Employers faced with rising costs and regulatory demands are moving away from the benefit business, pushing individual consumers to take on new responsibility for their own health insurance, HRI says. This will fuel significant growth of health exchanges over the next decade.
According to HRI, exchanges may be most attractive to employers looking to shift health care decision-making to their employees. Employers with fewer than 50 full-time employees will have the option of sending workers to the public exchanges without penalty, while for some companies, private exchanges may offer more affordable insurance than they could obtain on their own.
According to PwC’s 2014 Touchstone survey of 1,200 employers, 32% of employers are considering moving their active employees to a private exchange in the next three years. In addition to alleviating administrative burden, the move to a private exchange presents additional benefits that would otherwise require too much time and money for many employers to implement on their own, such as integrated wellness programs, online benefit sites and consumer decision support.
“Employers are expressing significant interest in private exchanges, but taking the time to evaluate the various exchange offerings,” says Barbara Gniewek, a principal in PwC’s human resource services practice.
Private exchanges allow consumers to comparison shop for health insurance and other products through an online marketplace, and can be a way for employers to move to a defined contribution model of financing employee health care.
Four types of exchanges currently dominate the employer market:
- In the broker/consultant model, companies with expertise in the benefits business offer exchanges that are often coupled with consulting services for employers. These exchanges typically provide a fixed shopping storefront and are funded by fees paid by the employer, commissions from health insurers, or a combination of the two.
- In the insurer-sponsored model, health insurance companies run their own proprietary exchanges. These exchanges may be built on technology that is licensed from other companies. Some insurer-sponsored private exchanges are now participating in the small group and individual markets in select states, with plans to extend into more states and larger group markets.
- The technology model, typically considered the most flexible of the exchange types, is geared to several stakeholders including employers, states, insurers, and brokers/consultants. Employers that choose this route may purchase a full exchange or the technology components of benefit outsourcing.
- The “pure-play” model is more mature and known for its focus on consumer decision support, customer storefronts and product offerings on the exchanges. Some pure-play exchanges offer online financial tracking tools and ancillary products such as life and disability insurance.
According to the HRI report, companies with the most sophisticated benefits programs may not see as much value in a private exchange—at least in their current form. One unknown is the viability of a defined contribution health benefit. Economists, executives, labor organizers and politicians all disagree on whether switching to a defined contribution model would put pressure on companies to close any compensation gap with higher wages or expect employees to bear more of the rising cost of care. Health benefits provide tax advantages to employers, however, so offering higher wages or other types of compensation could be more costly to the business.
Moving to a defined contribution model could also put employers at risk for penalties if they fail to meet the Patient Protection and Affordable Care Act’s (ACA’s) affordability guidelines, which require an employee’s share of premiums to be less than 9.5% of adjusted gross income. Private exchanges may also open self-insured employers to the risk of relying on a third party to control health care costs. While most employers have historically relied on insurance companies to help control health care cost growth and manage risk, engaging a private exchange can take the benefit selection process—and, in some instances, health and wellness management—out of the hands of the employer.
HRI suggests employers:
- Conduct a thorough cost-benefit analysis. Compare what can be and/or is already done effectively in-house against what an exchange offers. Beyond obvious elements such as administrative fees, factor in the potential impact on employee retention and other indirect costs. Consider factors such as employment region, market competitiveness and employee demographics.
- Recognize you’re buying into a benefit delivery platform, not a product. Many exchanges are still in development. Pricing and features are not necessarily set and may vary widely, so employers may need to collect and compare bids from several exchanges. Partner with exchanges to thoughtfully select plan designs, shape the user experience and potentially design a defined contribution strategy.
- Deploy a sophisticated communications strategy. While many exchanges have good educational materials, employers should create a media and internal communications plan before announcing a change. Directly address any concerns with public perception, and make sure corporate values align. Be prepared to answer tough questions.
The report, “The Rise of Retail Health Coverage,” can be accessed here.