Human Capital & Careers

More Companies Opting for Private Health Exchanges

Mercer, perhaps a bellwether for growth in the private exchange space, will have 31% more active-employee exchange clients in 2016.
David McCannOctober 15, 2015
More Companies Opting for Private Health Exchanges

The number of corporations providing health benefits to employees through private exchanges will grow again in 2016, judging by a release issued by Mercer, one of four large benefits consulting firms to offer a private exchange option.

Mercer CFO Helen Shan

Mercer CFO Helen Shan Helen Shan

The client list for Mercer Marketplace next year will number 222 companies providing the exchange for active employees, up 31% from 170 in 2015. The number of employees eligible to sign up for the exchange will grow to 633,000 from 440,000, and total lives eligible for coverage will surge from 975,000 to 1.47 million.

Mercer also will have 84 customers providing an exchange for their retirees in 2016, seven more than participated this year, with 70,000 retirees eligible to participate, up from 60,000 in 2015.

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Close to half of the new clients on the exchange are new to Mercer’s health and benefits offerings altogether, the firm said in its press release. “This reflects a significant increase from the prior year, when approximately a quarter of clients were new,” the release said.

The other big benefits consulting firms offering private exchanges — Aon Hewitt, Towers Watson, and Buck Consultants — either said they hadn’t yet announced their 2016 client data or didn’t respond to requests for such information by press time for this article.

However, in 2015 Mercer had a big lead on its competitors in terms of the number of companies on its private exchange client list, and that presumably will be the case for 2016 as well. The consulting firms’ exchanges differ from one another in certain respects, including what companies are eligible to participate in them, but Mercer’s is by far the most inclusive.

“We can do an exchange with either direct-contribution or defined-benefit plans,” notes Mercer finance chief Helen Shan. “We can do it for either self-funded or fully funded plans. And we can offer exchanges for companies with as few as 100 employees, all the way up to infinity, really.”

In terms of lives covered, as Mercer reports the number of employees eligible for its offering while Aon Hewitt reports the number that actually sign up, it wasn’t clear this year which was ahead, although it was likely Aon Hewitt.

While the 222 companies Mercer will be providing with active-employee exchanges next year represents a healthy increase, the size of the potential market is staggering over the long term, given the flexibility of its private exchange offering.

“Mercer Marketplace is important to our health business overall, but it’s still relatively modest relative to the size of Mercer and certainly to our parent, Marsh & McLennan Companies,” Shan tells CFO. “We’re focused on growing the revenue and earnings, but this is really for the long term.”

The consulting firm also said its exchange is providing solid cost benefits to customers. While there is no independently verifiable proof that claims of savings to be had from offering health benefits through private exchanges are valid, Mercer, for its part, said first-year savings on medical costs can be “as much as 15%.”

The firm also said that the initial group of Mercer Marketplace clients experienced average medical cost increases of just 1.5% in 2015, their second year of participation, compared with a 4.6% cost hike for clients that offered health benefits outside of the exchange. Both figures take into account annual cost-saving changes to plan designs.

Mercer’s first announcement of private-exchange customers was in October 2013, when it said it would have 33 employers on board for active employees the following year, with an expected 165,000 lives to be covered. So, the first year for which Mercer could track savings data was 2014.

Aside from the consulting firms, many other kinds of entities, including insurers and insurance brokerages, are offering private exchanges, although the definition of “private exchange” varies significantly from provider to provider. Liazon, owned by Towers Watson, is a leader in the provision of private exchanges for the small-company market (Towers Watson also offers its OneExchange platform for larger companies). Another player focused just on private exchanges is Bloom Health, which primarily targets the midsize-company market.