Aetna’s planned acquisition of private exchange operator bswift may signal the start of more insurers acquiring private exchanges, experts in the industry say.
As the private exchange market continues to expand, contraction via acquisition and merger is not surprising, says Barbara Gniewek, principal of PricewaterHouseCoopers human resource services practice. In fact, “as private exchanges become a bigger part of an insurer's strategy, which we see with carriers and potentially benefit administrators, we expect that more acquisitions are possible and even probable.”
It’s a sentiment echoed by Sherri Bockhorst, national practice leader, health exchange solutions, for Buck Consultants, a Xerox company. “I wouldn’t be surprised if we see more of this in this space as employers look for more turnkey solutions that can support them in their HR benefits administration space,” she says. “I’m surprised it hasn’t happened earlier.”
The move also signifies that insurers are serious about the exchange business, likely leading to additional growth and price competition, Gniewek says. ”A big part of the growth in 2014 came from leveraging existing client relationships, and insurance carriers have a lot of relationships to leverage,” she explains. “If insurers can develop a distinctive value proposition by leveraging their networks, actuarial/underwriting skills, and care management programs, they may be uniquely positioned to create a solution that might be able to bend the cost curve. Coupling that with an enhanced user experience, unbundled consulting services in a multi-carrier solution will create a formidable market solution and drive the price down, creating a win for employers.”
At smaller organizations, for example, Bockhorst says the single-carrier private exchange model “makes a lot of sense.”
The move also makes sense for Aetna, says Matthew Kaiser, director of Lockton’s HR technology and outsourcing practice. “It’s easier to buy technology than to build it in house, particularly from the insurance side,” he says. “They have such a huge infrastructure that they’ve built over the years that’s not agile. Finding a firm that’s a little more adroit gives them a quicker speed to market.
“From a broker and employer perspective, we see this as one of many potential mergers and acquisitions out there. There’s a game of musical chairs, where it’s easier to acquire technology than to develop it,” he adds.
The move is also expected to drive a lot of innovation not only for Aetna, but for bswift, too, says Mike Smith, director of exchange solutions at Lockton. “It’s hard to innovate when you’re a large entity. Smaller more adroit organizations sometimes have an easier time innovating. The problem is they don’t have access to capital to take it to the next level. That’s a benefit for Aetna. It’s a benefit for bswift. It’s a benefit for their customers and their broker partners.”
After the acquisition closes, which is expected to take place by the end of 2014, pending normal regulatory hurdles, Aetna will operate bswift as a separate entity aligned with its consumer products business.
“We believe that bswift’s solutions will enable us to maintain and expand the client base going forward,” says Aetna spokesperson Cynthia B. Michener. “Aetna intends to use the bswift capabilities to build the next generation of our private exchange offerings.” That includes using bswift’s capabilities to enhance the experience of members who purchase their benefits outside of a private exchange, she adds.
Right away, there will be no changes to the product and services offered by bswift, which will keep its current branding. Any changes moving forward will be based on business growth strategy. bswift says its exchange focus will remain the same and even increase how they work with and serve brokers. “We expect this relationship to strengthen our ability to serve brokers in many ways. Including making our user experience even more engaging, educational and empowering for consumers and administrators,” says bswift marketing director Emma Frutkin.
“bswift’s consumer-friendly technology platform provides Aetna with the capabilities to deliver a new private exchange offering for employers of all sizes where the focus is on helping consumers easily choose a plan that’s right for them and their families,” adds Michener.
Currently, Aetna participates in 18 public exchanges, four national private exchanges, nine local and regional exchanges and nine Medicare exchanges. A mix of group retiree and other employer customers also use the company’s proprietary Aetna Marketplace for health plans. Aetna has not publicly released how many people use that proprietary exchange.
The acquisition will have no impact on Aetna’s current strategy to participate in multiple exchanges, Michener says. Similarly, bswift’s Frutkin says her company will continue to work with other health plans and carriers moving forward.
In the meantime, Lockton’s Kaiser says the $400 million price tag for which bswift is being acquired will probably also attract the attention of other independent ben admin providers. “There has to be a little whetting of the appetite for these companies,” he says. “The money’s going to get people’s attention.”
He adds, it may also send up a caution flag for employers shopping for a ben admin vendor. Typically employers sign contracts for three or more years with these vendors and in the current climate may have concerns about their vendor being acquired. “Vendors rarely want to have a change of control clause in their contract, but employers may start insisting on these clauses,” Kaiser says.
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