Most Employers Will Use Private Benefits Exchanges by 2018
A new survey from Array Health reports four of five insurance executives anticipate that most employers will use private exchanges to offer benefits by 2018. According to the survey, private exchanges are a win-win situation because they reduce administrative costs.
We like private exchanges because they pave the way for individual health insurance to be the standard. The Array report seems to support this conclusion:
More exciting, perhaps, is the future outlook around business savings as single-insurer private exchanges start to move with consumers – from group settings to individual plans – keeping loyal consumers tied to particular insurance brands through the exchange model.
They have to overcome an internal PR hurdle, according to the survey, because employees are not too thrilled about employers making defined contributions to health benefits. That is understandable, because it has been public policy for 70 years to create a money illusion among workers that their employers pay for their health benefits. In fact, employees pay 100 percent of health benefits through foregone wages.
Array believes that insurers are not doing enough to leverage private exchanges:
…… insurers offering private exchanges are missing an opportunity to create a compelling consumer experience by not quickly deploying beyond traditional product sets to ancillary offerings like life, critical illness, accident and pet insurance. This lack of urgency is especially surprising when almost half of the respondents see ancillary products as key to positioning private exchanges as go-to platforms for all insurance needs.
Baring widespread adoption of the 2 policy approach described in the article reference, I don’t understand how the private exchanges will avoid anti-selection among the various plans offered. Without underwriting the invincibles will choose low premium, high deductible plans and the old sicker population will opt for more generous plans. Sounds like a classic death spiral.
Is there a magic bullet?
We have not discussed that at the blog. However, because he model is being adopted by large groups, the problem is much less than in an individual market. The employers share will have to be enough that 75 percent of employees enroll, or whatever the exchange vendor demands.
Underwriter guy:
I have similar concerns.
Having heard 3-4 presentations on these exchanges, it seems like choice is benefit number one.
To select against the insurer seems inevitable.
The rationale seems to be “We are dealing with firms of sufficient size, so that adverse selection is minimal.”
One advantage I thought private exchanges could offer is to lower the administrative costs, by serving as an all-purpose, full-service Third Party Administrator, which lowers administrative costs for each employer and/or individual.
Don Levit