The Daily Briefing's Dan Diamond spoke with Tom Cassels to discuss projections that firms will shift millions of workers to private exchanges by 2018, and what that means for providers.
Q: Let's start with a simple question—what's a 'private exchange,' and how does it differ from the state and federal exchanges we've been writing so much about?
Cassels: The simple answer—they are very similar in form, and very different in function.
First, here's how they're alike. Both exchange models utilize web-based “shopping” functions, so individuals [can browse] and purchase coverage based on a variety of product features and preferences. And both models require significant on-demand support today to guide individuals through this decision-making process.
But here's how they differ. Think about private exchanges as a vehicle for employers to get [a handle] on costs. They can provide more predictability to fully insured small group purchasers. They also can change the calculus that large self-insured employers use to determine whether it is more economical to go fully insured.
Q: And this matters because firms are moving away from 'defined benefits,' where firms traditionally purchase health coverage on behalf of their employees, to a model where they just give their employees a fixed sum and tell them to go shopping for coverage.
Cassels: Yes. The major selling point is that private exchanges can help these employers shift from defined benefit to defined contribution health benefits.
And the Wall Street Journal's article highlights a few examples, and why those firms say they're making the move.
Q: Drawing on one study, the Journal forecasts a huge shift toward defined contribution—from 1 million workers enrolled in private exchanges to 40 million by 2018. Do you agree with this prediction?
Cassels: This forecast is directionally correct if users [have a better] experience on the private exchanges than on the public exchanges, and if the health benefit trend remains predictable for employers choosing this option.
One million to 40 million in four open enrollment cycles seems aggressive, though. We'd probably need to see two things happen, to get to 40 million lives in five years:
1) A large portion of the small group market will opt for the private exchanges over the public SHOP exchanges; and
2) The predictability of defined contribution options associated with these private exchanges will prove too attractive to pass up for some large employers.
Q: Why now? Or to put that another way, how much did Sears and Darden act as a tipping point last year?
Cassels: It's less the moves that Sears and Darden made, and more about the success that brokers and benefit consultants have selling small business owners, HR directors and CFOs on defined contribution that will tip the scales.
Q: The Journal focuses on why employers would opt for a private exchange, but spends less time talking about the potential carriers and almost none on the potential providers. What sort of payer mix should we expect? And what are the implications for hospitals and/or physician groups?
Cassels: The biggest implication for providers is ... we better get better at collecting sums large and small from patients fast.
Where the experience of Sears really comes into stark contrast is in the immediate double-digit shift in the percentage of employees who moved from PPO plans to high deductible health plans. By spending less on premiums now, those employees are basically [taking a gamble] that they won't face deeper out-of-pocket spending later.
"The biggest implication ... we better get better at collecting sums large and small from patients fast."
That [should be] a warning shot to revenue cycle shops at hospitals and clinics around the country, especially those in markets where the largest employers have heavy concentrations of middle- to low-income employees.
And here's another implication to watch out for: The potential opportunities to serve individuals who choose to buy up into more rich coverage options and even purchase wraparound boutique services to supplement service preferences.
It's important to recognize that the more choice we see in the market, the more we will have to prepare to “sell” different services to different segments of the population with vastly different buying preferences.
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