Stocks To Watch: Private Exchange Health Benefits

By Markets Fool.com

Companies that are moving workers and retirees to an online shopping experience for health benefits are adding millions of new customers to private exchanges.

Continue Reading Below

This new private exchange approach to benefits is catching fire with benefits firms and health insurers moving millions of workers and retirees to select benefits via these online portals. And that's good for the stocks of these companies.

Employee benefits consultancies including Aon Hewitt, a subsidiary of Aon , Mercer, a subsidiary of Marsh & McLennan Cos., and Towers Watson were the early players that gained investor attention in the private exchange space. But health insurers such as Aetna and Anthem are also pursuing this new opportunity to administer and provide health benefits.

Under private exchanges, workers or retirees go to an online portal, generally with a credit from their current or former employerto buy private coverage. The concept is similar to public exchanges under the Affordable Care Act, which offers subsidies to qualified uninsured Americans to buy private coverage.

The public exchanges have already been a business boon to employee benefits consultancies like Aon Hewitt, Mercer, and Towers Watson. In the last three years -- the time period during which the private exchange phenomenon launched -- enrollment has gone from the hundreds of thousands to millions of Americans. The technology has also flourished as uninsured Americans purchase subsidized coverage under the Affordable Care Act.

Private exchange enrollment boom
The most recent, and often cited as the most bullish,report on private exchanges came this spring from Accenture, which estimated 6 million people chose health benefits this year via a private exchange. Accenture forecast enrollment in private exchanges to soar to 40 million by 2018.

Continue Reading Below

In the report, the consulting firm described a "remarkable adoption trend in excess of 100 percent annual growth since 2013." It added that "the mid-size employer segment of 100 to 2,500 employees is driving initial growth, as evidenced by the expansion of the consultant-led exchanges servicing this market. Early adopters are publishing their business cases, consumer satisfaction data, and lessons learned from the first two years to demonstrate exchange successes in the market."

Aon Hewitt, for example, said this spring that employer clients that renewed for a second year on its private health insurance exchange had average annual cost increases of less than 3%. In contrast, large employers offering similar health benefits via a traditional approach are projecting cost increases of 6.5% to 8%. Benefits analysts say enrollees in exchanges tend to "buy down" when they have a better idea what health care costs and are presented with more choices via the online experience.

Aon Hewitt's private exchange for active employees now has more than 850,000 enrollees from 33 employers that include Sears Holdings, Walgreens Boots Alliance,and Darden Restaurants.

Some of the biggest names in health insurance are being drawn to the potential of private exchanges for the first time.Players such as Aetna, Anthem, and Cigna see potential among both active employees and retirees.

Insurers stake a claim in exchanges
Aetna spent $400 million last year to acquire privately held bswift, which brought the health insurance giant a retail shopping technology platform for exchanges and employers.

"Aetna intends to use the bswift capabilities to build the next generation of our private exchange offerings, " Aetna spokeswoman Cynthia Michener said.

Meanwhile, the nation's Blue Cross and Blue Shield health insurance companies, which include Anthem as well as nonprofits and mutual insurers, are launching an online portal for retirees to shop for different plans through the Blue Cross and Blue Shield Association. The Blues' plans marketplace will help employers shift their retirees from group health benefits to individual coverage starting on Jan. 1, 2016.

The "BCBS Marketplace" will offer Medicare supplemental insurance known as Medigap, Medicare Advantage plans, and Medicare Part D drug coverage in at least 45 states under the Blue Cross brand. It is designed to transition retirees from group health benefits to individual coverage starting Jan. 1, 2016.

Blue Cross Blue Shield Association Senior Vice President Maureen Sullivan said Blues plans anticipate more growth in the retiree market than growth from active employees -- which is of course good news for these plans which cater to retirees.

"What we are hearing from employers suggests that the growth in private exchanges will continue, but not at the accelerated rate that we hear from some experts," Sullivan said."Early adopters are companies in certain industries like retail. In contrast, the retiree market for private exchanges continues to grow rapidly."

Just how big a revenue or profit boost private exchanges will offer to consultancies or health insurers is unclear. But the entrance of major insurance carriers to the private exchange space makes this emerging business no passing fad, particularly as more Americans gain health coverage under the Affordable Care Act and employers look for just about any way to control rising healthcare costs. And that's good for investors in the private exchange space if these insurers and consultancies are able to get more employers with lots of workers to sign up for the private exchange experience.

The article Stocks To Watch: Private Exchange Health Benefits originally appeared on Fool.com.

Bruce Japsen has no position in any stocks mentioned. The Motley Fool recommends Anthem. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.