Yet More Good News on Private Health Exchanges

Array Health Solutions reports more evidence that private health insurance exchanges are at the beginning of an explosive growth spurt. We’ve been excited about the rise of private health exchanges for a while, as a way to bridge the gap between employer-based health benefits (a status quo with incredible inertia) and individually owned health benefits (which is a much better arrangement for both employers and individuals). Our argument is described here.

Array surveyed insurance experts. The key findings:

  • More than half of insurer respondents said they will use a private single-insurer exchange as a sales channel this year;
  • More than 75% of respondents believe most insurers will offer private single-insurer exchanges by the end of 2016;
  • Insurers will sell to all market segments via private single-insurer exchanges;
  • Employers are expected to move their sponsored health benefits onto private exchanges by 2016;
  • Insurers will expand their offerings on private exchanges beyond core medical, dental, and vision.

One small issue of concern is that insurers plan to offer single-insurer exchanges rather than participate in multi-insurer exchanges. Obviously, plan participants have more choice in a multi-employer exchange. Nevertheless, it is understandable that an insurer would prefer run its own exchange, offering only its own policies. This may be an aspirational goal, rather than a realistic one. Benefits consultants have succeeded in developing very credible multi-insurer private exchanges, and it is unclear how insurers can by-pass this channel in many markets.

Comments (14)

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  1. SPM says:

    Private insurance exchanges seem like an attractive alternative because they ought to offer more competition. However, this post states that some insurers plan to offer single-insurer exchanges instead of multi-insurer. This could be problematic if the trend continues.

    • John Fembup says:

      SPM, this is kinda long. Sorry.

      Increasing competition among insurance companies would mainly affect the part of the overall premium that covers insurance company operating costs. That’s somewhere between 5% and 20% of the premium depending on the contract or type of insurance policy. If more competition actually ended up reducing insurance company costs by as much as 10% that would yield less than a 2% reduction in overall premium. That may be worth doing, but it’s not a result that many people would call a solution.

      One might believe that more competition among insurance companies would lead them to “bargain harder” with hospitals and physicians. But remember hospitals and physicians cannot reduce their prices below their own costs. OK, how large are their margins? You’re sitting at a computer, look them up; expect to be surprised. As with insurance companies, negotiated reductions to hospital and physician margins would reduce overall premium by some small percentage. Again, worth doing – but no solution.

      And those small reductions may be all we can ever expect to get.

      The key to meaningful reductions to insurance premiums is meaningful reductions to the cost of care. Considering our aging population, greater prevalence of chronic disease, and higher cost because of new technologies and sophisticated medications (not to mention the medical cost burden of social pathologies such as crime, accidents, substance abuse, smoking, inadequate sleep, poor diet, etc) premium growth won’t slow down – much less turn around – unless or until it becomes significantly less costly for providers of care to deliver their services. How can that be done? If it can be done, what would be the effect on the medical care we expect to have? Would we really trade the medical care we can get now, for something that’s just . . . cheaper?

      I think it’s a mistake to believe that insurance companies can make that happen, regardless how many insurers are competing with one another – because they don’t have the power to reduce the cost of delivering hospital and physician care. I also think its a mistake to believe that our government can make that happen – given that our government works by imposing costly rules, regulations, and requirements that increase costs.

      I feel like a passenger on the deck of the Titanic. I see we are headed straight for an iceberg, but no matter how loudly I shout “iceberg” I don’t really know what to do, to turn the ship. I think all we passengers, pundits, so-called experts, and government bureaucrats are all in the same boat. We all see the same disaster looming.

      I think we’ve all been on this boat since 1966, when Medicare was enacted. That’s 48 years ago. Moses was able to lead his people out of the desert in 40 years. Yeah, health care is a more difficult problem. Still . . . we don’t have a Moses, do we?

      • John R. Graham says:

        It did not take Moses forty years to get the chosen people out of Egypt. It took him forty years to get Egypt out of the chosen people.

        • John Fembup says:

          True. (And anyway, I said desert . . . )

          • John R. Graham says:

            In agreement with our previous comment, automobiles have greatly increased utility compared with when I was a kid. But I don’t think most of that is due to automobile insurers. The safety aspects are due to auto insurers, but not the aspects of comfort.

            In the medical field, a properly functioning medical-malpractice system would do a better job of ensuring safety than a properly functioning health-insurance system would.

