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America's 'other' health-care revolution

While everyone focuses on 'Obamacare's' controversial public exchanges, big changes are coming to the place where most people get their coverage – at work. Here's how they might affect you.

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Another study by Mercer, a global consulting company that launched a private insurance exchange for large employers in January, predicts that by 2018, nearly 30 percent of the commercial market will be served by private insurance exchanges. The company recently announced that it had signed up 33 employers for its private-exchange platforms for 2014. That includes companies like Petco and the energy firm Kinder Morgan, and others ranging in size from 100 to 30,000 employees.

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Aon Hewitt, the nation's largest private health-care exchange, has signed up Walgreens, Sears Holding, and the Darden restaurant group and expects to have more than 600,000 employees covered under plans in its marketplace in 2014.

But unlike their public cousins, whose primary purpose is to offer affordable insurance to the 47 million Americans who are uninsured, private exchanges promise to bring the individual tailoring of the Digital Age to the place where the majority of Americans now get their health care – the workplace. For businesses, private exchanges are a way to improve efficiency and contain runaway costs in a competitive environment.

"Whenever you have competition on a retail basis, prices go down," says Ken Sperling, national health exchange strategy leader at Aon Hewitt, and one of the architects of the private health exchange concept. "And an exchange is a very efficient way to bring buyers and sellers together to drive competition."

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The basic idea of the exchange is to create an online mall, or a retail-like experience akin to Expedia or Amazon, and make insurance companies compete head-to-head for a new wave of individual customers. The state exchanges set up by "Obamacare" do the same thing.

But private exchanges could also drive a consumer-driven revolution in health care, bringing the razor-sharp metrics of the Google era to an industry better known for one-size-fits-all employee health plans. Online technology may have revolutionized how Americans shop, bringing with it a brave new era of profiling and individually targeted advertising (as well as the stuff of government surveillance by the National Security Agency). But when it comes to paying for health care, few people, up to now, have given much thought to those incomprehensible itemizations of fees, printed out on multiple pages, each reassuringly stamped, "This is not a bill." Now they will increasingly have to track everything – and make their own choices.

"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."

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