Private insurers forming their own health insurance exchanges
■ They will compete against state-run counterparts established under health system reform.
Commercial health plans are betting that private health insurance exchanges can outcompete public ones for most employer-sponsored coverage.
Like other small businesses, physicians offices could be wooed by health plans and other groups running private exchanges. It also may mean that state-based exchanges won't be the only choice for uninsured patients looking for coverage in 2014 and beyond.
Generally, there are two types of private exchanges: one kind that allows a consumer to choose from a variety of types of health coverage from one company, and the kind that gives a choice of plans from several companies. Shoppers may be using their own money or spending a set amount from their employer. A health plan might host the exchange on its website, or an independent company may host the exchange and deal with collecting premiums.
Large insurers have invested in private exchange start-ups with the idea that they can offer a better insurance marketplace for employers and workers than a public exchange, keeping private plans dominant in the commercial market.
Insurers see Massachusetts' health insurance market, where a public exchange already is operating, as a model for other states. There, the exchange, known as the Massachusetts Health Connector, has signed up few small groups for coverage compared with individual members. In the meantime, at least one private exchange says it has done well in the small-group market.
Whether because of what they see in Massachusetts or just a general sense that they can compete with state-sponsored health insurance exchanges, the largest insurers have been building their own private exchanges, analysts said.
In September 2011, WellPoint, Blue Cross Blue Shield of Michigan and Health Care Service Corp. bought an ownership stake in Minneapolis-based exchange host Bloom Health and announced plans to launch a private exchange available to consumers nationwide.
UnitedHealth Group subsidiary OptumHealth announced in August 2011 that it would buy Connextions, an Orlando, Fla.-based company working on exchanges, including a Medicare Advantage exchange for drugstore giant Walgreens.
In each deal, financial terms were not disclosed.
At the fall forum hosted by trade group America's Health Insurance Plans in Chicago on Nov. 15, 2011, industry insiders discussed the reasons those health insurance giants have been confident enough to spend money establishing or buying private exchanges. Chief among them was the sense that government agencies are not going to be able to persuade employers to rush to exchanges as an alternative to the status quo.
"Government is not a good marketer," said Rob Panepinto, managing director for the Client Practice and Exchange Solutions at Connextions, the recent Optum acquisition. Connextions is helping Walgreens build a Medicare Advantage exchange.
Health plans look to Massachusetts for evidence that by using their marketing expertise, they can compete even where a robust public exchange is in place.
Braintree, Mass.-based NFP Health Services Administrators has been operating a private exchange, HSA Insurance, for 30 years -- before the phrase "private exchange" was coined.
The company covers 150,000 people under 30,000 employers in Massachusetts. It directly competes with the state-run exchange.
NFP's CEO Jeff Rich said the Massachusetts Health Connector has been successful in getting individual customers covered, particularly those who qualify for subsidized premiums, but groups have been much slower to shop for coverage through the Connector.
The numbers show individual customers did some to the Connector, but groups were much slower to use it. About 6,400 of 212,000 people who have signed up for coverage through the Connector are part of a group, said Connector spokesman Dick Powers.
Glen Shor, executive director of the Connector, said he expects group enrollment to rise when four of the state's largest health plans begin selling group plans through the Connector in early 2012. The limited choice of plans has been the main factor limiting enrollment thus far, he said. He said it would be "wrong to extrapolate" the experience thus far to the future, or to other states' public exchanges, because they may not have the same challenges.
Rich said another misstep the Connector made was failing to win over health insurance brokers, who control much of the group market.
Dave Shore president-elect of the Massachusetts Assn. of Health Underwriters, a brokers trade group, and employee benefits practice leader at Borislow Insurance in Methuen, Mass., sat on an advisory board for the Connector.
"The challenge with the Connector was that when it first came out, we felt it was trying to subvert the role of the broker. We felt as a group that it was trying to displace us," he said.
Even with more companies offering group coverage through the Connector, brokers may not be convinced of the benefit of going through the public exchange, Shore said. The Connector pays low commissions to brokers, and there's no benefit to the client in terms of lower premiums, so there's no incentive for a broker to work through the Connector rather than going directly through the health plans, he said.
"There's just no value to it," he said.
Shore was uncertain whether Massachusetts' experience is directly transferable to other states. "Other states have different problems," he said. "But other states will learn from what Massachusetts did wrong." (See correction)