Four things employers should know when evaluating private health exchanges

Williams-MikeNoonan-StephanieOver the last year, employers have been inundated with information relating to private health exchanges (PHEs). During this time, three things have become clear: private exchanges are a significant development, interest in them is growing, and, for many, the importance of receiving unbiased information has become a priority.

As employers seek information, a core question continues to be, “How do I evaluate private health exchanges to determine which, if any, is a good fit for my organization, employees, and bottom-line financial goals?” The four considerations below provide a helpful guide to begin this evaluation process.

The PHE landscape
While public exchanges have been in the news since the Patient Protection and Affordable Care Act (ACA) was passed, PHEs have been in existence for several years in various forms. PHEs may be discussed in the same context as the public exchanges, but they are not the same. Unlike public exchanges, PHEs are not affiliated with the ACA and are not eligible for additional cost-sharing or federal premium subsidies. But it is important to note that properly structured PHEs can help employers meet ACA regulations, as long as they satisfy certain requirements and meet the affordability definition.

It is also important to note that not all PHEs are the same. Some are offered only on a fully insured basis or for retiree populations. Others may offer medical coverage only or a full spectrum of coverage types. In addition, PHEs may include a single carrier or multiple carriers. Because of these and other complexities, a comprehensive exchange analysis can be helpful to employers who are evaluating PHEs as part of their overall benefits strategy.

It’s not just the landscape employers need to be aware of; who is managing that landscape is of equal importance. For example, many consulting/brokerage firms offer proprietary PHE platforms. If your trusted advisor is also providing a PHE, it is important to pursue an independent analysis of all the offerings available to you.

The level of strategy support
When considering a PHE, you should take the opportunity to reevaluate your benefits strategy. Think about your desire for plan design control and the role you want to play in pricing and coverage. Moving to a PHE may mean you have less control than you’ve had in the past. Evaluating from a strategic and financial perspective is important.

Strategic
• Do you see more value in offering a wider array of choices to recruit and retain employees?
• Are you willing to sacrifice control for a benefits package that gives employees more choice?
• Do you want to play a lesser role in healthcare delivery?
• Is your wellness strategy supported by a PHE?
• Are your competitors migrating to a PHE platform?

Financial
• Are you more interested in cost predictability over cost savings?
• To what degree are you willing to shift trend risk to employees by adopting a defined contribution strategy?
• Do you plan to fund the employer contribution via a Health Reimbursement Account (HRA) or other funding arrangement?

Having a general idea of the answers to these questions can go a long way in assisting your PHE evaluation efforts. Be sure to take some time and consider them carefully.

The impact to your employee population
From one vantage point, the increase in choice can help employees better tailor a benefits package that fits their particular needs. Some employees may find this prospect appealing, which can have a direct impact on retention and recruiting efforts.

However, more decision-making responsibilities plus more choices can lead to “analysis paralysis.” When people are overwhelmed with choices, they may abandon the process, select the cheapest option, or stay with current options out of habit. Analysis paralysis may lead to uninformed decisions, causing employees not to choose the best election for them or the most efficient option for the employer. Therefore, decision-support tools—such as online technology and call center representatives—are a critical component when introducing a PHE. It is also important to remember that some employee groups have limited access to technology and that customized personal assistance will likely be needed in these situations.

As a final caution, consider employees’ price sensitivities as they begin to pay larger portions of healthcare service costs, which is due to the inclusion of high-deductible health plans in many PHEs. While carriers within a PHE may show differences in how the procedure is covered and which providers are in and out of the network, transparency tools allowing employees to “shop” for lower-cost procedures are not yet the norm. Therefore, employee education about the plan itself and available transparency tools is key to a successful implementation.

The change process for your benefits team
A PHE may be a good alternative for employers looking to outsource day-to-day administration. However, it is important to factor in the transition process for the HR and Benefits teams, as well as the division of labor between your team and the PHE. Take into account tasks such as:

• Coordination of major life events, COBRA administration, and general employee service issues
• Compliance with ACA and other regulations
• Interaction of Human Resources Information System (HRIS) with the PHE’s database
• Employee communication
• Annual enrollment support
• Any additional training that may be required for your benefits service center

Ultimately, only time will tell the full impact PHEs will have on healthcare. However, as they gain traction in the marketplace, many employers are realizing the importance of considering them as a viable option.

One thought on “Four things employers should know when evaluating private health exchanges

  1. The best data available to evaluate employer health exchanges and how they affect employee choices and cost is the Federal Employee Health Benefits Program (FEHBP) which behave very much like a defined contribution program. The main problem I have observed with FEHBP is that lower earning or younger federal employees will often start with one of the cheaper options and then shift to higher cost options such as PPOS with low deductibles, broad provider networks and self-referrals, when they get older or sicker. This is particularly true when comparing demographics of enrollees in fee for service vs. HMO type plans. This mal-distribution of risk across health plans results in price increases for the broader access plans that limits access to these plans by lower wage federal employees and keeps them in plans that do not necessarily meet their needs. In the end choice doesn’t necessarily mean everyone will be happier.

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