Private Exchanges: A Good Time to Try the Waters?

As we sit just a few months out from the launching of the first public health insurance exchanges (if all goes well, of course), the interest among employers and insurers in private exchanges has continued unabated. (For a good overview of defined-contribution private exchanges, see this whitepaper from Booz & Co.) Plenty of vendors have stepped up to offer software and services help insurers and brokers set up their own private exchanges, but as of yet it is a very immature, fragmented market.

We recently conducted a market scan of 44 of the leading American health insurers (including the national carriers and the larger regional players, namely the Blue Cross & Blue Shields) to get a sense of the current state of defined-contribution private exchanges and compare it to other varieties of online insurance tools. The charts below show the percentage of insurers who are either live on or in the process of implementing the following types of platforms:

• Online Consumer Shopping: Allows consumers to shop for and purchase individual and family plans online directly from the insurer.
• Online Group Enrollment: Allows employers and their brokers who have purchased group coverage from an insurer to manage the enrollment of their employees through an online portal, including managing open enrollment and making mid-year changes for new hires, terminations, and life changes. 
• Defined Contribution Private Exchange: Allows employers to specify a pre-defined amount to contribute for their employees premiums and then lets the employees shop for and enroll in the insurance plan of their choice through an online portal.

The end results? What our survey reveals is that, despite all the buzz around private exchanges, few insurers have actually gotten very far down the path, especially when you compare it to other online insurance sales and enrollment tools. We are still very much at the "toe-in-the-water" stage, though more and more insurers are starting to take the plunge.

A couple of key takeaways for insurers considering jumping in themselves:

• While private exchanges are new, they are no longer bleeding-edge new. A small but growing number of insurers have already taken them live and worked through shaking out the inevitable first-mover kinks.
• More and more insurers are starting to get onboard, so to stay competitive insurers need to be actively working on their defined contribution strategy.
• It's not too late. With more than half of the largest health insurers not yet underway with an actual implementation, it's a prime time to get out ahead of the competition without having to be the initial guinea pig for unproven solutions.

We'll be keeping an eye on these numbers and update them periodically as more insurers bring their initial offerings to the market.