The individual health insurance market in United States is broken. Over the last 15 years, the cost of health care has exceeded employers’ ability to pay. So what employers have to do is when their top-line cost surpasses what business can afford, they have to figure out how they’re going to close that gap.
And they do that by increasing payroll contributions to employees, by cutting benefit levels, by squeezing their vendors, by implementing new programs, by changing their carriers. All of that happens to try to close the gap between what top-line cost is doing and what the business can afford to pay.
What we’re trying to do in the corporate exchange is exactly the opposite, we’re trying to reduce the rate of increase in healthcare costs so that what a company can afford to pay and what overall health care costs can match. In a traditional employer sponsored plan year after year, most of us have seen the benefits in the plan going down and the payroll contributions going up, but corporate exchange changes all that.
For the first time we are bringing together multiple insurance companies and employers to create a competitive marketplace and a retail level. And when you have competition on a retail level, no matter what marketplace you’re talking about, prices go down every time, and that’s what we need in the health insurance.
An exchange is nothing more than a competitive marketplace, a corporate exchange is an exchange of a competitive marketplace for health insurance and for large corporations. In an exchange model, all the decisions are moved to the individual level, an employer decides how much the company wants to subsidize towards employee health care.
The employees get that credit and you come into the corporate exchange to essentially shop for your health benefits and you have choices of different plans and different insurance companies. And you make those choices based on what’s best for you in terms of how much coverage you need, what the price point is and who you want to buy that insurance from in terms of their network of doctors and hospitals.
For a lot of employers, the risk transfer element of the exchange is important. Health care costs are such a large component of labour cost and the volatility and the unpredictability of health care costs in a self-insured environment is too much for a lot of companies to absorb.
What we’re doing now is we’re transferring that to an insured model, so we can walk into a CFO’s office and say, we will tell you what your 2013 costs are going to be in 2012. And the only thing that’s going to change is that if somebody leaves or you hire somebody in, and that is a tremendous advantage over the current system.
Aon Hewitt is the first company to build a multi-carrier, multi-employer, private exchange vehicle to serve large employers. We are the market mover, the market leader and we will occupy that space for hopefully a long time.