How health insurers can thrive in the private exchange market [Q&A]
Amid a flurry of headlines about public exchanges put in place by the Affordable Care Act, it can be easy to forget that private exchanges are also playing a major role in how the health insurance industry operates.
Private exchanges continue to be a growth industry. Their enrollment numbers reached 6 million in 2015 and could reach 40 million by 2018. A survey conducted by Deloitte last fall found that many employers are optimistic about private exchanges' ability to simplify their role in benefit administration, lower costs and provide employees with higher-quality coverage.
To find out more about how the rise of private exchanges have changed the industry and what insurers can expect in the future, FierceHealthPayer spoke to Ashok Subramanian (pictured right), co-founder and CEO of private exchange company Liazon.
FierceHealthPayer: How do private exchanges drive member retention and build consumer loyalty to health plans?
Ashok Subramanian: We've seen a lot of progress. Our research at Liazon has found that in a multicarrier exchange environment there's a pretty substantial effect of price. We see on the public exchanges and elsewhere that consumers are relatively price sensitive, and so that obviously keeps carriers on their toes in terms of being efficient. But we've also seen a high degree of consumer loyalty.
People don't like changing year over year. There's about a 50 percent incumbent effect, meaning they're a lot more likely to stay with the carriers they have and they know.
At the end of the day, private exchanges have created a laboratory-like environment for health insurers to test some ideas they've been thinking about for a while in terms of how to do a better job of tracking and retaining membership. We're starting to see, now that we're a few years into this, the benefits of those new ideas. And I expect insurers to come out with new ideas as they learn more.
FHP: What, if anything, do public and private exchanges have in common?
AS: I like to joke that the only thing in common with the private exchanges and public exchanges is the word exchange. And perhaps that was a mislabeling. The primary important commonality is both are about individuals owning the benefit dollars. On the public exchange, it's member dollars, and on a private exchange it's employer dollars, but with much more transparency and ownership over the value of those dollars than in a traditional benefits program.
When people see the full price tag of products and have full control over the dollars, they're making the kinds of economic tradeoffs that they make in just about any other industry, but haven't necessarily had to make in healthcare because of the way it was delivered.
The second commonality is the aspect of choice. On both types of exchanges, you have people that have choices of carriers, choices of plan design, choices of different kinds of benefits. And so you start to see, again, a much more consumer-like market.