Healthcare Exchanges: Are They a Viable Option for Your Organization?

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1 Healthcare Exchanges: Are They a Viable Option for Your Organization? By: Lori Kacin, GBA, Analyst Cowden Associates, Inc. Spring 2015 Employers that have not yet evaluated their exchange marketplace options will likely want to do so soon in order to determine the viability of their existence within their organization. Currently, exchanges provide employers the opportunity to alter their approach to offering health care benefits. The exchanges, both public and private, have the potential to dramatically transform employer based health and welfare programs while providing the organization with cost savings. To date, public exchanges, be it Federal or State based, have received most of the attention. Yet, private exchanges should be closely evaluated as they present a myriad of benefit options and often allow an employer to expand the number of benefit options available to their employees. Before employers decide to move their employee sponsored coverage to an exchange, they need to do their research and learn about the various options of the exchanges. What Is the Difference between Public and Private Exchanges? Public exchanges or Marketplaces are on-line insurance portals from which employees can purchase health insurance and evaluate the differences among plan designs and carriers. Public exchanges were created under the Patient Protection and Affordable Care Act (PPACA) and are highly regulated by the federal government. Public exchanges are available to individuals and their families as well as small employer groups with less than 50 employees. A public exchange is managed by the state directly; by some states in collaboration with the federal government or by the federal government establishing an exchange where a state has declined to establish one. The plans are individually underwritten and are not employer sponsored. An employee can purchase coverage not only for medical on the public exchange, but potentially coverage for vision, dental and other voluntary benefits such as critical illness. Individuals purchasing coverage through the federal public exchange may be eligible for a premium assistance tax credit (subsidy) toward coverage if their household income is less than four times the federal poverty level ($95,400 in 2014 for a family of four) and they do not have access to affordable coverage (through their employer, Medicaid, Medicare or TriCare). Private exchanges, like public exchanges are on-line marketplaces that employers can utilize to provide coverage to their employees. Private exchanges are established by employers via direct relationships with vendors or third parties such as a benefit consulting firm. Coverage available includes medical and prescription drug and may offer anciallary coverage such as dental, vision, Cowden Associates, Inc. Page 1

2 life, disability and/or voluntary benefits. The employer sponsored plans offered via a private exchange must comply with PPACA depending on the size of the group. The private exchange model typically utilizes a defined contribution approach to health care, i.e., a defined dollar amount if provided to employees to purchase the various benefits offered. A defined contribution approach results in a fixed health and welfare budget for employers, and places a greater responsibility on the employee to make wise purchasing decisions. Private exchanges cannot take advantage of the federal subsidies, therefore, employees purchasing coverage on these exchanges will not receive any premium assistance based on income level. In general, there are two types of private exchanges: 1. Single-carrier or employer exchanges are typically run by insurers and only offer the sponsoring insurer s plan. 2. Multi-carrier exchanges are usually run by third parties and include numerous plan design options from multiple insurance carriers. The insurance carriers compete by offering different plan designs and networks at varying costs. Groups can design a private exchange that provides varying levels of service from a technology platform from basic enrollment to full-service benefits administration. For example, many private exchanges offer a technology platform which typically includes enrollment and/or billing services. More comprehensive services may be available through some private exchanges, which include utilization management, wellness, HRIS capabilities and call center services alongside enrollment and billing administrative functions. When an employer considers an exchange option, there are many advantages and disadvantages that should be considered. Each employer should carefully consider the bullets below and determine how the advantages and disadvantages stack up against one another and fit into the company s workforce and culture. A Private Exchange can offer employers/employees the following advantages: Allows more flexible employee eligibility requirements for varying employee classes, e.g., part-time, full-time, seasonal, contractors and early retirees. Allows additional insurance plan and provider options. Private exchanges may include health insurance providers and plans that are currently not offered in the public exchange and employer sponsored health plans, i.e., therefore expanding employee choice. Cowden Associates, Inc. Page 2

