Could This Surprising Trend Blow Away Obamacare?

Private healthcare exchanges offered by companies including Aon Hewitt and Towers Watson could end up having a bigger long term impact on insurers like United Healthcare than Obamacare.

Jun 21, 2014 at 9:30AM

Obamacare's launch of health care exchanges is changing how Americans buy their health insurance, but it's not just the uninsured that are benefiting from increased price competition. Growing interest in exchanges' ability to curb runaway insurance premiums has gotten the attention of employers wrestling to contain health care costs, too.

As a result, the insurance industry is finding more employers are switching from providing insurance from one insurer to competitive exchanges being offered by companies like Aon Hewitt (NYSE:AON) and Towers Watson (NASDAQ:TW) that pit plans from insurers, including UnitedHealth (NYSE:UNH) and Cigna (NYSE:CI), against each other.


Source: White House Flickr

Reinventing health care insurance
According to Accenture, more than 3 million people signed up for health care insurance through private exchanges offered by their employer this past year. That tripled Accenture's previous forecast for 1 million people.

While private exchange signups trailed signups on Federal or state exchanges this year, the total number of Americans receiving health care through employers totals more than 150 million. That suggests the market for private exchanges could be much bigger than public exchanges, which hope to provide insurance to as many as 24 million people by 2017.

So far it's small and mid-sized companies that have been most eager to embrace the private exchanges, but large employers like Walgreen are getting in on the action, too.

Walgreen's decision to offer insurance to its 250,000 employees through Aon's private exchange could open the door for others to follow, particularly if exchanges follow through on their promise to lower employer's spending on health care.

Employers have traditionally picked a plan and paid a percentage of that plan's cost, but in private exchanges a company like Walgreen can pick an overall amount it wants to spend on insurance, and then let employees pick from a menu of plans with different service levels and costs.

So far employees have been selecting lower-cost plans, and while it's still early innings for private exchanges, those cheaper plans are saving employers money. According to private exchange company Mercer, employees are picking plans that are about $800 cheaper per employee per year.


Source: Aon Health Exchange

Growing exchanges
Aon and Towers Watson are two of the biggest beneficiaries of the surge in interest in private exchanges.

The two companies run private exchanges that offer insurance plans by companies like UnitedHealth and Cigna and then collect commissions on those plans when employees pick them.

At Aon, more than 1 million people signed up for insurance through its health care exchange for 2014 and more people are expected to sign up this year. That's because plan prices offered through Aon's exchange grew much more slowly than traditional employer plans. According to Aon, pricing for plans on its exchange grew by 5% this year, significantly less than the 6% to 8% growth rate for nonexchange employer plans. That price advantage should allow Aon to ink deals with more employers this year.  

Towers Watson bulked up its own offering last fall with the $200 million acquisition of private exchange operator Liazon. Liazon, which offers an exchange for active employees, will be combined with Tower's existing exchange for retirees to offer a more comprehensive offering this year.

In the first quarter, Towers' exchange solutions business generated $47 million in sales, up from $31 million a year ago. Towers' nine month results are equally impressive, growing from $60 million last year to $118 million this year.

Fool-worthy final thoughts
While 3 million members is nothing to sneeze at, it's still a drop in the bucket in terms of the overall insurance market. UnitedHealth, for example, serves more than 88 million people. As a result, these private exchanges aren't yet moving the needle for the big insurers like Cigna.

When asked about the impact of private exchanges during Cigna's first quarter conference call, CEO David Cordani replied, "The net of all of that through our experience has been de minimis -- meaning puts and takes, wins and losses, relatively small volumes and a relatively small net movement within the portfolio."

The impact appears bigger -- for now -- for exchange providers Aon and Towers Watson, but that could certainly change quickly, particularly if more large employers embrace private exchanges.

"[W]e view that the private exchange environment is still in the early phases
of adoption and clearly may create a very attractive sustainable marketplace for time to come," said Cordani.

Investing in long-term winners
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may or may not have positions in the companies mentioned. Todd owns Gundalow Advisors, LLC. Gundalow's clients do not have positions in the companies mentioned. The Motley Fool recommends Aon and UnitedHealth Group. The Motley Fool owns shares of Aon. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers