No 'passing fad': Mid-size companies shift to private exchanges

Mercer welcomes 33 new companies to its private marketplace

Thirty-three midsize companies have signed up for Mercer's private health insurance exchange, joining a swath of large employers in what some consider "the beginning of an industry trend." 

A new kind of employer joins the shift to private exchanges

The announcement comes nearly a month after Aon Hewitt reported that it has enrolled 15 new corporations—each with at least 3,000 workers—in its exchange. Those companies joined three companies that were already using the firm's private exchange.  

Unlike Aon Hewitt, Mercer has opted to target employers with as few as 100 workers. According to Eric Grossman, the firm's exchange business leader, "There are so many more of those kinds of companies, and their time frames for making decisions on benefits changes tend to be shorter."

Still, the new Mercer clients come in varying sizes. Grossman says the private exchange concept appeals to larger companies that want to provide an enhanced employee benefit with a greater choice of health plans, while smaller clients are motivated by the promise of reduced costs.

According to CFO Magazine, there is significant diversity among Mercer's new clients. Previously, companies known to be using private exchanges for active employees were part of industries with mostly low-wage, part-time workers, such as retail, hospitality, and food service. Mercer's new clients include IT companies, a publisher, a medical device maker, and a federal contractor for national security solutions.

"This really puts to rest the myth that private exchanges appeal to a narrow range of companies," Grossman says. He considers the shift into private exchanges a "significant market trend." He says, "One's an outlier, a few may be a passing fad, but over 50 is the beginning of an industry trend."

Addison Group CFO: Why we moved to a private exchange

One of Mercer's new clients is Addison Group, which provides professional-level IT and finance staff on temporary assignment.

According to CFO Patrick Jones, the company pays its IT professionals—who generate about half of the company's $180 million in revenue—on average $50 per hour, or $100,000 annually. "The unemployment rate it very low for those folks, so we wanted to give them more options and a better benefits experience," Jones says, adding, "That's important to continuing our company's growth."

Past surveys of Addison's 2,100 employees found that many were dissatisfied with the company's two health plan choices, one in-network and one out-of-network PPO plan. In the Mercer exchange, healthy workers will have of five insurance carriers, including an HMO plan and high-deductible policies.

Moreover, the move is expected to result in cost savings, even though Addison has increased its share of insurance premiums by 6%. On a per-employee basis, Jones estimates that the company's health care costs will decrease by 15% to 18%. Health workers "will get the plan that fits their individual needs, versus being overinsured and having the company pay a big piece of that," Jones says (McCann, CFO Magazine, 10/15; Japsen, Forbes, 10/16).


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