Private Exchanges Offer Broker Opportunity

By Linda Koco InsuranceNewsNet

Where might independent health agents and brokers find opportunity as in this new era of federal health care reform?

Look into the private health care exchanges, Michael Trilli suggested. These are the rapidly developing competitors to public health care exchanges created by the Affordable Care Act (ACA), said the senior analyst for health insurance and payments practices at Aite Group, a Boston research and consulting firm.

Private exchanges are retail e-commerce websites offered by commercial-carrier health plans outside of the public exchange networks. Exchange websites, whether public or private, enable consumers to compare products, enroll and purchase health insurance. But while public exchanges must offer plans that meet ACA requirements, private exchanges also offer richer plan designs and voluntary benefit products, too.

About 100 private exchange vendors are already in business, Trilli estimated. That’s based on research he did for an Aite survey on private exchanges. The survey sampled views of executives from commercial health plans and third-party administrators (TPAs).

The surveyed executives said that larger retail employers, and even small-to-midsize employers, are and will increasingly be attracted to private exchanges. The reason? Private exchanges offer larger group ratings, lower premiums, comprehensive health benefit structures and access to voluntary benefits.

Not incidentally, participation in a private exchange may also enable employers to avoid potential employer penalties under the Affordable Care Act, Aite points out.

Message for brokers

The message for brokers and TPAs is that, as this market grows, so will the opportunity for commissioned sales opportunities, Trilli predicted.

And growth is coming, he said. Nearly 100 percent of those surveyed by Aite anticipate that private exchanges will be a game-changing retail acquisition channel for insurers. About 47 percent predict this will happen by 2015. Another 40 percent put the date at sometime after 2015. None said “it will never happen.”

The type and scope of the exchanges will impact the range of broker opportunities. Right now, private exchange vendors include large benefit consultant firms, e-commerce entrants, cloud-based services, and full-service exchange vendors (which offer turnkey services including enrollment, underwriting, billing, customer support and ongoing account management). Some offer products of multiple carriers; others offer products of only a single carrier.

In general, the vendors have three basic types of business models, Trilli said. Some offer online enrollment only. Others offer enrollment and billing services, and still others offer enrollment, billing and various annual account management services. The type and availability of voluntary products also vary by vendor.

Brokers who are already comfortable with packaging voluntary benefits with an employer health plan will be very comfortable offering similar products within the private exchanges, Trilli said. “They’ll be doing what they do now but through a different distribution channel.”

It’s possible that the public health care exchanges could also offer voluntary benefits, but Trilli thinks that is not likely, given that their mission is to become a marketplace for health care coverage. Having voluntary benefit offerings available through the private exchanges will therefore become a competitive advantage for those serving that marketplace.

For brokers and insurers, the advantage is not only related to sales of health plans and possible voluntary benefits. The private exchanges also offer a direct line to the consumer, Aite said.

Since most employers have already made their health plan selections for year 2014, Trilli sees the private exchange advantage opportunity for brokers and TPAs as one that will unfold over the next two to five years.

But brokers can start cultivating this business now by educating employers about the private exchanges, he said. “The brokers are the ones who will have to bring the horse to the water.”

Worth noting: Three-fourths of the surveyed executives pegged lack of understanding among employers and employees as creating a high barrier to carriers acquiring private exchange members. So the brokers and TPAs will have their work cut out for them.

They do have some time, though. Group health plans won’t be available through the public exchanges until 2016, with coverage to begin in 2017. “By then,” Trilli said, “many firms will have already moved into private exchanges.”

Key piece

A key piece of this development has to do with the type of products the plans will be offering. According the Aite survey, private exchanges will offer a variety of products and deeper benefits than will be available in the public exchanges. In particular, the private exchanges are expected to move a lot of defined contribution health plans and high deductible health plans. The two products are linked elements of what the industry calls a consumer directed health (CDH) strategy:

· Defined contribution health plansare essentially health savings accounts (HSAs), according to Aite. Employees set aside funds in the tax-protected HSAs and then use those funds to pay for qualified health care expenses that aren’t covered by insurance, free of taxes. The funds not used carry over from year to year.

· High-deductible health plans (HDHPs)are health insurance policies typically sold in conjunction with the HSAs. Because the plans have very high deductibles (up to $2,500 for example), HDHPs shift more financial responsibility to individual plan members. But in return, most plan members receive pre-tax benefits, lower premiums, and the HSA.

Aite is projecting that the number of covered lives in HDHPs will grow to one-third of the United States population over the next two years—and that private exchanges will contribute 25 percent to that growth, including in the small-to-midsize employer market.

In addition, the Aite survey found that 80 percent of the surveyed executives believe that the private exchanges will lead more employers to switch to the CDH models.

TPAs should not overlook private exchanges, cautions Aite, explaining that HSAs will become a leading product offer, and the opportunity to sell voluntary benefit products will become lucrative. This will help offset declining revenues from the fall-off in sales of flexible-spending accounts that has occurred in recent years, the firm adds.

If brokers want a reason to be optimistic, there it is.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.