Insights for 2014 from Today’s Most Successful Exchanges
January 30, 2013
The genesis of the Medicare exchange market offers some good insights about what things could look like after the seismic shift that’s coming to the rest of the insurance market in 2014.
The law changes. In 2003, the Bush administration enacted the Medicare Prescription Drug, Improvement and Modernization Act (MMA), creating a thriving market for guaranteed-issue medical and prescription drug plans that could finally be compared head-to-head.
Companies and insurers engage. In 2005, one of the Big Three auto manufacturers challenged Extend Health to get better rates on Medicare plans than it could: In the close radius of the company’s headquarters, it had good enough sway, but having to rent networks in retiree destinations from Florida to Nevada meant its group plan was less efficient than the burgeoning individual Medicare market.
Extend Health built a network of national and regional carriers that offered retirees the same or better individual Medicare coverage at the same or better cost than their former group plan. And at the same time, made the company’s costs predictable and sustainable – no longer driving double-digit rate increases for that employer.
Now Extend Health powers retiree coverage at all of the Big Three and many other auto industry employers along with companies in every sector.
Health care consumers reap the benefits. Six years before MMA was passed, almost half of all retirees from large companies had access to health coverage through their former employers [see EBRI study, Figure 2], but that number took a nosedive due to the skyrocketing costs of offering health care. Six years after MMA was enacted, the number finally leveled off and may even be starting to trend back upward, thanks at least in part to the path offered by private Medicare exchanges.
In today’s fragmented market, individual consumers without an employer to negotiate on their behalf pay the most for health insurance. However, in a guaranteed-issue coverage world (like Medicare today) insurers sharpen their pencils to reach individual consumers through an exchange because it effectively becomes a “super-pool” consisting of everyone within a defined geographic area – providing a critical mass of consumers larger than that of any single employer.
What we’ve seen in the development of the Medicare market gives us reason to believe that a truly agnostic exchange – not a closed single-carrier environment or one that simply switches employers from defined benefit to defined contribution funding – is the practical meeting ground for consumers, employers, insurers and the storm of health care reform changes to come in the next year.
Employers have a lot of big decisions to make about health benefits in 2014. But despite headlines filled with state and federal exchange readiness count-downs, for large employers, many of those decisions don’t have to shake the foundations of their health benefit strategies right away. As employers get ready for the coming seismic shift in health care, their top concern is going to be doing the right thing to meet the needs of their workforces and businesses.
And the right thing is not easy to figure out:
- It depends on regs and health plan options that haven’t been fully defined yet.
- It depends on which employee population they’re looking at, both active and retired.
- It depends not just on the calendar day that exchanges flip the on-switch but more importantly on when certain health care reform changes begin to mature.
I anticipate that, come 2014, employers’ adoption of exchanges for some employee populations could look something like the hockey stick trajectory seen in the 1980s with history of corporate 401(k) adoption: Soon after the law changed in 1978, a handful of employers began a move to the new model, but three years down the road, about half of employers were already offering or thinking of offering a 401(k) and the numbers increased by leaps and bounds in the years after that.
In my next blog post, I’ll be talking more about employers’ needs this year, considerations for how to do the right thing and resources they can turn to for solutions.
- Employment-Based Retiree Health Benefits: Trends in Access and Coverage, 1997‒2010, Employee Benefit Research Institute (EBRI)
- History of 401(k) Plans: An Update, EBRI
- Exchanges Part 1: Everyone wants in, Extend Health blog
- Exchanges Part 2: What to look for and what to look out for, Extend Health blog