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Obamacare: The Rise Of Private Health Insurance Exchanges
Tuesday’s launch of state and federal health insurance marketplaces is also prompting new interest in private exchanges as legal landscape changes.
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As Obamacare changes the rules of the health insurance game by instituting publicly operated exchanges for selecting plans, private health insurance exchanges also stand to benefit.
The Affordable Care Act seeks to make the price of individual health insurance more competitive with the group plans traditionally offered by employers. That's prompting some employers to reconsider whether they need to be in the business of providing health benefits to employees, when instead they could offer a flat subsidy to workers who will purchase plans on their own. This restructuring of the health insurance market is showing up first among companies that employ large numbers of part-time workers, such as Sears Holding Corp and Darden Restaurants. Drug store chain Walgreens recently announced it will move its 160,000 current employees to a private health insurance exchange operated by Aon Hewitt. IBM recently joined the historic shift by moving retirees from company-provided insurance to the Extend Health exchange, following a similar move by GE last year.
Extend Health CEO Bryce A. Williams said his company, which had been concentrating on offering enhanced Medicare insurance to retirees, will be entering the market for consumers under age 65 because of the changes brought about by the law. Acquired last year by Towers Watson, Extend Health was founded in 2004 by Williams, a veteran of eHealth, a company that targeted the consumer health insurance market. But one of the big problems with selling health insurance to younger people is that only 65% to 70% of those who selected a plan would actually be able to enroll, once the insurers got a look at their medical history.
"That's changing this fall," Williams said, meaning that Extend Health can now offer guaranteed insurance to younger people, just as it can to those eligible for Medicare. "It makes us think our original idea was sound; it was just years early," he said.
Although in principle the exchanges operated by the states and the federal government represent competition, that's not so different from the Medicare market, where consumers could also go directly to Medicare.gov to choose a plan. Extend Health provides the same service, "but we do it for America's biggest corporations, and they don't want a government site." Instead, those companies hire Extend Health to provide "concierge service," matching retirees to the plans that are best for them. Now, Extend Health will offer the same level of service to help employees select individual health insurance.
Although the online shopping experience is important, only about 0.5% of retirees actually purchase a plan online, making personal advisers and call center service an important part of the total product, Williams said. The percentage of younger consumers closing the deal online will probably be larger, particularly with those in their 20s and 30s used to doing everything online, but "it still won't be 100%," he said.
In addition to working with corporate clients' employees, Williams said Extend Health is piloting a program in which it would partner with a major retailer to place health insurance kiosks in its stores. While he doesn't expect consumers to be willing to complete an application, including providing social security numbers, from a store kiosk, it could be a way for consumers to learn about their options and then set a follow-up appointment during which an Extend Health representative would have an opportunity to close the deal. The retailer, which he declined to name, "is excited to take the concept of health and beauty and extend it by providing an excellent shopping experience" for health insurance, he said.
The rise of the private exchanges "is a really, really interesting and kind of unexpected side effect or collateral effect of the whole movement to public exchanges," said Jordan Battani, managing director of the Global Institute for Emerging Healthcare Practices, a healthcare IT research group at the global consulting firm CSC. In addition to eliminating uncertainty about whether consumers will qualify for health insurance, the ACA has promoted a standardization of insurance products into tiers of service -- bronze, silver, gold and platinum -- which has the effect of simplifying the market and making it easier to compare health plans. "That's one of the other difficulties private exchanges had in the past -- that the products are so variable."
The regulatory structure also dictates that consumers get the same price for any given plan, regardless of whether the purchase is through a public exchange or a private one, Williams said. The marketing fee built into the price goes to Extend Health as a commission when it makes the sale, whereas the insurer simply keeps the money when a consumer signs up without going through an intermediary, he said.
GetInsured.com, a private exchange operator that is setting itself up as a cloud service provider to state exchanges that wish to operate independently of the federal government, also says it expects to announce deals with employers who want to direct their employees to shop for their own insurance.
Meanwhile, the state and federal exchanges are likely getting off to a glitchy and uneven start, but that's not surprising given the scale of what's being implemented, Williams said. "This is healthcare's equivalent of a mission to Mars. There may be a glitch or two, but I'm convinced the spacecraft is going to get to Mars, intact."
The closest parallel is with the introduction of the Medicare Part D prescription drug benefit a decade ago, Williams said. "There were enormous glitches in the first 10 to 18 months," resulting in lots of angry people complaining that they hadn't gotten their benefits cards as promised, he said. Now, that's given way to "18 million very happy individual Part D plan owners," he said.
Similarly, in the first months of the public exchanges, there will be many instances of plans priced wrong and subsidies calculated improperly, but the impact of those glitches will fade over time. "The pricing bumps we're seeing now are fairly modest compared to what could have happened," he said. "California has been testing for months now, and it's going incredibly well."