In this article published in the June 2018 edition of California Broker Magazine, Rob Carnaroli, Sutter Health Plus Vice President of Sales, discusses the evolution and current landscape of private exchanges, and the marketplaces where employer groups can purchase health plans.
Private exchanges have been around for over two decades in the health insurance industry, and the model continues to evolve. Throughout my career, I have had the privilege of implementing and integrating private exchanges into marketplaces nationwide—allowing me to more efficiently bring Sutter Health Plus into both small and large group private exchange platforms. Our HMO health plan is available to small groups through CaliforniaChoice®, and Gallagher Marketplace for large groups.
Brokers have the opportunity to leverage private exchanges and create win-win situations for their clients as well as themselves. While there are state and federal laws that may complicate the landscape, brokers deliver value in helping clients navigate their options and find an exchange that works for their employees. In this article, I’ll share some insights into private exchanges and how to find the right fit for both small and large groups, as well as the driving force for some of the current changes within the industry.
Private Exchange 101
Most brokers are familiar with private exchanges, which provide a consumer-driven shopping experience for employees. Unlike public exchanges, which are government-operated, private exchanges are owned by individual health insurers or large consulting firms. Insurer-led exchanges typically have large, often nationwide coverage, with multiple options under their own moniker. The experience of utilizing an insurer-led private exchange is similar to purchasing a plane ticket on an airline’s website. You see lots of choices and you make the best decision based on price, convenience, etc. Consulting firm led exchanges allow for multiple plans and carriers, similar to how Amazon provides customers with the accessibility to purchase from a variety of vendors.
We know that consumers value choice over a one-size-fits all approach—and health care is no different. From an employer’s perspective, private exchanges can reduce HR costs by streamlining the enrollment process and year-round management of employee benefits. For instance, private exchanges help take the guesswork out of changing state and federal laws affecting employers by offering guidance on upcoming regulatory requirements.
There are, however, differences in how private exchanges operate for employers of small and large groups.
Small and Large Groups in California
For small groups in California, the only private exchange option is CaliforniaChoice. Brokers are able to offer CaliforniaChoice to their small group clients, opening the doors for their clients’ employees to select a health plan from multiple carriers, including Anthem Blue Cross, Health Net, Kaiser Permanente, Sharp, Sutter Health Plus, United Healthcare and Western Health Advantage. Often times, small group employers choose to go the private exchange route because it can be more cost effective, more cost predictable and provide a breadth of plan designs, physician networks and geographic coverage.
For brokers, managing small group clients using private exchanges can make it easier on the front end, as well. Most exchanges come with decision support tools to help employees select a plan, enroll online and offer a single source for billing and customer service assistance.
Because of their size and geographic coverage, large groups present their own set of challenges. It may be difficult to find a large group plan that can accommodate the needs of employees across multiple states. There are a finite number of brokers that have the capacity to manage private exchanges for large groups, and oftentimes a firm will specialize in this type of client. Adding to the complexity is that the large group landscape continues to transform.
The Private Exchange Landscape
We are seeing a lot of reengineering of large group platforms in the private exchange. From a broker management perspective, private exchanges have made it much easier to offer health plans to companies spanning multiple geographic regions; however, they oftentimes lack access to regional networks, which can leave holes in some areas. Now, many large group private exchanges are exploring smaller, regional solutions in order to round out their offerings and cater to local markets. These localized health plans can solve for access and affordability issues, which is expected to help increase the amount of U.S. employees enrolled in health care plans.
The private exchange market is currently experiencing a plateau, heightening the need to find new solutions that continue to move the needle. When private exchanges first were formed, it was estimated that 40 million individuals would be enrolled through them, but currently there are only about 6-8 million enrolled (depending on what data is reported). There may be a few reasons as to why more employers aren’t utilizing private exchanges. Some employers may be reluctant to embrace exchanges because the cost benefit has not yet been proven. The second major reason may be the potential learning curve for employees on a new way to select benefits
Another reason for fewer enrollments than expected in private exchanges could be the delay of the Cadillac tax until 2022. The impending 40 percent tax to businesses on high-premium health insurance plans drove private exchange growth as employers worked to keep below the Cadillac tax thresholds. Private exchanges provide predictability of costs and transparency in price, which is a good solution for employers looking to steer clear of the Cadillac tax. But now that it is delayed until 2022, there isn’t the surge of private exchange utilization that was once predicted.
The transitional nature of the health care industry and government regulations will continue to cause an evolution within the private exchange model, both for large and small groups. As brokers, it’s important to keep clients educated on the private exchange landscape and predicted shifts in costs as models will inevitably continue to evolve.
Final Tips on Private Exchanges
When working with a client, it’s important to consider the client’s ROI for turning over the keys to a private exchange. Oftentimes, companies are looking for more data to assist in employee benefit administration and wellness program development, and a private exchange can deliver that. Private exchanges can also eliminate overhead and HR costs, depending on the company structure.
As a nonbiased consultant, brokers are in a valuable position to provide expertise on the benefits of private exchanges to employer groups—which is why it is critical to remain up-to-date on the shifting landscape of private exchanges. If there are any additional insights I can provide, let’s continue the discussion. Please feel free to contact me at Rob.Carnaroli@sutterhealth.org.
Vice President of Sales, Sutter Health Plus | LinkedIn