  2. Don Levit says:

    It is my understanding that the typical exchange plan with large employers is group insurance
    Does anyone have any idea of the percentage of these plans can be continued as individual plans when the employee leaves
    And do premiums remain the same as the prior group or are they based similar to individual plans off of the public exchange

  3. Devon Herrick says:

    Private exchanges are a great idea. My main question is: what took employers so long? Of course, the same could be said of other great ideas, such as high-deductible plans, HSAs, value-based insurance design, etc. Benefit design that has great potential was ignored for years because HR departments didn’t want to switch. Some of the inertia that John talks probably reflects that preferences of HR directors, upper management and executives’ families (rather than sound business practices).

    • John Fembup says:

      Devon, I agree with you that there is, and has been, no shortage of great ideas. However, one of the chief obstacles to proceeding with any of them has been the tendency of our so-called thought leaders to behave like the seven blind swamis trying to decide what an elephant looks like. Each have their own favorite great ideas but have too often seemed more interested in attacking rival ideas rather than trying to implement a system that works. None of these swamis emerged from this scrum to be our health-care Moses. Edison was right – invention is 1% inspiration and 99% perspiration. It seems to me that the majority of the effort has been spent arguing about the inspiration part. That hasn’t helped.

      So America ended up a politically-imposed system we call the “Affordable Care Act,” Few should be surprised that ACA fails to reflect good business practices. Sun-Tzu famously observed that an army fights better if forced to fight on “death ground.” That’s where private businesses, including insurance companies and consulting firms, find themselves today. Private exchanges were being developed anyway; but the acute need for them was not felt until it became clear that ACA threatened private businesses, including insurance companies and consulting firms.

      I hope private exchanges work. At the same time, I wonder whether, if they do, they will lead to a 4-tier system: private exchanges for large employers; public exchanges for individual purchasers and perhaps some small employers; Medicare; and Medicaid.

      • John R. Graham says:

        I expect the word ” private exchange” is getting thrown around like “value-based purchasing” or “consumer-driven health care”. They are not trademarked, so anyone can put the label on if he thinks it serves his purpose.

        • Devon Herrick says:

          Yes, these terms are tossed around by people who have no idea of their meaning. If value-based insurance design (such as was used by CalPERS/WellPoint in California), CDHC and ideas like selective contracting, medical tourism were implemented correctly, they would begin to have an effect. My fear is that when this occurs, those affected (i.e. hospitals, clinics, labs, possibly some physicians’ assoc., even patients) will complain to regulators and get the provisions nullified at the state or federal level.

          Stakeholders all tend to agree that our health care system could benefit from cost-control. However, I doubt the stakeholders would agree their revenue is the problem.

          • John R. Graham says:

            I have been in Washington, DC long enough to know that when a good idea gets traction, and other parties want to stop it, they appropriate the term in their own communications in order to confuse the issue.

  4. bob hertz says:

    I am not sure what is new about a “single insurer exchange.” It just means that an insurer like Blue Cross offers several of its plans to large groups.
    The Federal Employees plan and Medicare Advantage have worked that way for years.

    The ACA has standardized many plan provisions and eliminated undewriting. For that reason, even a multi-employer exchange is not likely to offer much variety
    other than narrower and narrower networks.

    • April Corday says:

      We already have set up a multi tier system. Depending upon employment status will determine whether you can buy at any price a comprehensive plan unless you are over 65. At 65 one can finally chose a real PPO with Original Medicare that gives you a wide choice of providers.

      The new PPO plans for Individuals all have these new Narrow Networks that exclude many providers, even providers who deliver high quality at reasonable cost. They should not be allowed to be called PPO since so many doctors are excluded depending upon the carriers. To get all my doctors I need to buy 2 plans to get coverage. Why? If a provider is good enough for one carrier shouldn’t the other large carriers also include them? We have created a fractured delivery system that is not serving consumers best interests.

    • John R. Graham says:

      I think you are right. Maybe the insurers are re-organizing themselves so that the ObamaCare exchange business and the private “single-insurer exchange” business are included in one strategic business unit, so the term is applied to both.

      Or it may be that the consultants are just using the term broadly to promote the idea that lessons learned in ObamaCare exchanges are transferable to private exchanges, and vice versa, so it helps market their services to use the same term.