Human Capital & Careers

Who’s the Top-Dog Private-Exchange Vendor?

Consultancy Mercer is the new private-exchange market leader. Or is it?
David McCannOctober 14, 2014
Who’s the Top-Dog Private-Exchange Vendor?

Among the big consultancies offering private health-insurance exchanges to active employees, Mercer may have grabbed the lead in covered lives away from Aon Hewitt, the early leader of the pack. It also may not have.

Aon Hewitt had made notable news in September 2012 when it announced it had signed Sears Holdings and Darden Restaurants as the first clients of its exchange. At the time, those were the largest companies that had publicly acknowledged they were planning to use a private exchange for active employees (as opposed to benefits-eligible retirees). Not long thereafter, Aon Hewitt competitors Mercer, Towers Watson and Buck Consultants all jumped into market.

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Mercer waited until July 2013 to reveal that it had signed several companies to participate in its active-employee exchange in 2014. It ended up covering 165,000 lives for 33 employers this year, while Aon Hewitt stretched out to a big lead, covering 600,000 lives for 18 employers (its private-exchange product was limited to employers with at least 3,000 workers, while Mercer accepted customers with as few as 100).

But Mercer has been hard at work, it seems. It said on Monday that 170 employers with 975,000 benefits-eligible employees and dependents — more than five times this year’s covered lives — will have access to its private exchange in 2015. Aon Hewitt had announced on Oct. 8 that it expected to cover 850,000 lives of active employees and their dependents next year. That would be up just 42% from 2014.

If you were reading closely, you may have seen that there is an apples-and-oranges element to these numbers. That is, Mercer reported the number of lives eligible for coverage in the exchange, while Aon Hewitt says it reported the number of employees it expects to actually participate in its exchange.

A Mercer spokesperson reasonably points out that as open enrollment for 2015 benefits will run through December, “we don’t know the exact number [yet].” An Aon Hewitt spokesperson counters, “We knew what our current enrollment numbers were, and if employers’ subsidies on the exchange are not changing substantially, we can pretty accurately predict future enrollments. We think covered lives is more reflective of the growth in the market.”

Regardless, it seems clear that Mercer’s pace of growth is faster. There are some fairly straightforward reasons for that. In addition to serving a wider range of employer sizes, it offers its exchange to both fully insured and self-insured employers, while Aon Hewitt targets fully insured ones only.

“While the uptick in Mercer’s active-employee enrollment above Aon’s is notable, it is perhaps understandable,” says Scott Thompson, president of the health-care practice at Benfield Research. “Aon’s exchange requires a fully insured approach, yet it is attempting to attract the largest employers, which tend to be more sophisticated and self-insured. There may be a longer adoption lag, as these employers may need more evidence of the benefits of a fully insured approach as well as the population-health impact of private exchanges.”

But Aon Hewitt’s product may offer some advantages. For example, it is “largely turnkey,” Thompson notes, in that Aon Hewitt will take on administrative responsibilities relating to its clients’ participation in the exchange.

Mercer’s exchange, he continues, “is available to small employers and takes a one-size-fits-all approach with few options for employers.” He also notes that “most of the enrollment is self-insured, even though smaller clients are likely to be fully insured.”

In its “2014 Special Report on Healthcare Reform and Private Exchanges,” Benfield presented the following schematic portraying its view of the differences among the major private-exchange players (including Bloom Health, which is owned by a partnership of Health Care Services Corp., WellPoint Inc. and Blue Cross Blue Shield of Michigan):

Benfield diagramTowers Watson and Buck have to date released fairly sketchy information about their active-employee customer bases. They did not respond by press time to requests for such information.

CFO published an article on Oct. 10 titled “Companies Move Cautiously on Private Health Exchanges” that cited Benfield’s study as well as one by the National Business Group on Health. The studies found that just 3% to 4% of large employers and 6% of midsized ones were planning to use private exchanges for active employees next year.

Still, the growth of Mercer’s and Aon Hewitt’s exchanges suggest those numbers will continue climbing beyond 2015. Caution may be the prevailing sentiment for now, but private exchanges aren’t going away and may indeed become a prominent force in employer-sponsored health care.