Private Health Insurance Exchanges

Employers not yet acquainted with the concept of private Health Insurance Exchanges likely will become very familiar with them sooner, rather than later.

One of the hot new trends in employer-provided health coverage is the idea of the private insurance Exchange, which are Marketplaces through which employers can purchase health and other types of insurance, so that their employees can choose from among various types of plans. These private Exchanges have developed as a market response to the Patient Protection and Affordable Care Act (ACA; P.L.111-148) and public Exchanges.

According to a recent survey from Accenture, by 2018, about 40 million individuals are expected to receive their health coverage via these private Exchanges. This number, Accenture says, would surpass the number of individuals enrolled in health insurance via the public Exchanges. Other experts appear to be a bit less optimistic about the future of private Exchanges but it seems clear that the trend towards private Exchanges is likely to continue, particularly in advance of the imposition of the ACA excise tax on “Cadillac plans” in 2018.

What are private Exchanges?

Over the last several years, the phrase “Health Insurance Exchange” has become a prevalent part of the health care delivery system lingo. The ACA created public Health Insurance Exchanges (or Marketplaces), and many private companies are now offering employers of all sizes access to private Exchanges. Both private and public Exchanges offer a wide range of coverage options and serve as a portal to help individuals enroll in health care coverage. Private Health Insurance Exchanges are gaining in popularity as a way for employers to (1) cut their health care costs, (2) reduce their administrative burden, and (3) increase the benefit choices they offer to covered employees.

Private Exchanges are typically offered to employers from consultants, such as Mercer or Aon Hewitt, or from brokers or other intermediaries. According to benefits consultant Milliman, the private Exchange strategy revolves around efficient purchasing, limiting employer cost through a defined contribution, and participant choice. Plan options available through a private Exchange should be available at lower cost than comparable plans obtained directly from insurance carriers.

According to benefits consulting firm Towers Watson, employers remain committed to sponsoring health care benefits, and nearly all (98 percent) plan to retain their active medical plans for 2014 and 2015. However, they will look to private Exchanges as a potential delivery channel. This arrangement enables them to maintain their role as plan sponsor, but outsource certain aspects of plan management to an Exchange operator. Nearly three-quarters (74 percent) of companies Towers Watson surveyed reported that, as they evaluate private Exchanges for active full-time employees, they will want evidence that private options deliver greater value than the current self-managed model.

One important difference to keep in mind between public and private Exchanges is that, unlike their public health Exchange counterparts under the ACA, private Exchange participants are not eligible for federal subsidies. Only individuals enrolled in public Exchanges/Marketplaces may qualify for the Code Sec. 36B premium assistance tax credit under the ACA.

What are employers looking for in private Exchanges?

According to PlanSource, in its Private Healthcare Exchange Survey, when asked what private Exchanges should offer employees, 79 percent of respondents felt the top priority was to offer competitive health care choices for their employees. Other responses included:

·        Make choosing insurance plans easier and quicker (66 percent);

·        Help them make better selections on insurance plans (65 percent);

·        Offer more competitive choices (47 percent);

·        Provide an online shopping experience for benefits like Amazon (43 percent); and

·        Offer a wider range of benefit choices, beyond just medical, dental, and vision (43 percent).

Respondents were somewhat evenly split on how the growth of private health care Exchanges will impact the role of insurance brokers in the benefits planning, choice, and management process.

Private Exchange design features are key

In contrast to the public health care Exchanges run by states or by the federal government, private Exchanges are Marketplaces operated by insurance companies and brokers through which employees can choose from among various types of health care plans. According to Tina Provancal, vice president of product development for Exchanges at Aon Hewitt, there is a bright future ahead for private Exchanges.

Private Exchanges will result in lower costs, greater efficiency, and better quality, Provancal predicts, and they will be successful, if they adopt a number of recommended design features, she suggests. These recommended design features include the implementation of a risk-adjustment mechanism, whereby the enrolled population is measured using a pre-defined risk-adjustment methodology. Carriers that enroll a better-than-average risk would reimburse carriers that enroll a worse-than-average risk.

Private Exchanges that offer choice and flexibility are also more likely to be successful, says Provancal, so they should allow employees to select which particular plan and insurance company is best for them. Robust decision-support tools also should be included, she adds, to educate consumers about their coverage needs and costs. Provancal also recommends the establishment of a regional rating area, indicating that this would result in best-in-marketing contracting, along with optimal value for employers and employees.

