Yet another benefits consulting firm, Buck Consultants, has announced plans to launch a private health-insurance exchange for companies’ active employees. Each of such exchanges offers twists that competitors don’t, and Buck’s is no exception.
Initially, Buck will be targeting companies with at least 3,000 benefit-eligible employees, offering a choice of either a self-insured or fully insured model. So far, the firm has begun implementing the exchange for two employers with a combined total of about 125,000 such employees. The companies will offer the exchange during this coming fall’s enrollment for their plan years beginning January 1, 2014. Buck, which is owned by Xerox, declined to identify the two customers.
One point of differentiation in the private-exchange niche is whether an exchange offers employees a choice of plans from a single insurance carrier or multiple carriers. Buck’s exchange, called RightOpt, will have contracts with several carriers. But within any particular geographic area, employees of client companies will choose among plans offered by a single carrier. If a company has workers in multiple geographic areas, each will use the one carrier Buck has a contract with in the area where he or she lives.
Many employers have avoided structuring their health-benefits plans with different carriers depending on location because of administrative complexity. But Sherri Bockhorst, a Buck principal and leader of its Health Exchange Solutions division, says the firm has two good reasons for going against the crowd.
“When you offer multiple carriers in a single geography, you create adverse risk,” Bockhorst says. Say a company has 1,000 employees in a single Metropolitan Statistical Area and offers five carriers in that area. One or more of the carriers might get a healthier population than the others, whereas if all 1,000 use the same carrier, that carrier is guaranteed to get both the good risk and the bad risk.
“When there is adverse risk potential, carriers build in a risk charge,” says Bockhorst. “It is anywhere from 3% to 10% [more expensive], depending on the plan design and the risk in that geography. And our goal is to drive costs out of the health-care delivery system.”
But isn’t that offset by the fact that in every area, a single carrier will have Buck’s clients’ business locked up? No, says Bockhorst: “Multiple carriers already competed for the geography.” She adds that Buck will reevaluate the program’s costs every year and “adapt the network as needed.”
She also says that while Buck is starting off with companies of at least 3,000 employees, it expects eventually to “come downstream.” The firm’s consulting clients generally have at least 1,000 employees. Two consulting firms, Aon Hewitt and Towers Watson, are also focused on large employers with their active-employee exchanges. But another one, Mercer, will serve companies with as few as 100 employees.
All four consulting firms have jumped into the private-exchange business for active employees during the past few months, starting with Aon Hewitt in September. But why? Each one’s publicly stated rationale is some version of “we think there is demand for our exchange, there will be greater demand starting in 2014, our exchange offers benefits to both employers and their employees, and we’re offering it as a customer service.”
But as Martin Graf, a vice president with global-management consulting firm L.E.K. and a specialist in the health-services industry, told CFO last October, the consulting firms had no choice but to get into the exchange game to pick up revenue that could be potentially lost to them in their roles as advisers. “Benefits consultants gain from having a lot of complex things to sort through,” he said. But “if you can easily compare plans with one another [as is the case with exchanges], what do you need a consultant for?”