3 Allows for the offering of additional insurance coverage options to be made available to employees. Employees may be able to purchase additional benefits not offered in the public exchange or that are currently not included in the employer sponsored coverage such as life, disability, vision, accident, critical illness, cancer, etc. Improved customer service and technology. Private exchanges may offer improved customer service than provided by the public exchanges or technology and tools that are not available through the public exchange. For example, many private exchanges offer plan selection tools that not only display the plans available to employees but also provide decision support tools to assist the individual in making the benefit choices that best fit their lifestyle. These tools help employees identify the real cost of a particular plan by factoring in the impact of cost sharing provisions, like deductibles and copays, in addition to the basic premium costs. A Private Exchange may trigger employers/employees the following disadvantages: Increased cost to employees. Unlike public exchanges, the private exchange cannot take advantage of the federal subsidies; therefore, employees cannot receive premium assistance based on their income level and family status. In addition, the defined contribution approach likely will result in employees having to contribute more to their health care, depending upon the program design. Employers may encounter additional administrative costs such as additional costs to operate the technology platform that supports the private exchange. Conflicts of interest may arise. Most employers seek advice from their broker/consultant concerning their health and welfare plan offerings. Because many brokerage and consulting firms are now offering benefits via their firm s private exchange product, the best option to you as an employer may in fact require a change to your current advisor. Evaluation of the various private exchange options may prove to be difficult. If a broker or consulting firm based exchange models are being considered there may be issues related to the proprietary information being shared with your current advisor. As noted above, many of the private exchanges are not willing to share details on their capabilities, so completing a comparative analysis of the exchange offerings has proven, at times, to be difficult. Cowden Associates, Inc. Page 3

4 Is a Private Exchange Right for You? No private exchange is alike and employers have many strategic considerations to evaluate as they move forward with all aspects of health care reform. However, that is one of the unique advantages of implementing a private exchange option you can make it fit your culture and your employee relations needs. There is not one solution for all companies. Each employer will have different considerations to focus on given the business objectives, competitive forces, employee demographics, culture, financial outlook and many other factors. The real challenge is to develop a strategy that is advantageous to the employer and that works with the dynamics of their company, e.g., attraction and retention, program cost management, etc. To assess the impact of implementing a private exchange, employers should consider the following: What role does the medical and prescription drug benefits play in employee attraction, retention and engagement? Does the expansion of being able to offer more choices of benefit offerings assist with attraction and retention? What is the employer s long-term strategy of cost management versus attraction and retentions issues? Many employers compete for the top employees by providing health care. If an organization joins a private exchange, each employee would pay a different premium, partly because each employee would choose a plan that best fits his or her needs. What is the competition doing? Employers should examine what similar companies are doing, e.g., continuing the current health plan, joining an exchange or terminating group health plan coverage and deferring their employees to join a public exchange. Does the potential expansion of benefit deductions or variability of benefit deductions pose a concern for administration of the program? How involved would the employer be in vendor administration? Participating in an exchange possibly will reduce vendor administration, although it will not eliminate it. Employers need to rethink all communication with vendors and how administration will take place. What role does the employer want to play in improving the health and wellness of its employees? Employers that focus on wellness and reinforce positive behavior from employees can experience savings. Employers should continue to get the most out of employee productivity and health. How would the employer s human resources duties change? Many employees need assistance when choosing a health care plan and look to human resources for help. Will there be new contacts for employee assistance? Who will deal with the carriers and all issues with employee coverage? Cowden Associates, Inc. Page 4

5 The list of questions can go on and on and many considerations need to be made when determining what is best for your organization. The process is tedious and takes some time, but thorough evaluation of the possible scenarios and potential outcomes, will allow your organization to properly evaluate if traditional benefit administration practices or exchange based options best suit the overall business goals and objectives that your organization has set forth For more information please contact: Lori Kacin, GBA Analyst Ph: ; Cowden Associates, Inc. Page 5