the National
Business Group on Health. “I think they are also looking to see whether the
exchanges use their growing leverage to improve network performance, which they
are starting to see in some exchanges.”
Fronstin notes that employers
historically have been slow to embrace new trends in employee benefits. More
than a decade after health savings accounts (HSAs) became available, just 20%
of employees have one. In 2004, however, Mercer suggested that 74% of large
employers would offer HSA-based plans by 2006, Fronstin says. “It has
materialized; it just took longer than initially expected,” he says. “So why
should private exchanges be any different?”
Although adoption of private exchanges
has been slower than anticipated, interest remains high, notes Barbara Gniewek,
a principal in PwC’s Human Resource Services health care practice. “With the
initial reports of savings being very favorable, and the experience by both
employers and employees being viewed as positive, adoption will begin to
accelerate,” she says.
Large employers, she tells HEX,
understand that the private exchange market offerings are diverse, and they are
taking time to evaluate the options to see which one best meets their needs
and/or is in line with their strategic objectives. “We are seeing a lot of
interest in employers using an independent evaluator to help them assess the
market. This process is taking longer than simply converting to an exchange,”
she says. And early adopters are warning employers to spend more than six
months to roll out a private exchange, she adds (see story, p. 3). To be ready
for the 2016 plan year, employers will need to finalize plans by April or May.
But Gniewek says there could be a
“piling on” effect if competitors are successful in switching to a private
exchange. Nearly half of employers have implemented or intend to implement a
private exchange for full-time active employees before 2018, according to a
2014 survey of 446 employers conducted by the Private Exchange Evaluation
Collaborative, an initiative launched by PwC and four non-profit business
coalitions — Employers Health Coalition, Inc. (Ohio), Midwest Business Group on
Health, Northeast Business Group on Health and Pacific Business Group on
Health. But 57% of employers said they’d be more inclined to consider a private
exchange if a peer switched to one.
Cadillac Tax May Drive Some to
Exchanges
Arnold predicts that the so-called
Cadillac tax on rich employee benefits, which is slated to go into effect in
2018 as part of the Affordable Care Act, could propel private exchange
momentum.
About 40% of large employers would
trigger the penalty, according to an employer survey released March 5 by Towers
Watson. Gniewek agrees that the Cadillac tax is driving interest in exchanges.
Employers can use the tax as an excuse to change the way they provide benefits,
she tells HEX. Fronstin says the Cadillac tax could be a “game changer.”
Wojcik agrees that the Cadillac tax
could spur some movement in 2018 and beyond, “but it doesn’t necessarily
immunize employers from the tax if the exchanges are unsuccessful in keeping
trend below [the consumer price index],” he notes.
More than 25% of the 444 employer
representatives surveyed for the Towers Watson report say they have
“extensively analyzed private exchanges,” and 20% say they are more interested
in adopting a private exchange today than they were a year ago. Employers that
have completed extensive analysis of private exchanges — versus companies that
have not — are twice as likely to find private exchanges a viable alternative
in 2016, according to the report.
The Towers Watson study also found that
the vast majority of U.S. employers (84%) expect to make changes to their
full-time employee health benefit programs over the next three years, despite
cost increases remaining at historically low levels.
