Health Insurance Exchanges Splinter Into Two Camps

By Cyril Tuohy

InsuranceNewsNet

The creation of health care exchanges as part of the Affordable Care Act is splintering into two distinct camps: 1) exchanges run by the states, the federal government or a combination, and 2) private, corporate exchanges set up by large health and benefit brokerage companies.

The exchanges are a major element of the Affordable Care Act, which was signed into law two years ago this month.

Where businesses or individuals eventually decide to shop, and the role of financial advisors in steering clients toward one model or the other, is anyone’s guess. In either case, the rise of the exchanges represents a major step forward in the consumerization of health care and away from the traditional employer-driven model.

As of early March, the Obama administration has approved applications for state-run exchanges in 17 states and the District of Columbia, according to the Henry J. Kaiser Family Foundation. The exchanges must be fully operational by Jan. 1, 2014.

Already, many Republican governors have passed on setting up state-based exchanges, instead preferring a state-federal partnership or letting the federal government run the exchange. Nearly two dozen other Republican-led states have opted to allow the federal government to run their exchanges.

“I will not ask New Jerseyans to commit today to a state-based exchange when the federal government cannot tell us what it will cost, how that cost compares to other options, and how much control they will give the states over this option that comes at the cost of our state’s taxpayers,” said New Jersey Gov. Chris Christie in a statement last December.

Since then, governors in Florida, Tennessee and Pennsylvania also have passed on setting up exchanges, criticizing them as inefficient, misguided and inflexible.

As governors battle the Obama administration over whether to set up state exchanges to cover tens of millions of uninsured working or unemployed Americans, benefits brokerages have gone ahead and set up their own exchanges geared to help employers.

Large employers in particular have indicated that they will continue to offer medical coverage as a talent retention tool, and modern technology platforms are making it easier and more efficient for health and benefits brokers to set up exchanges on their own.

“The convergence of a number of critical factors – the unsustainable rise in benefit costs, healthcare reform, ‘consumer-driven’ solutions, and improving technology – is transforming the provision of employee benefits,” Julio A. Portalatin, president and chief executive officer of Mercer, the health, retirement and investment consultancy, said in January after the company announced the launch of its exchange called “Mercer Marketplace.”

The exchange was launched after surveys indicated that 56 percent of employers are considering a private exchange to provide benefits to employees and retirees, according to David Rahill, Mercer’s president of health and benefits.

Last fall, Aon Hewitt enrolled more than 100,000 employees working for clients in its Corporate Health Exchange. Employers were drawn by the choices of health insurance carriers available in the exchange, as well as the pricing plans and the flexibility of the offerings, according to the company.

Darden Restaurants is one of several companies participating in the Corporate Health Exchange. , Danielle Kirgan, senior vice president of Darden’s total reward and shared services, said the exchange had helped Darden offer more choices and flexibility at different price points, according to a release from Aon Hewitt.

Private employers continue to maintain high interest in maintaining the health and wellness of their employees. But the question is what kind of delivery model employers will settle on, according to John Zern, U.S. health and benefits practice director with Aon Hewitt.

A survey of 562 employers nationwide found that 72 percent are very or somewhat interested in exploring if a corporate exchange model can be an effective solution to managing the cost of an employee health plan, Aon Hewitt said.

A white paper published last year by the consulting firm Booz & Co. predicted the proliferation of private exchanges. But in order to survive, exchanges will have to differentiate themselves by offering “a distinctive value proposition,” the report said.

Cyril Tuohy is a writer living in Pennsylvania. He has covered the financial services industry for more than 15 years. He has also written about food, restaurants and travel. He can be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].