| ||Fast Focus|
More than 100,000 employees from Sears and Darden Restaurants
will use Aon Hewitt’s healthcare exchange to select their
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.
Aon Hewitt’s insurance
“exchange” focuses an old idea in a new way. Will
it become the next wave in benefits?
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
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
“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.’