What factors should employers consider in selecting a private health-insurance exchange? There are several, and if you want to get right to them, scroll down. But first, a digression.
Some benefits consultancies, which most companies hire to help with plan design, selection, and compliance, are betting the private-exchange field will move from niche status to a strong force in employee health benefits. Aon Hewitt, for example, set up its own exchange and has won two large contracts, with Sears and Darden Restaurants. Towers Watson bought Extend Health, a retiree exchange, and plans to launch an exchange for active employees within a couple of years. But consulting firms that have no presence in the exchange field are looking to make hay out of it as well.
“Benefits consulting in its current form will have something to lose” if the private-exchange market becomes robustly developed, says Chris Calvert, health practice leader for Sibson Consulting. “The key will be to transform, in the way that pension consulting did when companies moved to defined-contribution 401(k) plans. We are moving from assessing the differences among insurance carriers based on clients’ needs to assessing the proper platform — exchange-based or traditional — through which our clients should deliver health benefits.”
The reference to 401(k)s is apropos, because that is the funding model most companies that use private exchanges are moving to. Broadly defined, exchanges are online portals populated with a variety of easily comparable health-plan options offered by one or more insurance carriers that contract with the exchange.
By making a defined contribution that employees can use to buy a health plan that matches their needs, a company will know at the start of a plan year what its health-care costs will be. And, depending on the exchange, the company may have a chance to offload much of the administrative load related to health benefits.
Because of those attractions, it seems inevitable that competition will expand in the private-exchange field. Benefits consultants want to be ready for that. And, especially in the early days, they may exaggerate their expertise or the complexity of the decisions an employer must make around health care.
That said, the following tips offered by Calvert seem a reasonable starting point for thinking about moving to an exchange. Put another way: what characteristics might you look for in an exchange?
1. Administrative Complexity
How much will the employer have to do to ensure smooth interaction between the exchange and the company’s human-resources and payroll systems? Will you literally just have to send a check every month for X number of employees times the amount of employer contribution? In fact, a company may not even want to outsource plan administration. How would that affect the interaction between employer and exchange?
2. Compliance with Affordable Care Act Requirements
When an employer signs up with a private exchange, will there be any difference in how ACA rules apply to the employer? Most notably, says Calvert, it is not yet settled whether a company using an exchange means it will be deemed as providing a “qualified health plan,” as defined by the act. “If you’re putting money into what is, in effect, a health-reimbursement account, will that mean the employer is still providing a health plan? Or will you not be providing a plan because you are simply providing access to a set of plans?”
Employers in the latter category could be hit hard financially. Employees of organizations with no health plan or a nonqualified plan (i.e., a poor-quality one as defined in the ACA) could qualify for a federal tax credit to subsidize their purchase of insurance through state or federal exchanges. The employer then would be subject to a federal penalty — the lower of $2,000 annually for every full-time worker or $3,000 for each employee who gets such a tax credit.
3. Ability to Offer Access to the Public Exchanges
Does the private exchange allow lower-income workers and families eligible for the public subsidies to access public exchanges from the private-exchange portal? At least one private-exchange vendor, eHealthInsurance, is vocal about its plan to offer that service.
4. Flexibility on Plan Design and Coverage Tiers
The greater the number of plans and tiers offered in an exchange, the more difficult it may be for an employee to compare all of them with one another. “Do you want flexibility, which brings complexity, or do [you] want to keep it simple where everybody knows exactly what they’re looking at?” asks Calvert.
5. Cost to Employer
Private exchanges typically assess a per-employee administration fee to the employer, which may vary from exchange to exchange.
6. Cost to Employee or Retiree
There are new complexities around the underwriting of insurance products offered in private exchanges, according to Calvert. There could be large rate swings from one year to the next if big employers join an exchange and radically alter the demographics of the enrolled population, he says.
Plus, the rates employees are subject to usually build in commissions that insurers pay to exchanges for distributing their products. These too may vary from exchange to exchange. Calvert poses: “When you look down the road, are private health exchanges going to look like 401(k) plans, with layers of fees and questions about how much the service providers are actually getting paid?”
7. Relationships among Exchange Managers, Coverage Providers, and Corporate Plan Sponsors
In today’s world, most large and many midsize companies work directly with the health carriers when there are claims issues or problems with plan administration. You know whom to call to get such issues addressed. “Companies feel like they understand the chain of command to ensure the plan is being administered and their employees are being treated fairly,” Calvert says. “With this new [exchange] model, is that so clear? If an employee has been denied coverage, does the employer have any influence?” And do you call the carrier or the exchange? If the carrier, are you just calling an 800 number?
Concerning employees’ questions, an exchange might argue that it’s not the employer’s problem anymore, Calvert suggests. “But I think it’s a bit naïve to say that just because you’ve moved to a defined-contribution model, the HR department isn’t going to get the calls when things go wrong.”
8. Ease of Navigation Within the Exchange
How easy is it to assess the various options?
“I think there will be more private-exchange players, and I hope there will be more clarity on some of these issues,” says Calvert. “I feel that to date, exchanges present their services to companies with a ‘this is great news, you don’t have to worry about any of these things anymore’ message. And I just don’t know whether that’s true. Employers should think through the new dynamic.”