As corporate health exchanges evolve, there are more factors to weigh
Private health exchanges were first introduced to help employers outsource the administration of retiree health benefits. Then, spurred on by passage of the Affordable Care Act (ACA), leading-edge companies turned to a growing number of private exchanges to provide ACA-compliant group policies to their employees, using a defined contribution model.
“Private exchanges have become a new buzzword, but they are really a new take on an old idea,” said Jody Dietel, chief compliance officer at Wageworks. “First-generation private exchanges offered only medical benefits. Now, second-generation or maturing exchanges offer a variety of benefits,” including dental, vision and various kinds of supplemental health coverage.
The evolution of private exchanges means more options for employers and their employees, but more confusion as well. For employers considering whether a private exchange can help them achieve their employee health benefit goals, there are several important factors to keep in mind.
Cost Savings Not Guaranteed
Employers holding out hope that using a private exchange to provide health care benefits will lead to cost savings, or at least to better cost control, need to temper their expectations. “Private exchanges can help to offset costs in the first or second year, but there’s nothing about private exchange design that has been proven effective at ending the cost trend curve for health care costs,” said Rob Harkins, practice leader for private exchanges at Willis Group, a risk advisory and insurance brokerage firm. Shifting to a private exchange model “will not stop people from utilizing and accessing health care and, thereby, increasing cost.”
Instead, Harkins suggested that moving health benefits to a private exchange is just the beginning of a more involved effort to control costs. “You need to integrate other types of tools that can impact health care costs and mitigate the trend,” he said.
For the most part, it seems that employers understand that. The National Business Group on Health's 2014 Plan Design Survey of large U.S. employers found that only 11 percent were confident that moving health benefits to a private exchange would help control health care costs. Instead, these employers expect private exchanges to offer greater plan choice (77 percent), to help with regulatory compliance (51 percent) and to support a defined contribution approach to health benefits (49 percent). (For more on this survey, see the SHRM Online article Employers Adjust Health Benefits for 2015.)
Strategy First
At its most basic, a private health insurance exchange is a tool to help employers achieve their health benefits strategy. So the question of whether and how to use a private exchange depends on what that strategy is. “The starting point is where they are today with regard to benefits and where they want to go into the future,” said Harkins. “From there, they can determine what products and services they need and identify the best private exchange for their needs.”
“The biggest opportunities for private exchanges are where employers want to redesign their contribution strategy,” said Dietel. In fact, a key reason why employers are considering a move to private exchanges is to increase plan choice to facilitate a defined contribution approach to health benefits. Under this approach, an employer provides employees with a set dollar amount for health benefits that they can then use to purchase coverage on the exchange.
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The biggest opportunities are where
employers want to redesign their
contribution strategy.
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“Private exchanges are very valuable tools for an employer looking to manage its health care costs differently,” said Harkins. In this case, a defined contribution approach provides a level of predictability to health care costs, a key concern for senior management, particularly CFOs.
Because exchanges can offer more options than one employer would be able to manage on its own, employees in a defined contribution model stand a better chance of finding a health plan that meets their needs. These choices can include a mix of deductibles and levels of out-of-pocket costs, as well as plans with different types of provider networks. For instance, some employees may choose a high-deductible plan with lower premiums and a narrow provider network, while others might prefer to pay a bit more for a plan with a lower deductible and a wider choice of providers. This level of choice and flexibility, in turn, can increase employees’ satisfaction with their benefits—or at least minimize dissatisfaction for those who dislike any sort of changes to benefit plans.
Consider the Market
Among the 200-plus private exchanges in the marketplace, some specialize in retiree health benefits while others focus primarily on active employees. Some exchanges work only with large employers or fully insured employers, while others provide coverage tailored for self-insured employers. Some may only offer health plan choices from certain insurance carriers, while others may cast a wider net for plan options. And some are owned by insurance carriers themselves.
Evaluating exchanges begins with an understanding of the employer’s demographics and requirements. For example, an employer with a centralized workforce can include regional exchanges in its search, while a national employer with far-flung locations needs to work with one or more exchanges that can meet the needs of all locations.
Another key issue is pricing. An exchange that offers all of the bells and whistles can be tempting, but those bells and whistles probably mean added costs. Whether such an exchange should be on an employer’s list to consider would depend on how important those features are to the employer’s benefit strategy. For example, robust decision-making tools and technology that can help employees to navigate through the enrollment process will be more or less important to different employers, based on the sophistication of their workforce.
Changes Ahead
With so many private exchange options available, it is inevitable that there will be some level of consolidation through mergers and acquisitions even as new players continue to enter the market, industry watchers say.
Changes can also happen behind the scenes. For example, Aetna recently acquired bswift, which provides technology platforms to both private exchanges and employers. How this will impact the private exchange marketplace as a whole and private exchange costs in particular remains to be seen. However, this move follows on the heels of Aetna’s announcement that it will be launching its own private exchange in partnership with Sam’s Club, the member warehouse arm of Wal-Mart Stores. This is only one example, but clearly a major player like Aetna can have a significant impact on the private exchange marketplace.
For employers navigating this terrain, having clear objectives, carefully considered criteria for choosing an exchange and the willingness to conduct due diligence on exchange partners will be crucial to building a successful partnership.
Joanne Sammer is a New Jersey-based freelance writer.
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