Updated Friday, December 19, 2014 as of 6:24 PM ET
Employee Benefit Adviser

The year in exchanges: Where private exchanges go from here

It’s been a year of massive growth for private exchanges, with estimates of more than three million people receiving employer health benefits through them by mid-2014, according to business management consultancy Accenture. Yet, 2015 is expected to see even more growth and acquisitions.

By 2018, Accenture estimates private exchange enrollment will exceed 40 million. Additionally, nearly one-in-four large employers surveyed by Towers Watson say private exchanges could provide a viable alternative for active full-time employees by 2016.

Looking back, the past two years have been banner years for exchanges, with multiple consultancies including Aon Hewitt, Towers Watson and Buck Consultants, as well as numerous brokerages launching their own exchange or  partnering with others to provide a white-label solution. Further, some small businesses moved their active employees to a private exchange along with larger companies, including Darden Restaurants and Walgreen Co.

Yet, the majority of employers are still waiting to see evidence of what value private exchanges provide, but more importantly, are waiting for someone else in their market to make the jump first, says Jean Moore, managing director of Towers Watson Active Exchange. According to Moore, 34% of employers are waiting for someone else to switch. Once that happens, she expects others will follow right away — even before data about the move comes in.

“Employers are reluctant to be the first employer to make a drastic change. [They’re] afraid of employee fallout,” Moore says. “They are not waiting on results, but waiting to see if another employer in their space does it.”

Growth

Private exchange operators have reported huge growth and interest within their exchanges.  In October, Aon Hewitt said it expects more than 1.2 million employees, retirees and their families to choose health benefits through the company’s exchanges — revising its earlier estimates upward by approximately 500,000.

The company said it expects more than 100 companies to pick individual and employer-sponsored health benefits, up from its original estimate of more than 70 companies representing 750,000 people.

Mercer said in October that it too was experiencing large growth and initial 2015 enrollment was nearly five times that of 2014. The consulting firm also added 40 additional clients to its exchange who were not previously with Mercer. The consultancy said more than 247 companies are using its exchange for active or retiree populations, representing more than 500,000 employees and retirees and close to 1 million lives, including dependents. A year ago, the exchange served 52 companies with 110,000 eligible employees and retirees with 220,000 covered lives.

Private exchange operators also saw growth. bswift reports the company has “grown at a very healthy clip for the last several years.” While Don Garlitz, the company’s director of exchange operations did not provide numbers, he says the growth was “very strong and comparable to the growth we’ve had over the last several years.”

Finally, Alan Cohen, co-founder and chief strategy officer of Liazon, said, looking at 2015 companies joining the Liazon platform, it has been “a  lot busier.” His company is “more than two times as busy as we were last year as far as number of people who are going to go and make elections — substantially more than two times.”

Acquisitions

Not only did the exchanges see growth, there was also consolidation within the industry.  Towers Watson acquired Liazon in November 2013, and then in November 2014 Aetna announced plans to acquire bswift for $400 million.

As the private exchange market continues to expand, contraction via acquisition and merger is not surprising, says Barbara Gniewek, principal of PricewaterhouseCoopers HR services practice. In fact, “as private exchanges become a bigger part of an insurer's strategy, which we see with carriers and potentially benefit administrators, we expect that more acquisitions are possible and even probable,” she said at the time of the Aetna-bswift deal.

It’s a sentiment echoed by Sherri Bockhorst, national practice leader, health exchange solutions, for Buck Consultants, a Xerox company. “I wouldn’t be surprised if we see more of this in this space as employers look for more turnkey solutions that can support them in their HR benefits administration space,” she says. “I’m surprised it hasn’t happened earlier.”

Tools
Private exchange operators and employers who switch to private exchanges frequently say one of the main reasons they are making the move is because of the decision-support tools the exchanges provide. Speaking at Employee Benefit News’ Private Healthcare Exchanges Conference in New York in early December, Bockhorst said it is surprising to her that employees are not only using the tools to choose the right plan but also using them throughout the year.

Cathy Gobes, director of private exchanges at Aetna, said at the EBN conference that she expects those tools functionality and use to increase even further to help employees live healthy lives.

She predicts tools within the exchanges that provide options not only based only age but also based on genomic testing. For example, if a user is likely to have spine issues or heart issues, the exchange would suggest the right plan for them. “There are different learning [tools] for different people and the opportunity to both present and craft options that support someone and their health in better ways,” she said. “One advantage is help people with better decision support and then during year, ‘Have I gone to the right doctor. Am I going to right clinic?’

“That’s historical,” she adds. “Can we get to, ‘Here is how you can manage your diabetes; here is a physician who has shown great results?’”

Future forecast

Moving forward, it is believed by experts in the industry that private exchanges will continue to grow and employer interest will continue to rise. Employers are also asking more detailed questions.

“Employers were asking what exactly private exchanges can do for them. Now, they are coming with very direct questions: ‘What is the shopping experience; how do you manage HDHP?,’” said Shandon Fowler, Benefitfocus’ director of marketplaces, at the conference. “It’s a much smarter consumer or much smarter landscape for what is going on, and that in some ways feels like things are slowing down, but in actuality things are getting much more on track.”

Gobes, the head of private exchanges at Aetna, agreed, saying her company has seen nearly 10 times more activity with a lot of people looking and asking for quotes, but a lot less movement. “A fair amount of exploration,” she said.

The evolution of private exchanges is similar to that of other innovations in employee benefits, such as 401(k)s or the health savings account. Both took multiple years to become widespread and mainstream, explains Ashok Subramanian, CEO and co-founder of Liazon.

“None of this will happen with a snap of a finger, these are decisions that affect not only cost structures but employee morale,” he says. “All of these things take some time, but when you look back at the end of that [time] period, you look back and say, ‘whoa … a massive shift ahead.’”

“2014 was big and 2015 being bigger is right,” he adds. “We have hit the tip of the iceberg in terms of engagement, awareness and conversations about what a private exchange can do not only for a company but also for a company’s employees.”