|By Mohta, Triveni Harsh|
Private exchanges are likely to proliferate, but health plans need to differentiate from the private insurance market and public exchanges through clear strategies for innovative deployment.
As health insurance undergoes a major transition from an employer-driven model (group market) to a direct model involving employers and consumers (individual market), health insurance exchanges (HIX) represent a significant step facilitating the change. With about 45 million uninsured and 50 million underinsured, lack of choice, transparency and rising costs were reasons for the Patient Protection & Accountable Care Act (PPACA or ACA) to mandate the establishment of state exchanges. The ACA mandates that every individual be insured by 2014, thus driving insurance exchanges.
* CMS schedule for deployment of public exchanges will move forward for states.
* Most states are unlikely to be able to deploy and reach full operational readiness within CMS timelines - many states would either subscribe to the federal exchange or look to a private exchange or co-op.
* Aspects of ACA still face uncertainty from upcoming elections and legislative actions, but exchanges are here to stay. The U.S. healthcare model, pre-ACA, wasn't sustainable. While some ACA provisions may be considered overreaching or unfunded, exchanges provide the individual market-facing mechanism that enables transparency and cost take-out by backing individual responsibility for cost management.
ACA presents health plans with a "participate vs. build" option with respect to exchanges: participate in the public exchange within state guidelines or build a private exchange that is closed (single payer), brokered (multiple payers through broker associations) or open (multiple competitive payers) . We focus here on private exchanges and how commercial payers should prepare for these now, because the mandate increases competition among health plans but also offers them a unique opportunity to set up private exchanges in parallel to expand member base, offer a collaborative environment and greater flexibility to employers, and simplify the process of purchasing insurance. Co-existence of private exchanges alongside public exchanges will create a competitive, healthy and effective health insurance system by achieving key goals of healthcare reform:
* Extend coverage to more consumers.
* Promote a stable insurance market.
* Maintain the right equilibrium of insurance pools between insurance markets.
* Allow consumers access to the most cost-effective options that meet their individual needs.
* Provide payers with significant assistance in regulatory compliance, such as reaching medical loss ratio (MLR) targets.
Four key factors are driving health plans to establish private exchanges:
* Market: Competition among health plans with the mandate of exchange setup. Attraction of covering millions of uninsured individuals and targeting mid-size and large employers that do not benefit from public exchanges.
* Costs: As rising costs pose a hurdle for insuring every employee and individual, there is a need for affordable insurance for plan sponsors as well as enrollees and to move toward a defined contribution model from a defined benefit model. Exchanges offer transparency and choice to promote this.
* Consumerism: Consumer focus will be inherent in all platforms. Support via call center, chat, mobile, social media, etc., is now the starting point for consumerfacing platforms.
* Risk-pooling: Multi-carrier exchange provides opportunity for better risk pooling through the use of technologies, such as EMR and HIE records, that provide a more accurate health history.
Challenges and strategic considerations for private exchanges
Health plans need to address several challenges while setting up private exchanges to increase member base: