Tuesday, September 27, 2016

Is there a future for private insurance exchanges?

The collapse of most Obamacare exchanges has captured the attention of the media in recent months.  This may explain the lack of news about private exchanges.  Private exchanges have not exactly caught fire, but they have not disappeared either.  The failure of Obamacare exchanges may increase calls for a national medical welfare program.  Ironically that same failure increases the future potential for private exchanges.  So even as Obamacare exchanges continue to collapse, work to develop and market private exchanges continues and the future of those private exchanges remains hazy.  Some factors:

(1)  The Massachusetts insurance reform enacted in 2006 is widely considered the model for Obamacare.  This legislation established a state-run insurance exchange called “the Connector”.  Just this August, The Society of Actuaries released an extensive report on the impact of the Massachusetts legislation on insurance markets, pricing and profitability.  This report finds in part that:

“Despite its success in the subsidized market, the Connector, managed by the Massachusetts Health Insurance Connector Authority, enrolled few insureds in the unsubsidized nongroup and small group markets and was unable to exercise much influence on the merged market.”

 Apparently a different, more effective tactic is needed to reach the “unsubsidized markets”.  That is consistent with the experience of the failed Obamacare exchanges.  Do privately-run exchanges offer a more effective tactic for the unsubsidized markets?  Perhaps – provided the federales will allow a private-sector solution.    

(2)  National consulting firms such as Mercer, AonHewitt, and Willis Towers Watson are investing in their own private exchanges.

This move appears a good fit with their existing business strategy of expanding admin support to employers – e.g., member service functions, 401(k) administration, annual enrollments, etc.  These firms clearly see a future in private exchanges.

(3) Large insurance companies, e.g., Aetna, United, and Anthem, that initially expressed interest in building their own private exchanges, seem to have become less enthusiastic.   I’m guessing they’ve lost appetite for gearing up to administer multiple other companies’ coverage.  Isn’t it much simpler for the insurer to participate in one or more third-party private exchanges and sell its own individual policies there?  I wonder if they aren’t asking themselves, what’s the point of building a proprietary private exchange?

So questions remain following the Obamacare failures – which, don’t forget, go beyond financial.  Their implementation and operational failures have been painfully documented.  Most states declined to set up their own tax-eating, money-losing, hard-to-run, over-regulated, politicized Obamacare exchanges.  The federales have proved they don’t have the resources to operate exchanges even as they proved ignorant of insurance management and eager to over-regulate.  Can private exchanges ever overcome the Obamacare record, and become attractive for the majority of middle-income Americans? More specifically 

        (a)  Will large employers gravitate toward private exchanges?
        (b)  Will employers that subsidize their employees’ group coverage today, continue to do so in private exchanges?   
            (c)  Will insurers decide to participate in private exchanges?
         (d)  Provided employer subsidies continue, will middle-income employees prefer coverage available thru a private exchange, vs. the choices available to them now?      
         (e)  Will the federales expand Obamacare subsidies to include private exchanges, not just Obamacare exchanges (if any)?

I think the best answer for now is “Reply hazy, ask again later.”

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