Employers Responding to the Lure of Private Health Insurance Exchanges

Posted by on Jan 29, 2013 in Broker Development, Employee Benefit Program, Health, News | 0 comments

Employers Responding to the Lure of Private Health Insurance Exchanges

 

Large companies are increasingly exploring the use of private health insurance exchanges as a means of controlling costs, according to a number of HR industry observers.

Under a private insurance exchange arrangement, an employer privately contracts with one or more insurance carriers, each competing for the business by discounting insurance premiums for members of the group.

In turn, the employer then provides each employee with a certain number of dollars with which they can buy coverage listed on the private exchange.

This arrangement may offer some large employers the twin benefits of increased control over plans and decreased costs. Some liken the arrangement to a “defined contribution health care model.”

Benefits consulting companies Aon and Mercer have both created a product serving this market as of last spring, and more are on the way as the provisions of the Patient Protection and Affordable Care Act take hold.

Part of the logic is this:

If employees are shouldering part of the cost burden, they have more incentive to choose a less expensive plan than they would if the company fully subsidized their health care. Plus, employers who select their own carriers and mix of coverages are better able to customize their health insurance plan to their employees’ needs.

By switching to a private health insurance exchange, and providing employees with a set amount each year to ‘buy’ coverage, employers are able to sidestep further unanticipated rate hikes and cap their coverage at a stable, predictable level.

Furthermore, employees do not seem enthusiastic about the migration to private exchanges. A recent Booz & Company survey found that between 70 and 80 percent of employees responding stated that they would prefer a company-sponsored exchange to a public one.

Employers can choose whether to pass on savings to employees, expand operations or add to their own bottom lines.

A recent survey by Aon Hewitt found that as many as 44 percent of larger employers plan on migrating to a private exchange, which would be a major paradigm shift as the employers go from a central role as payors to a more facilitative model.

A number of major players in the insurance industry are gearing up for the change, including Blue Cross/Blue Shield of Minnesota, Towers Watson, Highmark, ADP, AON Hewitt, Extend Health, California Choice, Health Connector and Walgreens.

The Road to Here

The migration to private insurance exchanges was a long-time coming. The movement has its genesis, in fact, in some of the very factors that prompted Congress to pass the Affordable Care Act: A doubling of medical insurance costs within a decade – far exceeding the rate of inflation.

Until the passage of the PPACA, however, employers did not move toward a defined contribution model for health care benefits, because such a move would have required individual underwriting on each worker. The system was not designed to accommodate the cafeteria model for major medical plans.

However, as of 2014, the PPACA will require insurers to take all comers. Insurers are prohibited from declining those with pre-existing conditions. This finally allows employers to switch to a private exchange without the worry that some individuals would be unable to obtain coverage, according to the Employee Benefits Research Institute (EBRI).

The PPACA, then, has cleared the way for a substantial transfer of the risk that health insurance premiums would continue to increase from the employer to the employee: If premiums increase, employers can simply keep their cap in place. Workers will have to eat the difference.

Meanwhile, according to a recent informational white paper from Booz & Company, private exchanges offer the ability to target health insurance offerings to particular sub-groups of workers.

Private companies are emerging to help facilitate the transition and enhance the worker experience by providing trained customer service staff, website portals and back office support.

Private exchanges can include just a single carrier or involve two or more carriers, depending on the employer’s desires. Carriers may offer steeper premium discounts, however, for an exclusive place on an employers’ private exchange.

They aren’t for everyone

Lower-income employees may not be enthusiastic about using private insurance exchanges, however. This is because they stand to lose access to the government health care subsidies they receive if they are below 400 percent of the federal poverty line.