Public and Private Exchanges
It appears that Medicare beneficiaries who use the most health care services and are often considered the least able to shop over the internet for health insurance may have been the trailblazers for how health insurance will be purchased in the future. Medicare took a first step in the 1990s when it created a voluntary online marketplace where Medicare beneficiaries could select a Medicare Advantage private plan from the government run internet site “Medicare Compare”. Medicare expanded the experiment when it implemented the Part D prescription drug plan benefit in 2006. At that time, all seniors and disabled beneficiaries who were not covered by an employer drug plan were required to shop and select from an online menu of new prescription drug plans during a short open enrollment period.
The automobile industry can be credited for targeting Medicare retirees in 2008 when it began a major shift from group health insurance plans to individual plans offered through a private Medicare exchange operated by Extend Health. The financially strapped auto industry cushioned the move from defined benefit plans to defined contribution health plans by offering cash to cover additional benefits and Extend Health “coordinators” to help Medicare retirees choose an individual insurance policy from a menu of private plans. Other private sector employers cautiously followed and the Extend Health private exchange serves 130 employers and 200,000 retirees. Employers report savings of $400 million annually in retiree health insurance costs and a substantial reduction in administrative burden.
This year Towers Watson bought Extend Health with plans to broaden the private exchange to serve employers in the commercial market. Aon Hewitt also announced plans to expand its private exchange to serve the commercial market. On September 27, 2012 the Wall Street Journal in a front page article discussed how two large employers, Sears Holding Group and Darden Restaurants Inc. are “planning a radical change in the way they provide health benefits…giving employees a fixed sum of money and allowing them to choose their medical coverage and insurer from an online marketplace”. This shift is different from the auto industry shift since employees will still remain in employer group plans and will not select from plans in the individual market. The online marketplace operated by Aon Hewitt will offer 150,000 Sears and Darden employees 5 plans which is substantially fewer than the up to 30 plans offered by Medicare. The Journal reported that this move will be closely watched since it “might parallel the transition from company provided pensions to retirement 401k”. Several recent surveys of employers find that 40 percent expect to participate in a private exchange over the next three to five years driven largely by the CFO’s interest in cost savings.
On a separate track, health care reform is building health exchanges or marketplaces that will be available in October 2013 for individuals and small employer groups to purchase health insurance. The ACA exchanges are projected to provide insurance to 16 million persons. Large employers will not be eligible to participate in the ACA exchanges until 2017.
The developments under the ACA are spurring large employers to rethink their current retiree health care options. With the loss of the tax benefits from the Retiree Drug Subsidy in 2013, many employers are moving their Medicare eligible retirees into Employer Group Waiver Plans, either Medicare Advantage or Prescription Drug Plans. This trend will continue. Other employers will consider private exchanges. The 2012 Retiree Health Care Survey conducted by Aon Hewitt reports that 63 percent of employers have either made or plan to make retiree strategy changes in the near future.
So the trend is clear – increasingly Medicare retirees and active workers and their families will be using health exchanges, either public or private, to select their health care insurance in the future.