Over the past couple years, health care exchanges probably have consumed more of corporate benefits managers’ time and psychic energy than any other topic. An outstanding question is whether the rank and file of American businesses will drop the hassle that employer-sponsored coverage represents, or default to private exchanges.
Private exchange offerings typically move employees from their companies’ previous self-funded health plans to fully-insured individual arrangements, purporting to offer more flexibility and choice that can adapt to the wide-ranging needs of employees and employers, while creating a more competitive health plan marketplace.
Several recent surveys have reported that employers plan to move aggressively to private exchanges. In a survey last year of more than 700 businesses, the Private Exchange Evaluation Collaborative, a group of regional business health coalitions working with the consulting group PwC, found that 45 percent of employers have implemented or are considering using a private exchange for active employees before 2018. Similarly, a February Aon Plc survey found that, while 95 percent of employers say they expect to continue offering health care for the next 3-5 years, and 5 percent of employers currently use a private exchange, 33 percent say they may consider using one in the future.
My organization, the National Business Coalition on Health (NBCH), is an umbrella for regional business health coalitions around the country, representing about 4,500 employers, unions and local governments and some 35 million people. Working with Benz Communications, an employee benefits communications firm, we surveyed 333 benefits managers, mainly in middle-market (1,000-5,000 employee lives) technology and service firms in the Western and Southeastern US, about how they intend to manage their health plans going forward.
More than half (55 percent) of the respondents indicated they will “never” stop sponsoring employee health plans in favor of giving employees money to buy coverage through a private exchange. Just 5 percent – this number syncs with other surveys – say they already use a private exchange to provide employees’ health benefits. About 8 percent say they’ll consider moving within the next three years.
It remains to be seen whether private exchanges can outperform conventional self-funding arrangements over time. New data from private exchanges – see here and here – claim 5-plus percent health plan cost savings, but we don’t know whether those numbers will be seen across the sector, or whether they’ll be sustainable.
Analyst and former health insurance executive Robert Laszewski has been openly skeptical, arguing that these structures do little to make health care cost less and much to make it cost more. In addition to the added costs of state mandates and risk management that individual, fully insured plans must deal with, individual products have higher health plan “expense factors,” meaning the costs of handling an individual an individual rather than a group policy. He notes:
Individual products operate on an expense factor of as much as 20 percent and small group plans as much as 15 percent. Moving away from self-insurance and to an individual choice platform will increase the expense factor leaving the employee less money for benefits.
There are other issues as well. While, admittedly, employer and union health plan sponsors have not, as a whole, been assertive health care purchasers in the past, they represent powerful market potential to reward organizations that deliver high value and withhold that support from those that do not. The US’ regulatory environment has effectively been “captured” by the health care industry, and a steady stream of information has made it clear that our health care delivery and finance systems are characterized by excesses that make our costs double those of other developed nations. One important question is whether, by moving the center of health care power from group to individual purchasers, we abrogate our ability to push back effectively against a health care industry already pre-disposed to excess.
I cannot explain why the NBCH/Benz survey results suggest much lower purchaser inclination to move to private exchanges. But they raise the possibility that there is an alternative view of what is possible in health care, and that self-funding and a willingness to continue trying to control the health care value monster remains alive and vibrant.