Private health exchanges are not new to the health care marketplace. However, they have evolved from a resource for retiree medical benefits to an employer strategy for active employees that includes choice, variety, consumerism, and a potential shift in funding.
Employers generally move to a private exchange to expand plan choices and encourage consumerism for employees; help with regulatory compliance; support a defined contribution approach to benefits; and streamline administration, including enrollment. While private exchanges may reduce costs in the first years after implementation, the overall trend toward higher health care costs may not abate unless companies also make use of other tools. Examples include programs emphasizing wellness and well-being.
Since private exchanges include plan choice, they allow for a defined-contribution approach to health benefits. Under this approach, the employer annually defines the dollar amount it will pay for benefits, regardless of what the employee chooses. The employer gives the employee a set amount of dollars to spend on the enrollment platform. The amount contributed by the employer may vary based on factors such as family tier, salary, or employee category and is reconsidered annually. This approach provides a level of predictability to the health care costs the employer will pay.
Because exchanges typically offer more options than an employer does, employees have a better chance of finding a health plan that meets their needs. Plans may have different deductibles, levels of out-of-pocket costs, and different provider networks. Using the enrollment platform, employees can choose based on a thorough comparison of plan details. Decision-support tools and live, personalized guidance are essential for this purpose. Employees are often drawn to the lowest-cost plan or a plan that includes copays, even though such plans may not be the best for them. Decision support tools allow employees to compare plan details and costs based on their family’s health status, doctors and hospitals in the network, and prescription medications taken. Tools that demonstrate why plans tied to accounts (HSA, HRA) may be a better choice for the employee are also important, and should explain not only how the accounts work but also the tax advantages, especially if the employer is providing a cash contribution.
Employers moving to a private exchange must support a robust communication effort to help employees understand their health plan options as fully as possible. Along with integrated decision-support tools, personalized guidance from trained benefit advisors is a must for educating employees about the shopping experience.
Employers investigating private exchanges must carefully identify the criteria for an exchange and conduct appropriate due diligence. Criteria may include: Plan design choices, carrier/network options, cost, consumer focus, the shopping experience (including the enrollment platform and tools that assist in plan selection), experience and track record, transparency of fees and rate setting, enrollment and eligibility maintenance, spending account program administration, delivery and reporting capabilities, and employer-specific reporting.
There are over 200 private exchanges in the marketplace currently. Some specialize in retiree health benefits while others focus primarily on active employees. Some work only with large employers or fully insured employers, while others are tailored for self-insured employers. Some are multi-carrier arrangements while others are owned by a single carrier. Some will allow employees who are not eligible for group coverage through their employer to purchase coverage (e.g., part-time employees and retirees). Lines of coverage may include traditional (medical, dental, vision), reimbursement account arrangements, supplemental, and voluntary products.
Whether to use a private exchange depends on the employer’s benefits strategy. Where are you today and where do you want to go in the future? From there, determine what products and services are needed and see if a private exchange will best meet those needs.