2016 Private Exchanges
“open” to anybody who qualifies, private exchanges are “closed” and only available to organizations who implement them. Proponents of the defined contribution/private exchange approach, including the many technology companies that have invested in platform construction, promise employers a chance to fix and predict health care costs, to offer more choice to employees and to reduce administrative expenses. There are many in the health insurance industry, however, who believe that many of the advantages of private exchanges are overstated, that investors who have spent millions building the technology are trying to earn a return by re-packaging existing solutions. For instance, many large plan sponsors have been offering online enrollment and employee education for years. Existing benefit administration and HRIS products from payroll vendors like ADP, Paychex and Ceridian, already installed and connected to insurers electronically, have been providing the same type of plan choices and employee education through many renewal cycles. In addition, some health care economists believe that the value proposition of a private exchange is ambiguous and question whether or not there are any real savings. Of all of the potential benefits of a defined contribution approach using a private exchange, the number one is cost savings. But a technology platform alone does not address the underlying drivers of escalating health care costs: increased utilization caused by an aging workforce and medical inflation. Furthermore, in most cases, initial cost savings are achieved by designing a menu that includes core plans that cost more for participants, effectively shifting costs to employees and their families. Steerage, the strategy used by plan sponsors to entice consumers to choose lower cost options, can backfire if employees are uninformed, choose the wrong plan solely based upon cost and end up in financial trouble due to higher out-of-pocket expenses.
As far as implementation, employee education is very, very important. Because the exchange marketplace is such a new concept to most employees, a robust communications effort is necessary to assure that they fully understand how to use the platform during open enrollment.
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Annual Outlook 2016 I www.TheIHCC.com I HealthCare Consumerism Solutions™
Is a private exchange the right fit for you? Well, that depends upon the results of a readiness assessment. Plan sponsors who want to move towards a defined contribution model and use a private exchange platform have a wide variety of vendors to choose from. And as much as technology companies want you to believe that private exchanges are pre-assembled, very easy to implement and inexpensive, the real story is a bit more complex. For instance, experience-rated, larger plan sponsors (generally greater than 100 employees) must go through medical underwriting to obtain plan pricing. Underwriting includes an analysis of a population’s demographics, family content, claims history, industry and geographic location. Only after pricing is established and enrollment assumptions are made can a plan sponsor develop the proper contribution strategy in a private exchange. As far as implementation, employee education is very, very important. Because the exchange marketplace is such a new concept to most employees, a robust communications effort is necessary to assure that they fully understand how to use the platform during open enrollment. Adding in the electronic feeds that must be established to the various insurers/payors, and the monthly fees to run the platform, fees can be substantial. Project timelines of six to eight months for installation are not unusual. If you are an innovative employer with a diverse population looking to allow employees to design their own benefit program to meet their own personal and financial needs, and/or a CFO looking to manage health care costs now and in the future by fixing the organization’s contribution to medical insurance, then a private exchange should be an option you consider before your next renewal. Any employer or plan sponsor considering a move to a private health care exchange should strongly consider retaining an independent, neutral third-party expert to evaluate the market and conduct a highly competitive RFP process. Any independent advisor’s fees should be transparent and not tied to which insurer wins the business. As managing partner of EBS Capstone, Paul Rooney specializes in advising employers on group health, life and disability benefit funding methods, plan design, cost containment, flexible benefits and state and federal compliance issues. Over the past 25 years, Rooney has had extensive experience in the area of managed care, specifically developing plans for multi-state employers and negotiating pricing with various managed care companies. He began his career in the group insurance sales division of Metropolitan Life Insurance Company in Boston. Prior to forming EBS Capstone in 1997, he was senior vice president of employee benefit services for Minet Insurance Brokers. As a registered representative with LPL Financial, Rooney also helps plan sponsors design and implement 401(k) plans and other qualified retirement programs. He holds a Certified Employee Benefit Specialist designation and is an active member of the New England Employee Benefits Council.