More Employers Considering Private Exchanges

Employers remain committed to providing medical benefits for employees, and almost half have or will consider a private exchange for full-time active employees before 2018.

A survey from the Private Exchange Evaluation Collaborative (PEEC) shows employers are increasingly committed to providing medical benefits in 2016 and beyond. 

Results from the PEEC’s second annual survey of employee health benefits indicate 97% of respondents are very likely to offer medical coverage to at least some employees in 2016, up from 77% predicting they would offer such benefits by 2016 last year. 

Private health insurance exchanges are one option employers are exploring in order to minimize health care costs, reduce their administrative burden, and increase benefit choices. A small percentage of employers have implemented private exchanges for 2015 (6.4% for actives), but interest in private exchanges as an option for full-time active employees over the next several years is increasing. This year’s survey finds one out of five (20%) employers are considering private exchanges as an option for 2016, and 41% say private exchanges will be an option by 2018. Additionally, a majority (57%) of employers agreed that if an industry peer moved to a private exchange they would be more likely to do so.

In considering a private exchange, employers say cost is a key consideration. The survey by PEEC reveals 98% say the cost of plan design options is important, 97% say administrative fee levels are important, and 95% say disclosure of exchange fees and revenue is important. For employers who have already implemented an exchange, saving money and consumer choice were the top two reasons for doing so. 

The survey also notes an increase in employers that report placing high importance on the shopping experience for health benefits. A significant majority (85%) say “tools that aid in plan selection” are very important (compared to 70% in 2013), and 35% rate “mobile device compatibility” as very important (up from 26% in 2013).

“The emphasis on plan selection tools reflects the maturing of the employer’s understanding of the private exchange marketplace and the differences between the various exchange types and vendors,” says Barbara Gniewek, a principal at PwC, which is a member firm of the PEEC. “Because many exchanges assert that savings arise from employee decisions to ‘buy-down’ on benefits, it’s critically important that consumers understand that they may be making trade-offs between a lower initial premium contribution and a higher deductible or out-of-pocket payments later.”

In considering the key elements of private exchanges for active employees, employers said the following are “somewhat” or “very” important:

  • Delivery and reporting capabilities, such as implementation assistance (93%); 
  • Spending account program administration (93%);
  • Member advocacy (85%); 
  • Enrollment and eligibility support (85%); and 
  • Employer-specific reporting (91%). 

Ultimately, employers need their exchange model to deliver results, choice, and transparency, and they place high value provider experience and track record, plan design choices, carrier/network options, and transparency of fees and rate setting.

The trend in utilizing private exchanges coincides with perceived hurdles, the most significant being employee readiness to take on more responsibility (cited by 84%) and stability of carrier relationships (84%), followed by loss of flexibility in plan design (78%) and loss of control or stewardship (72%).

“Employers have taken a step back to assess the early implementation results and are seeking greater transparency in administrative, consulting and broker fees to assure employees get better value,” says Emma Hoo, director at the Pacific Business Group on Health, another PEEC member firm. “Many are not yet ready to relinquish control of key stewardship roles such as funding, carrier, plan design, provider network choice and even their benefits consultant.”

The Private Exchange Employer Survey was conducted in November 2014. It generated 446 responses from self-insured and fully insured employers ranging in size from fewer than 500 employees to more than 10,000.