3 big health plans purchase private exchange startup

Three large insurers have placed their bets on private health insurance exchanges by buying one of the most prominent startups in the industry.

Bloom Health, based in Minneapolis, will be co-owned by a group of BlueCross BlueShield-affiliated companies: WellPoint, Health Care Service Corp. and Blue Cross Blue Shield of Michigan. The company offers employers an alternative to the traditional health benefit model with a private exchange, which is sometimes called a defined contribution plan.

Under the model, an employer decides how much to spend on health benefits per employee, then Bloom Health allows each employee to take that money and buy a health insurance policy, wellness plan, dental coverage or whatever they choose. Employees can buy coverage either from multiple carriers in a kind of online health insurance "supermarket," or from a limited set of choices offered by one carrier.

The new owners will offer the latter type of option to their employer customers, allowing them to contribute a predetermined amount to employees' health benefits, then send them to a private exchange to choose from coverage sold by the local Blues plan, said Jeffery Welch, divisional vice president of emerging markets for Health Care Service Corp. The Chicago company owns Blues plans in Illinois, New Mexico, Oklahoma and Texas.

Collectively, Bloom Health's new owners represent Blues-branded plans in 19 states, including 14 where WellPoint operates. Other plans may begin using the company's exchange model as well, Welch said.

"We would like 50 states to participate," he said. Medica, a Minnesota-based plan, already was using Bloom Health's exchange model, though it does not own any part of the company and was not involved in the latest transaction.

Welch said the private exchange model is not meant to compete with the state-sponsored public exchanges mandated under the Patient Protection and Affordable Care Act.

"They're unrelated," he said. "A private exchange is simply a distribution model."

But they are similar in some ways. Both public and private exchanges give employers a chance to make their employees responsible for choosing their benefits. Roger Howell, president of Howell Benefit Services, an employee benefit consulting agency in Wilkes-Barre, Pa., offers clients software that he believes is a model for a public exchange. He testified recently before state insurance regulators about the need to create a well-designed exchange similar to his system, which offers clients selections from many carriers.

He believes Bloom Health's new owners are trying to compete with public exchanges, regardless of what they say.

The private-exchange model allows a company such as WellPoint to limit choices so they don't have to be evaluated alongside competitors, as in a public exchange, Howell said.

"The one [the new owners] are developing is a carrier-centric site," he said. "That may not serve the public as well as the public exchange."

The three Blues companies will own a majority share in Bloom Health, but the company will remain its own entity, Bloom spokesman Jeff Smokler said. Senior executives will hold part ownership.

"This is a logical partnership, as all parties are committed to improving the employer-sponsored insurance system through innovative approaches that responsibly help employers predict costs and offer employees greater choice in the benefits they purchase," Bloom Health said in a statement.