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The Private Exchange Market:

Will Employees Demand More Choices in Benefits?


ecently, McKinsey and Avalere Health have released studies forecasting the decline in the number of insurance carrier options on the public exchanges. What are the implications for the growth rate of private exchanges? At first glance, the answer is pretty simple. Public exchanges and private exchanges have very little in common. Public exchanges are composed of individual insurance products and include access to government subsidies for 85% of the enrollees. Private exchanges are composed of group insurance products and include access to government subsidies (in the form of pre-tax premiums) for 100% of the enrollees. THE VALUE OF PRIVATE EXCHANGES As has been widely reported, many insurance carriers are racking up significant losses on the public exchanges. As a result, many carriers have announced exiting markets for 2017. According to a recent study conducted by McKinsey, up to 17% of Americans will only have one choice of health carrier in the public exchanges in 2017. Luckily, California citizens will still have access to multiple carriers in most ar-


eas, but the year-over-year comparison shows a significant reduction in choice, even for Californians. Choice is one of the key features of the exchange concept – whether public or private. Some have said that the magic of private exchanges is that when you give employees more choice and increased visibility of what their employers are spending, they are happier with their benefit choices even if they buy fewer benefits. So, in a sense, private exchanges may be enabling greater cost shifting to employees while mitigating employee dissatisfaction. Industries that are rapidly moving to private exchanges are heavily populated by employers who are struggling to control their compensation costs in the post Obamacare era. Industries such as multi-site retail, staffing, and non-union manufacturing are dominating. BALANCING COST AND CHOICE So what does negative press about the public exchanges have to do with private exchanges? One could argue that the public exchanges have never been very popular. When ­healthcare.gov was first launched, there was negative press associated with the website and its

inability to handle the large number of visitors. Now, three years after the launch of the federal government’s public exchange, the negative press seems to be centered around excessive price increases and reduced carrier participation. From year to year, employers must balance cost containment, regulatory compliance, and employee retention as they direct their benefit strategies. If the exchange concept fails to deliver on the cost containment front, will it deter employers from considering a private exchange strategy? If reduced choice is the inevitable outcome of the exchange concept, will employers shy away from private exchanges because of their inability to consistently deliver the right balance of employee satisfaction and cost containment? It has been said that we are in the third inning of the development of private exchanges and there is a bright and long future ahead. But, as many veterans of the benefits industry know, this industry has a long history of shiny penny solutions that fade as rapidly as they appear. For now, it appears that private and public exchanges will continue to co-exist, peacefully or not. In the end, the market will dictate what choices employees have about their benefit options. Given the forecast for healthcare inflation, we can ill afford to lose any solution that promises to control costs and improve employee satisfaction. H Eric Helman is chief strategy officer for HodgesMace, where he is responsible for creating, communicating, executing, and sustaining strategic initiatives. He brings a vast background in innovative employee benefits administration and enrollment processes to the thriving Atlanta-based employee benefits firm. For more information, visit erichelman@hodgesmace.com.


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