There is a big train coming down the track in 2015. Advisors and their group clients must have a more complete understanding of the locomotive called “the private exchange” and how it fits into an ever-changing benefits landscape.
Employer leaders – CEOs, chief financial officers, chief operating officers, human resource chiefs and benefit managers – are challenged to find the best path for their companies to succeed in this evolving health benefits setting. They are searching for concrete, realistic alternatives from their advisors.
While contending with each complexity associated with the Affordable Care Act (ACA), these business leaders want ways to reduce administrative costs, remain compliant, save money and stay within a designated benefits budget. They are looking for practical alternatives to help them control costs by using a defined contribution strategy – to set a benefits budget and mitigate future premium increases.
That’s where any meaningful discussion will likely move toward private exchanges. Private exchanges aren’t revolutionary. In the 1970s, companies began experimenting with defined contribution health benefits plans by offering employer-sponsored cafeteria plans. This model is now the foundation for the modern private exchange and follows a similar migration from defined benefit to defined contribution retirement plans witnessed over the past several decades.
What is different almost 40 years later? The technology now available makes the process seamless, easier to deliver, and more systematic while allowing employers and their employees to have more health benefit choices.
What Are We Talking About?
Private exchanges enable employers to select a contribution amount made available to employees for the purchase of health insurance and other employee benefits. The employee can then choose from a wide variety of benefit selection options. Depending on the type of private exchange model, the employer can choose between fully insured and self-funded arrangements as well as decision support tools. Private exchanges allow employers to provide eligible workers with a subsidy to purchase policies that comply with the ACA and meet the specifications of state insurance regulators. Workers may add their own salary-deferred contributions in an amount they select and may choose among differently priced plans from health insurers – taking into consideration factors such as varying premiums, deductibles and networks.
Private exchanges empower employees to review and select the best complement of benefits for their individual situations. Proprietary decision support tools can help employees forecast their annual premium costs, estimate out-of-pocket expenses, and project the number of physician office visits, specialist and emergency room visits, and hospital days. These tools can assist employees in
optimizing and selecting appropriate levels of life insurance and disability insurance as well.
A private exchange solution can serve larger categories of exchange users, including individuals, small groups, large and jumbo groups, consortiums, multiple-employer arrangements, active employees, part-timers and retirees. In addition to medical, dental and vision insurance plans, some private exchanges may also offer life, disability, auto and homeowner’s coverage, pet insurance, and identity theft protection.
Interest in private exchanges has expanded quickly to include all industries and all employer size segments. This interest has led to the formation of private exchanges by such entities as insurance companies, unions, medical societies, technology firms and regional brokers.
What’s Ahead for 2015?
» Private exchange enrollment is likely to triple in 2015 to 9 million consumers as more employers evaluate its merit, according to Accenture. The consensus is that private exchange enrollment will reach 40 million by 2018.
» According to an Alegeus Technologies survey, there is strong evidence that 2015 will be a “tipping point” year of private exchange adoption, as survey participants reported high levels of familiarity and interest in exploring defined contribution and private exchanges.
» More than 50 percent of companies surveyed by Prudential indicated they would direct their employees to private exchanges – including 28 percent who said they are very likely to do so or have already done so.
» Of employers surveyed, 47 percent plan to consider or will be using a private exchange for their employees before 2018 – according to the Private Exchange Evaluation Collaborative (PEEC).
Across the nation, private exchanges are being created to help employers better manage health care costs and offer improved coverage options for employees. Greater migration to this model is predicted for the future.
Therefore, it is paramount for any advisor to be at the forefront in evaluating private exchange opportunities that bring additional value to the employer clients they serve – and want to serve – and to show how they can help transition those clients into private exchanges.
This can be accomplished by aligning a private exchange solution with the employer’s key health and wellness and cost-management strategies. Evaluating narrow networks and accountable care organizations while understanding the client’s culture, internal processes and long-term benefits strategy will ensure a smooth transition toward a private exchange model.
One of the inherent goals of a private exchange is to arm employees with the tools and the knowledge to make informed purchasing decisions on health care and other benefit plans. Incorporating decision support tools into employee’s experience encourages thoughtful consideration of their future plan usage, lifestyle changes and their overall health-related behavior.
These tools help ensure that employees select the best plans and products to meet their individual needs. As a result, the employees will reduce the level of “over-insuring” that often exists in a more traditional benefit delivery model.
For the employer, benefits administration technology capabilities should be robust and flexible enough to implement various employer contribution models, deliver appropriate employee decision support tools, and support a broader selection of benefit plan types and options. This effort will eliminate or mitigate any problems with internal administrative inefficiencies and employee frustration or dissonance.
The big question for employers centers on whether their technology platform is savvy enough to facilitate multisite open enrollment and to use support tools while eliminating paperwork and allowing human resource personnel to concentrate more on developing appropriate workplace strategies.
What Lies Ahead for 2015
Private exchanges are with us to stay as part of benefit packages. They will continue to gain in popularity as employers and employees derive a comfort that comes from such outcomes as more predictable budgets, deeper consumerism and simplified benefit plan administration.
To do so, employers must follow through and perform the due diligence necessary to ensure private exchanges can deliver connectivity with carriers and payroll systems, accommodate employer eligibility requirements, and deliver an effective front-end user experience.
Early adopters also are finding a competitive advantage in facilitating the renewal process and employee recruitment and retention. By offering more choices and tools, employees and their spouses are more engaged through private exchanges. Increased employee satisfaction and lower costs can also lead to more positive differentiation of one employer from its competitors.
It is therefore important for an advisor to prepare an action plan to accommodate employer clients seeking lower costs, an easier administrative lift, and better employee recruitment and retention through the benefits of a private exchange.
It’s always better to ride on the train than to be under it.