With all of the attention being paid to the public health insurance exchanges established under the Patient Protection and Affordable Care Act (PPACA or ACA), it's easy to overlook the growth in private health insurance exchanges that has taken place in recent years.
Although not created under the ACA, these private exchanges serve a similar purpose as public ones: to offer Americans a range of health insurance options. The key difference between the public and private exchanges is that private exchanges are open to employers of all sizes, while public exchanges—even when available for employer-provided group plans—apply only to small organizations with no more than 50 or 100 employees, depending on the state, until at least 2017.
Some large businesses already use private exchanges to manage their retiree health insurance coverage. However, using private exchanges for active employees is still a relatively new approach, though there are a number of reasons why an employer might consider this—namely, greater health plan choices, reduced administration, communication support and potential cost management. Forty million Americans will purchase employer health benefits through a private health insurance exchange by 2018, at which time private-exchange enrollment will surpass participation in state and federally funded public exchanges, consulting firm Accenture projects.
To navigate this private-exchange marketplace, companies should keep in mind five steps, as highlighted below.
1. Set Goals
The rapid growth in private exchanges means there are different exchanges to meet different needs. “Exchanges take outsourcing to the next level,” said Laurel Pickering, president and CEO of the nonprofit Northeast Business Group on Health in New York. “The choice of exchange will depend on what employers want to accomplish.”
For example, an organization that wants to hand off to a private exchange administration and most other nonstrategic duties related to benefits will look for an exchange with a strong administration platform. But an employer that wants to focus on consumer-directed health benefits or strong cost control may look for an exchange that offers plans with narrow provider networks and strong managed care. Still other companies may want to ensure that employees have a good experience when choosing their benefits; thus they may look for an exchange that offers tools that provide workers with customized guidance when choosing a plan.
2. Look Carefully at Offered Plans
Private exchanges offer different numbers and types of plans. “Private exchanges are not all the same,” Pickering said. “There is a lot of variation in the products that they offer, even basic things like offering fully insured plans versus self-insured plans.”
The criteria that private exchanges use to select the plans they offer also vary. Some exchanges offer a limited number of best-in-market plans or negotiated plans or offer only plans from certain health insurance carriers, while other exchanges differentiate themselves by providing a broad array of plan choices.
For example, a private exchange might choose a single preferred carrier in each geographic area served and offer plans just from that carrier. Some private exchanges will also offer regional rates, while others will provide composite rates across the population.
3. Consider What You Want the Exchange to Do
Private exchanges can handle other benefit programs beyond health coverage, which can be a key selling point for some employers. These exchanges are often able to manage everything from dental, disability, life, vision and voluntary benefits to the requirements of the Family and Medical Leave Act, COBRA continuation health insurance coverage and health-plan-renewal negotiations.
“Some employers will find that very attractive, while others will not,” observed Christopher Calvert, senior vice president at Sibson Consulting in New York.
Even so, because some private exchanges require that employers move other benefit programs to them as a condition of doing business, it's important that companies carefully review those terms. “Some of the exchange administrators require that an employer use their administrative platform for all of their outsourcing, although the requirements vary,” Calvert noted.
4. Consider the Employee Experience
In 2013, Accenture found that 83 percent of American adults knew nothing about the concept of private health insurance exchanges. So a business that wants to move to a private exchange, therefore, will have to educate its employees about how it works.
This lack of familiarity also makes it essential that workers have a good shopping experience with the exchange. Employers should pay attention to common elements, including how an exchange’s menu of plans and cost-sharing levels are presented. Some exchanges offer a guided shopping experience to help people choose a plan based on their unique circumstances, such as the doctors they use, the medications they take and, generally, what they value in a plan.
5. Take a Long-Term View
Like much of the post-ACA health care environment, private exchanges are still a work in progress. Companies that are considering a private exchange for health benefits need to keep an eye on the long-term horizon when it comes to both the potential benefits and risks of private exchanges.
The biggest risk right now is that private exchanges for active employees are a relatively unknown quantity. As a result, many questions need to be answered, including whether the relative immaturity of the private-exchange market will affect the cost of the plans offered over time, whether there will be market consolidation among exchanges, how well private exchanges will meet customer-service standards and deliver on promises, and how comfortable employees will be with the exchange concept.
Some of these unknowns can be answered by looking at the exchange’s structure and business model. For example, the stability of the exchange’s carrier relationship is a key consideration. “An employer doesn’t want to move to an exchange because it offers a certain suite of insurance carriers and networks, then see the list of carriers change a year later because the exchange didn’t grow as quickly as expected or the carrier did not gain access to the risk pool it expected,” said Calvert. “You also don’t want employees to get used to an exchange and then have it all change.”
“A lot of people look at the first-year costs and how the exchange is structured today in terms of the buying and shopping experience,” added Mike Thompson, a principal at PricewaterhouseCoopers HR Solutions in New York. “However, going with an exchange is buying a steward and a partner in your benefits, so the focus should be on how it works out over time.”
Joanne Sammer is a New Jersey-based business and financial writer.
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