Two key factors limiting private health insurance exchange growth in the initial years will dissolve in the near term: capacity constraints by a lack of mature solution providers, and adoption delays among large employers.
Capacity constraints: Private health insurance exchange adoption has been capacity constrained by a lack of mature solution providers with the scale required to adequately service market demand. As the market and service providers mature, adoption rates of private health insurance exchanges are expected to accelerate.
In the mid- and larger market segments, the majority of technology vendors have been nascent players. These “startup-like” companies have capital and resource constraints that inhibit the rapid deployment of their platforms. During this first wave of private exchange rollout, large scale rollout successes have been limited to more mature market players operating with the scale needed to service their customers (e.g., the national benefit consultant exchanges).
In the small employer market (100 employees or less), few technology providers have emerged. This may be the result of business reluctance to compete with public Small Business Health Options Program (SHOP) exchanges. However, these public small group exchanges have seen initial enrollment well below expectations2. The door may now be open for new commercial alternatives to provide an exchange experience for small firms.
These capacity constraints will naturally erode as new entrants, continued consolidation (e.g., acquisition of bswift), capital investment (e.g., equity investment in Benefitfocus), and organic growth enable exchanges to effectively implement and service new employers.
2 Small Business Health Insurance Exchanges: Low Initial Enrollment Likely due to Multiple, Evolving Factors, US Government Accountability Office Nov 13, 2014