EHealth Inc. and an array of online insurance brokers are eying a possible $4 billion-a-year market, after the Obama administration’s surprise decision to let them sell government-subsidized coverage under the health overhaul.
If the 2010 health-care law survives a Supreme Court review, private brokers can offer the plans starting in 2014, via websites that let consumers compare coverage among a variety of plans the way Expedia users weigh costs and benefits among airlines. That may give the brokers access to as many as 22 million uninsured Americans.
“It’s going to put these private Internet portals, the regional brokers, the EHealths, on steroids,” said Cindy Gillespie, head of health-care policy at McKenna Long & Aldridge LLP, a Washington law firm that advises brokers. “It’s no longer going to be a marketplace exclusive to the state-run exchanges, and that’s a game-changer, big time.”
The Obama overhaul urges each state to create its own online market to offer residents health insurance. The markets, called exchanges, are designed to give consumers the ability to compare insurance costs and coverage from multiple suppliers, and to help the less-affluent pay for them through subsidies supported by the U.S. government.
Under rules proposed March 12 by the U.S. Department of Health and Human Services, the exchanges can now also be offered by companies such as Mountain View, California-based EHealth, the biggest online retailer of health plans, and closely held rivals such as bswift and Liazon Corp.
EHealth rose 2.8 percent to $16.44 at the close in New York trading, even as the Nasdaq Composite Index slipped 0.8 percent. The web broker has gained 28 percent in the past 12 months. It had 815,000 enrollees by the end of last year, according to regulatory filings.
Employers have traditionally paid premiums to insurance companies to cover their workers with one or two defined plans. Increasingly, companies such as Liazon offer another option, allowing employers to give workers a lump sum payment and the chance to shape their own coverage through a private online exchange, said Chris Condeluci, an attorney at Venable LLP in Washington who works with brokers.
The idea is drawing interest from private-equity firms like Boston-based Bain Capital Ventures, which last year led a group of investors that put $12.6 million into New York-based Liazon. It’s also spurred concern among consumer advocates about whether private brokers will be too cozy with insurers, steering people toward more expensive coverage.
‘Not a Good Idea’
“The whole point of a public exchange is to create a consumer-friendly marketplace where people have the ability to make informed choices,” said Ethan Rome, executive director of Health Care for America Now, a labor-backed group in Washington. “Anything that’s called an exchange that does not do those things is not something we think would be a good idea.”
The new rules were crafted to protect consumers while giving states the flexibility “to design these marketplaces so they work well for their markets,” said Brian Chiglinsky, a spokesman for the federal Centers for Medicare and Medicaid Services, in an e-mail.
The regulations require private exchanges to offer all plans available in a state that meet the health law’s standards for affordability and coverage. They also forbid the use of rebates or giveaways that might steer buyers to particular carriers. Each state gets the final say on whether to include private brokers in the system.
States will still have to keep certain functions for themselves, such as determining who meets income guidelines for the federal subsidies. Under the health law, individuals or families making as much as four times the U.S. poverty level -- about $23,000 for a family of four this year -- are eligible for premium credits. In states that don’t set up exchanges, a federally run national site will take over.
The administration’s proposal is an acknowledgment that some states may miss the deadline to have a marketplace up and running by 2014, Condeluci said. In Republican-run states where officials have opposed the law, the option may prove politically popular as well, he said.
“If the law stays around, the path of least resistance may be to rely on the private exchanges to do all of the front-end work,” Condeluci said.
While Bain jumped into the industry before last month’s decision, other investors are waiting to see if the Supreme Court upholds the law’s constitutionality, Alan Cohen, Liazon’s chief strategy officer, said in an interview. If the law stands, more firms may jump in, he said.
“There’s a lot of money waiting on the sidelines,” said Cohen, whose company serves 2,000 business clients with 20,000 workers. “We definitely are getting calls now from people in the financial community wanting to know what we’re all about.”
The exchange rule “makes it clear that we can continue to work with states,” Nate Purpura, an EHealth spokesman, said via e-mail. “We’re optimistic it will allow us to continue to do what we do best, which is use our technology to provide a simple, accessible and efficient way to enroll people in a quality health insurance plan.”
Along with EHealth and Liazon, Condeluci said the new rules may help businesses including NFP Health Services Administrators, a New England-focused exchange owned by National Financial Partners Corp. of New York; BenefitMall, a Dallas-based company that serves almost 2 million employees; and Chicago-based bswift, which helped construct Utah’s insurance site.
Last month’s rules came as a surprise because the 2010 law referred only to publicly run exchanges, and consumer advocates had raised concerns about whether private brokers would steer people toward more expensive plans, Condeluci said.
The administration nonetheless cited other parts of the legislation to open the way for web brokers.
The size of the potential market isn’t certain. States probably won’t allow web brokers to earn large commissions off of government-subsidized care, Cohen, the Liazon strategist, said in an interview. A “conservative” figure might be $15 per person per month, he said. At that rate, if private brokers enrolled all 22 million people expected to buy through the exchanges, the industry’s take would reach $4 billion annually.
A $15 commission “seems optimistic” for subsidized coverage, said Robert Coolbrith, an analyst who follows EHealth for the investment advisory firm ThinkEquity LLC in San Francisco. Insurers have already pressured brokers to lower commissions due to restrictions in the health law, and states or the federal government could take further steps that cut into revenue, he said in a telephone interview.
“There are some potential positives in terms of enlarging the opportunity to enroll people, but there are still lots of uncertainties,” Coolbrith said.