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America's 'other' health-care revolution

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"It's a changing paradigm," says Shawn Jenkins, founder and chief executive officer of Benefitfocus, a technology company that produces the underlying software for insurance exchanges. "Technology is part of that, economics is part of that, politics is part of that, and consumer expectation is part of that.... An employee would say, 'why do I only get one option? I want a lot of options, I want it on my phone, why can't I just see this stuff?' "

Yet some industry analysts see private exchanges as simply another way to sell insurance or package employee benefits online. Many are not convinced technology will offer the cost-saving efficiencies its self-interested promoters insist it will.

"You're seeing a lot of talk about private exchanges, not a lot of action," says Thom Mangan, chief executive of United Benefit Advisors, an employee benefits advisory firm in Chicago. "Employers are taking a wait-and-see approach – except for the very national companies, such as Walgreens and Darden."

"With the profound changes in the insurance market, that distribution methodology is a bit of sideshow," adds Mark Lutes, a health-care lawyer at Epstein Becker Green in Washington, D.C. "We're so Expedia-focused that we think that the solution is somehow the presentation as opposed to the product.... That's just moving around the deck chairs of the Titanic."

Changes already under way in the health-care industry could accelerate the use of online exchanges, however. Over the past decade, large corporations have almost uniformly stopped paying health insurance altogether, opting instead to "self-fund," or "self-insure."

This means that most large private employers today – 83 percent, according to a recent survey by the Henry J. Kaiser Family Foundation – are paying the costs of their employees' health care directly. They still work with insurance companies, because insurance companies are primarily the ones who negotiate with hospitals and care networks on pricing. In that sense, employers are simply "renting" the insurance company's networks, and paying them an administrative fee to process their employees' claims. But if a worker gets sick, the employer pays the bill. The employer does often pay for a "stop-loss" insurance policy, which will cover claims over an amount like, say, $20,000.

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