Private health insurance exchanges—online marketplaces for employees to choose their employer-sponsored benefits—doubled enrollment this year, to 6 million employees from 3 million in 2014, Accenture finds.
Midsize employers, defined as companies with 100 to 2,500 employees, contributed most to the adoption of private health exchanges increase, according to a report from the global management consulting firm and technology provider. Based on its research, Accenture forecasts that enrollment in private health insurance exchanges will grow to 12 million in 2016 and 22 million in 2017. As previously forecasted, Accenture expects total enrollment in private exchanges to ultimately surpass state and federally funded exchanges, reaching 40 million by 2018.
Accenture says two key factors limiting private health insurance exchange growth in the initial years—capacity constraints by a lack of mature solution providers and adoption delays among large employers—will dissolve in the near term.
In the mid- and larger-market segments, the majority of technology vendors have been nascent players, the firm explains. These “startup-like” companies have capital and resource constraints that inhibit the rapid deployment of their platforms. During this first wave of private exchange rollout, large scale rollout successes have been limited to more mature market players operating with the scale needed to service their customers—e.g., the national benefit consultant exchanges.
In the small-employer market—with 100 employees or less—few technology providers have emerged, according to Accenture’s report. This may be the result of business reluctance to compete with public Small Business Health Options Program (SHOP) exchanges. However, these public small group exchanges have seen initial enrollment well below expectations. The door may now be open for new commercial alternatives to provide an exchange experience for small firms.
Historically, highly customized benefit designs have been important to large employers, the report says. The standardized solutions that most exchanges offer are not aligned with traditional employer offerings. Furthermore, the complexities of the exchange selection process and new configuration options such as defined contribution (DC), implementation and ongoing benefits administration have taken some prospective buyers by surprise. Others still remain wary during an environment of continued regulatory uncertainty and evolving requirements. Finally, risk-averse employers are seeking proof of the cost savings and enhanced customer experience touted by leading exchange sponsors.
Now that the initial wave of private exchange launches has commenced, private health insurance exchange providers are taking action to address these concerns:
- New entrants are designing specialized exchange models to cater to the needs of varying employer demands—such as single-carrier exchanges now offering more customizable plan designs;
- Sponsors are enhancing implementation and change management services, as well as back-end benefits administration; and
- Early adopters are publishing their business cases, consumer satisfaction data and lessons learned from the first two years, to demonstrate exchange successes in the market.
In addition, Accenture says several accelerators looming in the marketplace will further spur adoption of private exchanges by employers over the next few years.
- Employers face increasing administrative requirements each year under the Patient Protection and Affordable Care Act (ACA), such as new minimum essential coverage reports due to the Internal Revenue Service (IRS)—Section 6055. Private health insurance exchanges can significantly reduce these requirements with robust reporting and compliance services. (See “Are Health Care Exchanges the Answer for Employers?”)
- The employer mandate of the ACA will compel employers to revisit their benefits strategy. Coupled with lower than expected SHOP enrollment, smaller firms in particular may increasingly consider the merits of private exchanges to deliver a simpler path to comprehensive coverage in a compliant fashion.
- Most employees view health insurance as a critical employer-provided benefit, limiting some employers’ ability to drop or de-fund health coverage. As employers seek a compelling alternative, the private exchange model of reducing costs and administrative burden emerges as a clear favorite.
- The 40% excise tax on high-cost plans, often termed the Cadillac Tax, will go into effect in 2018. Private health insurance exchanges will provide an alternative to simultaneously migrate away from these legacy high-cost plans while providing employees with new options to manage their health. (See “Objectives Met by DC Health Benefit Arrangements.”)
The Accenture report is available here.