The transfer of risk, especially by self-insured large employers, to insurance companies, who are probably best equipped to handle it, will enable employers to obtain more predictable annual health care costs, and Exchanges with multiple insurers with standardized designs would encourage competition, Provancal adds.

Provancal also predicts that an increase in the number and use of private Exchanges could spell the end for COBRA, especially if Exchanges transition from group-based models to models that provide employees with individual insurance policies. Employees’ health insurance would then be portable and decoupled from the employment relationship, she predicts.

Tips and cautions for employers

Private Exchanges have garnered quite a bit of press and industry attention in recent months and many consultants and others have offered valuable tips for employers who are considering these Exchanges. A key point to keep in mind is that private Health Insurance Exchanges are run on a for-profit basis.

Consumer education currently seems to be lacking, as Rich Birhanzel, managing director of Accenture Health Administration Services, cautions that “the issue right now is a lack of consumer readiness for Exchanges, in general, but in particular for private Exchanges.” He suggests that “while private Exchange providers have been largely focused on educating employers on the benefits they offer, almost no education has been provided to the employees who are considering enrolling in these health plans.”

The selection of an Exchange provider should include an analysis of the quality and network access of insurers, the ease of utilization by employees, the mechanics of the flow of employer subsidy, and the value provided by the Exchange, benefits consultant Milliman suggests. Milliman further recommends that plan sponsors should consider two items when implementing private Exchanges: (1) Understanding the commission structure of individual products relative to group products to be clear on how dollars are being spent, relative to the current commission structure of group plans; and (2) Being aware of the for-profit nature of private Exchanges and asking unbiased experts about particular private Exchanges.

According to Milliman, a private Exchange’s value should be analyzed separately from the cost shifting to employees that often happens with this approach. The private Exchange should provide plan options that are available at lower cost than comparable plan options obtained directly from insurance carriers. It is critical in the financial analysis of private Exchanges to understand how the Exchange sponsors are paid, particularly with respect to commissions. The selection of an Exchange provider should include an analysis of the quality and network access of insurers, the ease of utilization by employees, the mechanics of the flow of employer subsidy, and the value provided by the Exchange.

HighRoads, a benefits consulting firm, recommends that employers consider the following compliance and execution issues with regard to private Exchanges:

·        Plan participant communications. Benefit offerings and selection processes will change with the use of private Exchanges, HighRoads points out, and the use of an Exchange model for benefits may cause participants to have questions and concerns. HighRoads recommends that employers be prepared to deliver “robust” plan participant communications upon the rollout of a private Exchange.

·        Ownership of compliance documents. It is still a matter of debate, HighRoads says, as to who possesses the responsibility of delivering such documents as summary plan descriptions and summaries of benefits and coverage, especially through private Exchanges.

·        Monitoring of vendors. The defined contribution approach should be fully understood by employers opting for private Exchanges, and they should have both an efficient request for proposal (RFP) process and they should monitor vendor performance with a strong supplier management system.

·        Data consistency. Solutions will be needed by employers, private vendors, and payers alike to ensure consistent plan data.

Because of their potential for cost containment and reduction in administrative overhead, both public and private Exchanges have received much attention of late as new alternatives to traditional employer self-funded plans, according to Bridget Lipezker, HighRoads’ senior vice president of professional services. HighRoads reports, however, that many employers are choosing to hold off on even evaluating new private Exchange options, which may be attributable to employee communications and compliance dynamics of private Exchanges.

Looking to the future

Private Health Insurance Exchanges, particularly for active employees, are still a very new concept and remain a work in progress. In fact, there is significant variation among the private Exchanges so it is difficult to make statements about “private Exchanges” in general.

At present, some employers are very intrigued by private Exchanges and are evaluating these Exchanges as a way to provide employees with benefits tailored to meet their needs while limiting and/or controlling the costs of health care, making this strategy very attractive to leadership. Other employers are skeptical and want to make sure they understand how much control they would have over such issues as design and funding. As benefits consultant Milliman suggests, a private insurance Exchange may be a more palatable approach for employees facing a reduction in employer benefit spending.

Although interest in private Exchanges continues to increase among employers, employers should continue to learn about this insurance delivery mechanism and continue to monitor changes as private Health Insurance Exchanges continue to evolve