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More than 100,000 employees from Sears and Darden Restaurants will use Aon Hewitt’s healthcare exchange to select their health benefits.

Employers using a private exchange use a defined contribution strategy that gives each worker a set amount of credit to choose from among a menu of insurance options.

Liazon’s Bright Choice Exchange is growing at a rate of 100% a year and recently signed deals with Gallagher Benefits Services and Hub International.


Pro Choice

Aon Hewitt’s insurance “exchange” focuses an old idea in a new way. Will it become the next wave in benefits?

By  Mike Patten

Is the emergence of private health exchanges an outlier in the consumerization of employer-sponsored health insurance? Or simply the latest shiny toy in employee-sponsored benefits?

While not the first to establish what is more accurately described as a private marketplace, Aon Hewitt is attracting focus for its recent announcement that more than 100,000 employees from Sears and Darden Restaurants will use Aon Hewitt’s multi-carrier corporate healthcare exchange to select their 2013 health benefits. But while Aon Hewitt may be the largest private health exchange created to date, other large vendors, including Extend Health and Mercer, are close to establishing their own, and there are several smaller private exchanges already operating.

“I think that private exchanges are still in large part a lot of shine and glitter and the newest tool in the toolbox,” says Nancy Mellard, executive vice president and general counsel at CBIZ Benefits & Insurance Services. “None of us have figured out exactly what private exchanges are going to look like in the end. But they are something that all brokers and consultants who intend to be around and thriving in 2014 and beyond need to be asking: What do we need to do to look at our private exchange options for our appropriate customers?”

The Patient Protection and Affordable Care Act requires the creation of public exchanges starting in 2014 for individuals and small businesses—defined as 100 or fewer employees. Workers who do not meet certain income levels based on family size will receive federal subsidies to use in the public exchanges. Larger employers cannot send their employees to the public exchanges until 2017.

Private exchanges do not involve subsidies and therefore are more like marketplaces that have come to be called exchanges. Both public and private exchanges connect insurance companies with consumers wishing to purchase health insurance. The more participants there are in an exchange, the better participating carriers can spread risk and offer competitive prices.

In most cases, employers using a private exchange use a defined contribution strategy that gives each worker a set amount of credit to choose from among a menu of insurance options. Employees who opt for more expensive coverage would have to pay the difference, while employees who choose less expensive coverage would see the credit returned to their paychecks.

Proponents argue the model allows companies to fix their healthcare spending costs in advance. Opponents argue the model does nothing to improve the underlying cost of healthcare and, worse, could result in uninformed employees making bad decisions about their levels of coverage.

“It’s not a new idea,” says Bob Klonk, whose promotion to CEO of Oswald Companies takes effect Jan. 1. “The concept of defined contributions has been around since cafeteria plans were around. You’re tweaking it a little bit with the way you’re funding it, but the concept has been there before. It’s just come back to roost a little bit.

“I call it the shiny new toy. Everybody’s all excited about it because it’s a shiny new toy. Everybody’s going to crowd around, and they’re going to go to seminars and they’re going to look at it and come back and say, it’s just really a defined contribution model saying here’s how much money you have and go spend it.”

But while the idea may not be new, the Affordable Care Act has brought it to the limelight. Liazon’s Bright Choices Exchange wasn’t even called an exchange when it was created in 2007 for small to mid-sized companies in the Northeast. Liazon today supports more than 2,200 companies representing more than 50,000 employees. Its Bright Choice Exchange is growing at a rate of 100% a year and recently signed deals with Gallagher Benefits Services and Hub International.

“The Patient Protection Act has popularized the notion of exchanges,” says Alan Cohen, Liazon chief strategy officer and co-founder. “We were doing this for many years before the Patient Protection Act, but now that that is the law, people are looking at it and saying, ‘Tell me again about this exchange, I’ve heard about these before. This no longer sounds like some outlandish thing.’

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