Private exchanges have been a hot topic among employers looking to drive down the price of health insurance, provide their employees with greater choice, and find some flexibility in benefits administration. However, according to research conducted by benefit advisory firm Pacific Resources, confidence in the private exchange model as a source of savings is down among Fortune 1000 companies that have explored it in the past few years.
In its third annual survey of HR and benefits executives at companies of 5,000 or more insured, Pacific Resources reports that many decision-makers no longer view private exchanges as a surefire source of savings. According to the report, cost is the chief motivator behind switching to a private exchange, followed by greater employee coverage options and ease of administration.
For companies with a robust benefits administration system, those benefits may not outweigh the complications of switching over. Unless a private exchange is “aggressively managing” itself to compete on costs, and can demonstrate bottom-line savings, large employers aren’t interested, said Pacific Resources President and COO Paul Rogers.
“Some of the benefits that the exchanges are touting employers already have in place,” Rogers says. “There’s been a fair amount of hype, and I think everyone is very hopeful that it could have an impact on bending the cost curve. [But] most platforms an employer has can provide choice without looking to an exchange.”
Sean Clem, vice president of technology, marketplace and engagement solutions for Pacific Resources, described private exchanges as “a potential tactic” — and not a strategy — for larger companies that have an established benefit management infrastructure.
“We view an exchange as one way that you can deliver that long-term commitment to your organization and your employees, but it’s how you deliver that, it’s not what you’re going to deliver,” Clem said.
That means benefit advisers are in for “real candid conversations about what’s working and what’s not so future generations take that into consideration,” Clem said, adding, “in the future, exchanges could be a real viable option.”
For companies with smaller employee headcounts or a significant number of retirees, however, Pacific Resources reported greater interest in the value proposition of a private exchange. The survey found that confidence in private exchanges increased from 35 to 45% among respondents managing Medicare-eligible retirees versus those who are not.
Changing sentiments
But to Ashok Subramanian, CEO and co-founder of Liazon and head of group exchange for Willis Towers Watson, companies of all sizes haven’t only investigated the private exchange space, but have either adopted an exchange or given it serious consideration.
Acknowledging that “organizations don’t like to change for change’s sake,” Subramanian said that price has been less of a motivating factor for companies evaluating private exchanges as healthcare costs have trended relatively lower recently. Employers who can separate the concept of a private exchange from the problems they’re trying to solve can often determine the value of the arrangement to their employees, retirees, or bottom lines.
Private benefit exchanges expect massive growth in the next few years. These executives from all parts of the industry are leaders in the space, forecasting trends and serving as ushers for what some are calling a new era of health care.
“Exchanges are here to stay,” Subramanian said. “There’s no reason for everyone to adopt them overnight, but they need to be part of the repertoire of a 21st century benefit adviser.”
The first generation of private exchange products “were likely too narrow in terms of technology or choice,” Subramanian said; a newer wave of products “have really advanced the ball” in terms of the giving employers more customizable options.
“Any product offering in the world, you innovate off of market feedback,” he said. “If the survey were done 12 months from now and incorporated feedback and perspectives of the period of the last three-to-six months and the next six-to-nine months, I think the market will feel differently.”
