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 By last year, blue chip names like Sears Holding and Walgreen Co had
signed on and industry experts predicted that more than 20 percent
of the nation's employees would soon buy their health insurance in
this way, compared with less than 2 percent today. But Reuters
interviews with nearly a dozen industry executives has found that no
major U.S. company signed up their employees for the first time to a
private health insurance exchange for 2015.
Many of those executives expect a similar situation in 2016, as blue
chip employers wait for proof that the new exchanges will save them
enough money to warrant the switch, raising doubts about this new
business model.
"We have a lot of wait-and-see going on with large employers," said
Brian Marcotte, chief executive of the National Business Group on
Health, a lobbying group for large corporations. "They are not quite
sure yet how they will deliver on managing costs better."
U.S. employers provide health benefits for more than 160 million
people, mostly by contracting with large health insurers to
administer the healthcare benefits that the company funds, with
contributions from employee-paid premiums. But as healthcare costs
rose steadily, and President Barack Obama's healthcare law required
coverage of more medical services, many sought ways to rein in those
expenses.
Private exchanges such as Aon Hewitt, part of Aon PLC, aim to be the
Amazon.coms of the insurance world, where employees choose and pay
for their own plans and competition helps keep prices down.
Employers contribute a fixed dollar amount to help their workers buy
coverage, but can save money by no longer managing the benefits
within their companies. They are not directly related to the
state-based Obamacare insurance exchanges that offer
government-subsidized health plans.
Since 2012, employers covering as many as 3 million people have
signed on to use the exchanges. A recent report from Mercer LLC,
part of Marsh & McLennan, found that 3 percent of large employers
were using private exchanges and that 28 percent of employers would
make the shift within 5 years, taking a bite out of the business
served by major insurers like UnitedHealth Group Inc and Anthem Inc,
previously known as WellPoint.
NEW SENSE OF CAUTION
Industry executives are now projecting more caution about when
private exchanges will take off. Aon Hewitt said in October that it
would lose money on its private exchange this year, after previously
expecting the business to be mildly profitable. Aon didn't say how
much money it would lose. Insurer Cigna Corp will sell health plans
on the Aon exchange in 2016.
"This is coming. It's just the pace at which we believe the market
is going to make the transition" that is slower than expected, said
Patty Fontneau, who runs Cigna's private exchange business.
Mercer and Towers Watson's Liazon unit are still seeing growth from
serving more mid-sized businesses, which are signing up for
exchanges at a higher rate since they have less invested in managing
health coverage for employees.
Other insurance experts question whether the forecasts will ever
materialize.
"Private exchanges were over-hyped from the beginning," said Dan
Mendelson, chief executive of healthcare research firm Avalere
Health. Large employers enjoy significant leverage in negotiating
down the price of benefits for the many members of their workforce,
an advantage that an exchange can't match, he said.
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LARGE MOVE FOR LARGE COMPANIES
Darden Restaurants Inc, owner of the Olive Garden chain, was one of
the first large companies to move to Aon Hewitt's private exchange.
Medical costs were rising 8 to 10 percent per year and it had used
the same insurer for 15 years. In 2012, it made a "leap of faith"
that Aon Hewitt could do a better job, said Danielle Kirgan,
Darden's senior vice president for human resources.
It took four months to overhaul Darden's benefits systems and
explain the change to employees. The pay off has been lower
year-over-year increases in healthcare spending. "We have over three
years of seeing rates, and they have been dramatically and
consistently less," Kirgan said in an interview.
Starbucks Corp, however, took a close look at the private exchanges
to understand them, but has never planned to move its 136,000
employees.
"What we tended to learn is that what we do is just easier and
better for people," Starbucks Chief Operating Officer Troy Alstead
told Reuters.
Large companies who are open to joining the exchanges are now asking
to see at least two or three years, and as many as five years, of
data on insurance premiums and medical claims from plans sold on the
exchanges to be sure that there will not be a sudden increase in
premiums to contend with, benefits consultants said.
Some corporations also describe a sense of fatigue after several
years of getting their coverage compliant with Obamacare and are
loath to make additional changes in short order.
Many have introduced health plans with high deductibles to shift
costs to employees and want to see whether that will be enough to
save money. They are also uncertain about what may be required of
them if the Affordable Care Act is changed by a new Congress with
Republican opponents of the law in charge.
Aetna said last month it would spend $400 million to buy private
exchange company Bswift and remain competitive against Aon and
others. Kerry Sain, who runs Aetna's private exchange business,
acknowledged that large companies are just "dipping their toes" into
the new model.
Aetna said it will still benefit from Bswift's technology even if
the private exchange market does not end up as large as forecast.
Leerink Partners analyst Ana Gupte said large companies need a
catalyst to spur them to move onto the exchanges, namely the cut to
U.S. corporate tax benefits that come from providing health coverage
planned for 2018.
"If that doesn't do it, I think we're pretty much done on this
thing," she said.
(Additional reporting by Lisa Baertlein in Seattle; Editing by
Michele Gershberg and John Pickering)
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