Employer Barriers To Adoption Of The Private Exchange Model

The Affordable Care Act has begun to redefine our healthcare system, yet most companies are still evaluating how they want to provide healthcare benefits to employees in the coming years. Many employers are considering a private exchange, similar to the public Health Insurance Marketplace introduced to individuals and families last October. In fact, Accenture projects that private exchange participation will surpass public exchange enrollment by 2018. What must happen before private exchanges become the “new norm” in healthcare benefits administration?

The Private Exchange Evaluation Collaborative (PEEC) was formed by independent employer healthcare coalitions and PricewaterhouseCoopers to help employers navigate the private exchange-based marketplace with objective, non-biased information and support. Their December 2013 Private Exchange Employer Survey of 723 employers in 34 industries across the U.S. revealed that 45% of employers have implemented or plan to consider utilizing a private exchange for full-time active employees before 2018. While this represents almost half of respondents, it shows that most employers are taking a “wait and see” approach to embracing a private exchange strategy.

According to the PEEC, over 80% of employers consider the following to be barriers to adopting a private exchange-based healthcare benefits model:

Immaturity of the Private Exchange Marketplace

The private exchange value proposition is still being defined, and the model itself is in the process of finding its place in the larger healthcare marketplace. Private exchange administrators—presently few in number—are still learning what employers and employees want in a solution and determining how to differentiate themselves in the early stages of a developing market.

Stability or Track Record of Exchange Administrators

The business of administering a private healthcare benefits exchange is relatively new.  Their capability to deliver high-quality solutions notwithstanding, administrators currently managing exchanges are inexperienced and need to prove their ability to provide products and services that meet the needs of various employer groups. Employers, on their end, are looking for evidence of success with early adopters and waiting for a level of comfort with what’s largely a novel concept in benefits administration before embracing it for themselves.

Limited Information about Private Exchanges

Education is the key to increased use of private healthcare exchanges—and employers face a steep learning curve. Many employers want to maintain competitive-yet-cost-effective benefits packages and are already making the move toward consumer-driven health plans, finding out how they work, understanding their tax implications, and communicating their merits to employees. Employers are also learning what they need to do to meet healthcare reform requirements. As a track record is written and insights are gained from early adopters of private exchanges, more information will become available to help employers make informed benefits decisions and help their employees do the same.

Employee Readiness

While the employee health benefits mindset has been shifting in recent years, some individuals are still struggling to understand the value of consumer-driven healthcare. The economics of “consumerized” healthcare follow different rules than those of other consumer products—while “less expensive” might mean lower quality or performance when evaluating cars or television sets, less expensive healthcare doesn’t equate to worse care or coverage. People want financial peace of mind and may be resistant to change; but because of rising costs, they’re in the process of resetting their expectations with respect to employer-sponsored heathcare benefits. Accepting a healthcare marketplace model may be an important next step in their journey.

Stability of cost over time

PEEC’s December 2013 Private Exchange Employer Survey found that employers are looking for comprehensive capabilities and services from private exchanges. The products in the exchange need to be designed and priced to establish long-term stability—and this is the challenge, relating directly to defining the value proposition. Many employers are waiting until they are confident in their sustainable bottom-line value before adopting a private exchange approach.

The advantages of operating under of a private exchange model are just beginning to come to light, but many questions remain to be answered before private exchanges attain widespread adoption. Along with employers across the country, we will be watching the performance of private exchanges throughout the 2014 benefits year and seeing which barriers to adoption, if any, have been overcome.  Visit the Private Exchange Evaluation Collaborative to learn more about the changing marketplace, private exchanges, and their effect on employers.

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