Private Exchanges Spur Health Coverage Shift

Rising costs and regulatory demands could fuel growth of private health exchanges

By Stephen Miller, CEBS September 15, 2014

updated 10/1/2014

Private health insurance exchanges could funamentally alter how employers provide health care to their workers, according to a September 2014 report by PricewaterhouseCoopers’ (PwC’s) Health Research Institute, The Rise of Retail Health Coverage.

According to the report, employers faced with rising costs and regulatory demands are moving away from the benefits business, pushing employees to take on new responsibility for their own health insurance. This will fuel significant growth of health exchanges over the next decade. According to PwC’s 2014 Touchstone survey, 32 percent of U.S. employers are considering moving their active employees to a private exchange in the next three years.

While the Affordable Care Act’s public exchanges enrolled eight million for plan year 2014 and are poised to grow rapidly over the next few years, the shift to private exchanges may be a longer process, the report notes.

Transitioning to a private exchange can help alleviate staff constraints and may offer some companies more affordable insurance than they could obtain on their own, while encouraging employees to "right size" into health plans that best meet their needs, the report states. However, not all employers will find value in private exchanges. Employers can implement cost-control strategies on their own, and companies could be at risk for penalties if they don’t meet health plan affordability guidelines.​

Employers View Private Exchanges as Viable Alternative

Twenty-eight percent of employers surveyed by Towers Watson said they had evaluated the viability of private exchanges for providing health care benefits, while nearly one in four (24 percent) said private exchanges could provide a viable alternative for their active full-time employees as soon as 2016, under certain conditions, according to the 2014 Towers Watson Health Care Changes Ahead Survey. (See the SHRM Online article Employers Get Aggressive to Control Health Costs.)

Two Corporate Views

Private exchanges may not live up to the recent hype, according to Kent Bradley, Safeway’s chief medical officer, who is quoted in PwC’s report. “There is a nice ring and appeal to the private exchange—it’s a marketplace concept that resonates with business. But will it be able to create the type of innovation on cost, quality and consumer empowerment that we need?” Bradley asked. “Like a Trojan horse, it may appear to be the perfect gift to solve issues for employers, but caution may be the best early approach by large employers who are wary of creating even further distance between themselves and the health care delivery system.”

But for Walgreen Co., the decision to use a private exchange run by Aon Hewitt for its 160,000 employees carried several advantages, including a better shopping experience for employees with additional choices and the ability to tailor products to fit individuals’ needs while relieving Walgreen staff of administrative duties, the report states.

“We’re still the plan sponsor, but administration is off my back. Plan design is off my back. I can focus now on well-being and strategy,” said Tom Sondergeld, Walgreen’s senior director of health and well-being.

There were three key reasons why a private multi-carrier exchange appealed to Walgreen Co., according to Sondergeld:

The company has a diverse mix of employees across geographic regions, important for stabilizing premiums.

The staff is young and mostly female, with an average age in the mid-30s, contributing to lower-than-average claims costs.

The company had already converted to a silver metal equivalent for its health plans, so it was easier to educate employees on how to purchase through the private exchange’s metal pricing tiers.

About 43 percent of the company’s employees chose to stay in a silver plan, while about 29 percent bought less expensive plans than their previous coverage. The remaining 28 percent were either new to buying coverage or purchased a more expensive plan.

Sondergeld stressed that private exchanges aren’t right for every business. “It’s a very personal decision. It has to match your strategy and your style, and you have to reach your people.”


Making the Switch

Take a few minutes to listen to this podcast and hear Tom Sondergeld, Walgreen Co.’s senior director of health and well-being, on why his company switched to a private exchange to provide employees with health coverage choicesand how employees have responded (via the 12th World Health Care Congress).

Do you have thoughts about switching to a private exchange for delivering health coverage? Read SHRM members' comments or post your own.

Stephen Miller, CEBS, is an online editor/manager for SHRM. Follow him on Twitter @SHRMsmiller.

Related External Articles/Resources:

Private Health Exchanges: Masquerading Cost Shifting as Savings?, Buck Consultants via WorldatWork, October 2014

Examining Private Exchanges in the Employer-Sponsored Insurance Market (report), Kaiser Family Foundation, September 2014

Related SHRM Articles:

Time for Defined Contribution Health Benefits?, SHRM Online Benefits, September 2013

On Private Health Exchange, Choice Drives Satisfaction, SHRM Online Benefits, updated September 2013

As Employers Drop Coverage, Retirees Turn to Private Exchanges, SHRM Online Benefits, September 2013

How to Choose Health Insurance Exchanges, HR Magazine, October 2012



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