The rate of employers adopting a private health exchange has not met the industry’s initial expectation. In his Bloomberg BNA article “The elusive nature of private exchanges,” Milliman consultant Mike Gaal discusses the shortfall in private exchange enrollment figures and also offers perspective on operators’ inability to demonstrate employee healthcare cost savings.
Here is an excerpt:
Generally speaking, it is reasonable to say that a private exchange platform will allow an employer to reduce its overall administrative burden and outsource tasks, such as plan administration and vendor management, to the private exchange operator.
But what of the promise of plan savings? What, exactly, is inherently included in the private exchange platform that is not present in a traditional self-funded model? When answering this question, it is important to ensure that the employer and private exchange operator are speaking the same language as it relates to defining healthcare costs and healthcare trend. Semantics can play a crucial role when trying to define healthcare cost control….
While the focus for most employers is on either the net employer claim costs or the net employer costs, the true measure of year-over-year healthcare trend (as it relates to long-term cost control) is the change in the gross allowed claim costs. However, because the concept of employer healthcare trend is often defined as the employer-only change in healthcare costs year over year, employers do not always have a full view of how well their programs are managing overall (i.e., gross allowed) healthcare costs.
In this context, many private exchange operators are able to project low annual healthcare trends, particularly in the first year of implementation. But what is not always transparent to the employer is that significant savings might be derived through cost shifting to employees (via lower average actuarial values and/or higher member contributions), not through a reduction in total (gross allowed) healthcare costs….
Cost shifting as a result of benefit buy-downs does not create an impetus to migrate to the private exchange environment, because most employers understand that they have the ability to offer plan choice and a defined contribution environment outside of a private exchange.
To create a compelling reason for movement, private exchange operators must be able to clearly outline and articulate the fundamental difference that exists in the private exchange environment that is not available to large self-funded employers. Through early 2016, the evidence supports a conclusion that the inability to address the explicit advantage in controlling overall active healthcare costs is likely the key issue that has driven lower-than-anticipated adoption rates of private exchanges, especially among large self-funded employers, while small- to middle-market employers seem to be driving the majority of growth over the past two years.
For more Milliman perspective on private health exchanges, click here.
Most sales pitches about private exchanges position them as a game-changing way to cut benefit costs while offering employees more choices. While the market will determine whether the private exchanges can deliver on their cost-savings promise over time, they may prove to be appealing for some organizations even if they are cost-neutral, given their other attributes.
The prospect of spending several months forecasting health and benefit budgets, and then either gaining approval or spending even more time refining the budgets by tweaking the plan design, can exhaust a weary human resources (HR) benefits staff. Here are four questions for your organization to consider.
1. Is the HR team keeping up with all of the latest requirements of the Patient Protection and Affordable Care Act (ACA), including the new reporting requirements?
2. Does HR spend more time reviewing budgets and plan designs annually than makes sense?
3. Are the number of vendor contracts and meetings still manageable?
4. Does HR have the support of the management team to hire staff to effectively deal with all of the above?
If you answer no to any of these questions we recommend evaluating an outsourcing solution, or an outsourcing upgrade. In addition, you could also consider a private exchange. Below we show a comparison between outsourcing and private exchanges:
|Manage Enrollment and Vendor Data Feeds
|Outsource Vendor Renewals
|Rate and Budget Setting
While the private exchange solution offers a couple of key advantages, it also comes with some downside. Once your organization is committed to exploring either of these options, we encourage you to also consider the following:
• To what degree is your organization’s culture consistent with the change?
• Is there a risk to your organization’s reputation for making this type of change?
• Will your new vendor improve the employee/dependent experience in dealing with enrollment and issues?
• Will the cost of the additional administration be offset by decreases in soft dollars within your organization? Will you be able to show that to decision makers?
• How long is the contract? Are there early termination penalties?
• What if, two to three years down the road, the private exchange decides to evolve to a platform that you are no longer comfortable with? Can you take it back in-house?
Milliman is here to help you work through issues with HR fatigue to find the best solution for your organization.
As employers look for new ways to offer affordable healthcare benefits to their employees they will have to consider other solutions besides cost-shifting. In this Employee Benefit News article, Milliman’s Dan Bostedt discusses some evolving trends that may shape employer-sponsored healthcare moving forward.
Here is an excerpt:
Rethinking total rewards
Historically, health plans with high benefit levels have been a mainstay of a total rewards package. Going forward, should there be more emphasis on other components, or new components, in the total rewards package? Perhaps it is time to reallocate total rewards spending away from traditional “entitlement” types of benefits. Some goals could be:
Higher percentage of total rewards budget used for performance-based rewards;
Focus on rewards and approaches where costs can be better controlled at the employer level;
Emphasis on rewards that support the current cultural strategy;
More focus on what newer employees value most — tastes and priorities are changing.
As an example, would employees value a performance-based bonus, with lucrative payouts, over the current level of health plan coverage offered? Would that in turn help provide better alignment of total rewards to business goals?….
…The expansion of private exchanges may require further evolution to more component-based rather than package offerings.
Defining the features and capabilities that would add the most value to an organization may require looking at things differently. For example, some employers may not value a private exchange as a whole, but would find value in purchasing just outsourced administration, enrollment, communications, and participant education. Others may want to use an exchange, but would like greater control over the number and types of options and offer them on a self-funded basis. Regional and national options built on narrower networks may also be valued, but perhaps just with respect to network rental versus a private exchange package.
The key is to define the specific components that would most benefit organizational goals and needs and then to press the private exchange marketplace for the flexibility of component offerings.
In the future, more emphasis may be placed on physician-focused consumerism rather than the current focus on employee (participant) consumerism. This is because physicians are often the main decision-makers regarding the use of healthcare services, especially high-cost and/or high-volume services. Physician-focused consumerism will likely develop as a set of initiatives designed to align physician decision-making with high-quality health care outcomes provided in a cost-efficient manner. It can include the redesign of financial incentives for providers, physicians having greater access to broader patient-level data, updated treatment decision support tools, ongoing education about treatment alternatives, and an understanding of the financial impact of alternatives on patients. Physician-focused consumerism can be the basis for collaborative efforts among employer health plan sponsors, provider systems, and physicians. Provider network analysis, especially for narrower networks, may expand to include specific audits of the attributes of the providers in the networks.