YOUR MONEY-Private health exchanges begin to shift behavior

NEW YORK, March 6 Thu Mar 6, 2014 9:00am EST

NEW YORK, March 6 (Reuters) - Shopping for employee health insurance on private marketplaces might be the way of the future for tens of millions. However, expert opinions about growth have been based on projections, not actual consumer behavior in the exchanges that only really got going last year.

Now one major pilot program has finished its second enrollment season, there's actual data to evaluate usage as well as how consumers are faring on the private healthcare exchanges.

The Aon Active Health Exchange, a private health insurance market run by the benefit consultant Aon Hewitt, enrolled 600,000 employees and family members in 2014, after signing up 150,000 in 2013, according to a report released today.

Traditionally, an employer contracts directly with an insurance company for employee coverage. Exchanges like Aon's offer employees the choice of multiple carriers and plans on a private marketplace.

So far, satisfaction is high with the Aon exchange. More than 80 percent of the participants from the first year picked the same plan in the second year. Of those who changed plans, 12 percent picked "leaner" plans and 7 percent picked more expensive plans.

"In the first year, we found that employees selected plans that were most similar to their coverage selection in the prior year. In the second year, those employees who made active choices about their healthcare, moved to lower priced carriers and lower premium tiers," says Howard Riefs, director of corporate communications for Sears Holdings Corp, which participates in Aon's exchange.

Other clients include Darden Restaurants Inc and Walgreen Co. Similar exchanges are run by benefits consultants Mercer, a division of Marsh & McLennan Companies Inc , and Towers Watson & Co, but they do not yet have as much enrollment data.

WellPoint Inc and Buck Consultants, owned by Xerox Corp also have exchanges, for a total of about 1 million lives covered on private healthcare exchanges in 2014.

The tier-levels on these private exchanges mimic the metallic bronze, silver, platinum and gold of the public exchanges offered through Obama's healthcare reforms, but the two systems are not associated with each other.

LESSONS LEARNED

If Aon's exchange ends up being indicative of consumer behavior, most people will pick a lower-cost plan than they were previously offered, and then stick with it. Insurance companies are responding by pricing lower-tier options to steer employees into these options, and offering ever-narrowing physician networks to keep prices down.

Overall in 2014, Aon says 66 percent of the enrollees picked cheaper bronze or silver plans, while 34 percent picked pricier gold or platinum options, a five percent shift from 2013.

Employer contributions did not decline in 2014, but prices did rise about 5.1 percent overall, which Aon notes is less than the industry average of 6 to 7 percent.

There were very few cases, if any, where an employer's contribution covered or exceeded the entire cost of the lowest-tier plan, says Ken Sperling, Aon Hewitt's National Exchange Strategy Leader. However, costs on plans in select regions could be as low as $5 per pay period.

"Some insurance companies quote bronze and silver at very attractive levels, because they want to encourage enrollment," Sperling says. While the difference in coverage between the levels is about 10 percent - bronze covers 60 percent of costs, silver 70 percent, and so on - Sperling says that sometimes the price jumps were double that.

One insurance company in Aon's exchange dropped out after the first year, but several other new ones joined in for 2014, Sperling adds. Some of the carriers also changed the scope of the physician network offered, mostly to narrow the options and offer it as a lower-cost option.

Tower Watson has noted this behavior through its own exchange, and throughout the industry, says Randall Abbott, a senior consultant with the company. Abbott says that the exchange concept allows for options to remain dynamic - because there's not one right plan for everyone.

Consumers will decide if networks become too narrow - as they did when there was a backlash against health maintenance organizations in favor of preferred provider networks, Abbott says.

Towers Watson's latest analysis, also released today in conjunction with the National Business Group on Health, is bullish on the private health exchange front, saying two-thirds of employers find it a viable alternative.

Moody's Investors Service says in a new report that these exchanges are a win-win for the benefits consultants offering the services, and that their ongoing relationships with so many large corporations in the U.S. virtually assure their success.

"It's still quite experimental," cautions Bruce Ballentine, an author of the report and a vice president at Moody's."It works if the employee is well-informed about the choices and is guided through the process."

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