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May 6, 2013

Private insurance exchange market heats up to rival state

Eric Grossman, senior partner, Mercer Marketplace
Kevin Counihan, CEO, Access Health CT
Timothy Tracy Jr., CEO, InsuringCT
By Greg Bordonaro

The age of the insurance exchange is here, and it's not just state and federal governments getting in on the action.

Increasingly private companies are developing their own online marketplaces where employers and their workers can shop for insurance benefits, creating a newly competitive industry where few players existed just one-to-two years ago.

Nationally, New York consulting firm Mercer, which has a major presence in Norwalk, recently announced that its new exchange — called Mercer Marketplace — signed 10 insurers that will offer benefit plans next year to national employers with 100 or more workers.

In Connecticut, Fairfield startup InsuringCT has launched a private benefits exchange for Nutmeg State businesses with 10 or more employees, putting them in competition with Access Health CT and CBIA Health Connections.

In other states, insurers like Blue Cross and Blue Shield are also launching private exchanges.

The growing industry, experts say, is being driven by employer demands for greater health plan choices and a more simplified and cost effective approach to purchasing insurance benefits.

Exchanges also cater to the increasingly popular trend of making employees more responsible for purchasing their own benefit plans.

"I think the whole concept of exchanges is a megatrend in this business," said Kevin Counihan, the CEO of Access Health CT, which is operating Connecticut's statewide exchange. "You are going to see the migration of a distinct segment of the employer population move toward this model of purchasing insurance benefits."

The exchange concept really started to gain traction in 2010, when President Obama's Affordable Care Act required states to set up online marketplaces that allow individuals and businesses to compare health plan products and prices among competing insurers.

Those statewide exchanges are supposed to go live Jan. 1. In the meantime, private exchanges are beginning to hit the market in bunches.

Counihan said employers see exchanges as a potential cost containment tool that will lead to a defined contribution model of health insurance, in which businesses contribute a fixed amount of money each year for workers to spend on benefits. The employees then choose their own health plans, through an exchange, with benefit levels that fit their own needs and budget.

That's different from the traditional model where employers choose the health plan and subsidize all or part of the premium, which is dictated by the insurer. Huge increases in health care premiums over the years have made that model less attractive to businesses, Counihan said.

"It's the employer telling the employee 'I'm going to fix my budget and give you the choice to purchase less or more generous benefits depending on how much you are willing to pay out of pocket,'" Counihan said.

Besides potential cost savings, businesses also like the idea of a comprehensive, personalized one-stop shopping approach for buying insurance, said Eric Grossman, a senior partner at Mercer.

It's particularly attractive at a time when many human resource departments are stretched thin, Grossman said.

Over the next three-to-five years, Grossman predicts up to 30 percent of the employer-sponsored market will purchase benefit plans through an exchange.

That's whetting the appetites of firms to develop new private exchanges, which are offering varied products and targeting different markets.

Mercer Marketplace, for example, is targeting national employers with 100 or more workers and is offering a comprehensive suite of products including health, life, vision, and accident insurance.

InsuringCT, which is a subsidiary of Fairfield brokerage house Gerard B. Tracy Associates, is targeting employers with as few as 10 workers. It is also offering comprehensive health, life, dental and even pet insurance.

Timothy Tracy Jr., InsuringCT's CEO, said his firm is trying to cater to a small business customer base that has largely been ignored in Connecticut. It also offers the company a way to stay relevant in a rapidly changing benefits industry.

"In order to compete and remain competitive, offering an exchange platform is something we think we have to do," Tracy said.

As new players enter the market, it will likely shift the competitive landscape, experts say.

For a long time in Connecticut, CBIA Health Connections was the only well-known exchange in town offering health and other benefit plans to its business members. Now CBIA faces new competitors like InsuringCT, Mercer, and Access Health CT, which will be unveiling in October a small business exchange targeted at firms with 50 or fewer workers.

For exchanges to stand out — and survive long-term — the exchange will have to develop a unique competitive advantage, said Counihan, the Access Health CT CEO.

Access Health is Connecticut's statewide exchange being established as part of the federal health care reform law. The federal government is also offering subsidies and tax credits to individuals and businesses that purchase coverage through the state-based exchanges, which is the competitive advantage Counihan said he will leverage to make Access Health CT stand out.

They are also targeting the individual market, while many other exchanges are vying for commercial customers only, Counihan said.

"Everybody is jumping into this game but the question is how many is too many?," Counihan said. "The key is for an exchange to establish meaningful brand before its competitors."

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