This is the first of three articles about private exchanges. Next: What’s the best funding model for benefits plans offered through exchanges?

Interest among large companies in private health-insurance exchanges for active employees, which has been incubating for a few years, is poking into the daylight.

Sears Holdings Corp. and Darden Restaurants, customers of the exchange offered by human-capital consultancy Aon Hewitt, remain the only large U.S. companies – defined for purposes of this article as those with multiple thousands of employees – to have publicly acknowledged they’re using an online marketplace to deliver greater choice of benefit plans to employees. But the terrain is clearly changing shape.

All four large consulting firms that have launched private exchanges for active employees during the past year-plus (it’s been fairly common for years for companies to use them for retirees) say they have landed large companies as customers for 2014 plan years.

Mercer recently announced it has booked the first five customers for its Mercer Marketplace exchange. Unlike the other three consultancies, it’s offering the product to small employers (with as few as 100 employees), but these first five have employee counts ranging from 800 to 25,000. Like its competitors, the firm won’t divulge who the customers are at least until they tell their employees of the new arrangement later this year.

Buck Consultants too says it has five customers on board for its product (called RightOpt) for 2014, and they’re even larger than Mercer’s, ranging from 3,000 all the way up to 75,000 employees. Sherri Bockhorst, leader of Buck’s Health Exchange Solutions division, says at least 30 more large companies are working with Buck on potential deals for 2015.

“Those are not just companies we’ve happened to talk to, but rather they’ve given us claims data and are evaluating a solution,” says Bockhorst.

While Buck is offering RightOpt for companies with at least 3,000 employees, the average size of the current and potential clients is about 10,000 to 15,000 employees. That, Bockhorst says, has surprised Buck: “We thought it would resonate more with the 3,000 to 10,000 group. But it turns out that larger employers are looking to get away from the day-to-day administration, contracting and vendor-management work.” Different exchanges are offering differing levels of such services.

Aon Hewitt and the fourth consulting firm, Towers Watson, both say they too have new large customers lined up for 2014, but did not provide additional details.

While companies with thousands of employees comprise most of the customer base for all four firms’ human-capital consulting services, to date most corporate users of private exchanges have been much smaller.

The two biggest private-exchange vendors are Liazon and Bloom Health. Liazon says it has about 2,500 corporate accounts, most of them companies with fewer than 50 employees, but a smattering with hundreds or even a thousand-plus workers. Bloom says it has 185 customers with an average size of 300 to 400 employees, but it too has a handful of larger outliers. Both declined to identify their large customers.

“We expect to continue seeing new enrollment from all market segments, including large groups, with private exchanges being continually discussed and better understood in the marketplace,” says Bloom CEO Simeon Schindelman.

In a recent study of 114 companies with at least 5,000 employees conducted by Benfield Research, a firm that helps health-care suppliers tailor their approach to employers, none of the participants was using a private exchange for active employees. But 43 percent said they were evaluating it as a possible near- or long-term strategy.

But Benfield executives are skeptical for now. “Evaluating is a lot different than using,” says co-owner Scott Thompson. “A lot of companies are looking for information and data, but they’re not ready to push the button just yet.”

Benfield’s research suggests that if large companies do flock to private exchanges in large numbers, it probably wouldn’t happen until 2017 or 2018.

“Private exchanges will play a role in the market, and perhaps a very large role ultimately,” says the firm’s other co-owner, Chuck Reynolds. “But before that happens, large employers will need to see more than hypothetical value. They will need to see the experience of early adopters, and they will be looking at that through a lens that captures a broad range of health, cost, productivity and worker-satisfaction outcomes that will govern the adoption curve.”

Also at issue is the type of large company that might be best suited for an exchange. It’s no accident, observers note, that both Sears and Darden Restaurants are low-wage employers with many part-time workers and high turnover. For example, Robert Galvin, CEO of benefits consultancy Equity Healthcare and former leader of General Electric Co.’s health-benefits department, tells CFO that Sears and Darden “essentially are large versions of the small employers that exchanges were designed for in the first place and are not good bellwethers for the rest of the market.”

But some of the exchange vendors say they are making headway with other kinds of companies. “I would not disagree that at the current time there is tremendous interest in industries like retail, hospitality and others with a high concentration of lower-wage employees,” says Eric Grossman, Mercer’s exchange business leader. “But we are seeing interest, though not for 2014, from industries as wide-ranging as manufacturing, financial services and technology.” 

Bockhorst says Buck too is talking about its exchange with diverse kinds of companies. In fact, she says there’s even interest among some with unionized work forces. “They’re talking about using it as an opportunity to renegotiate union contracts,” she says. “It’s a good bargaining chip because it benefits the union members.”

Accenture, meanwhile, is forecasting that private exchanges will catch on in a big way. By 2017, the firm says in a new white paper, approximately 18 percent of American health-insurance buyers will purchase their health insurance through exchanges, both public and private. That is also the year usage of private exchanges will catch up with public exchanges, Accenture predicts.

Photo credit: Official White House photo.

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