January 16, 2014

What employers need to know about private health care exchanges

Private healthcare exchanges are one of the biggest trends in the employee benefits world right now, and will likely continue to be for the foreseeable future.

The term “exchange” only entered the employee benefits vernacular within the last several years. It was the vehicle by which the Affordable Care Act would enroll insurance buyers, describing to them (electronically) what products were for sale, the cost, and the ability to enroll and pay for the coverage of their choice. Pretty simple concept: go to a website to buy a product.

For several reasons, the term “exchange” was abandoned by the ACA and replaced with “marketplace,” to create a website operated by the Federal Government (known as the Federal Marketplace). Simply put, a private health care exchange is, at its core, a very sophisticated, effective, user-friendly enrollment system.

Private exchanges impacting employers and employees alike

For years, HR leaders looked for a simple, yet effective way to enroll their employees during the annual enrollment period. However, data needed to be transferred to the HRIS system, payroll vendor, multitude of insurance companies, FSA, HRA, HSA, administrators, etc., and for years there were few such systems available to most mid-sized employers. Private exchanges have changed that, and the technology has solved most of the administrative and communication issues as well.

In addition, the exchanges have created the opportunity to move to a “defined contribution” type of plan. This design parallels the financial commitment associated with a 401(k) to that of the benefits exchange: in essence, both offer employees a set amount of money to spend on benefits. With multiple generations in the workforce at once, employers would rather allow each individual to choose the benefits according to their needs, rather than by edict. In this sense, private exchanges are really the architectural framework for the delivery of benefits, with the sophisticated systems to streamline administration.

Looking to the past…

I am a veteran of the “cafeteria” plans of the 1990s, when the concept of defined contribution was met with acceptance, on all fronts. Finance and HR liked it, and employees mostly liked the choices. But a divide began to occur as the employer contributions were not keeping up with the health care increases, and employees began to voice displeasure. The result was a collapse of the concept of defined contribution, as the ultimate driver of costs became health plan increases, not the amount the employer was willing to pledge. By the late 1990s to early 2000s, cafeteria plans were no longer in vogue.

…To predict the future

Does this offer a glimpse of the future of the private exchange devotees? Time will tell.

Ironically, the understanding by Americans that they will most likely NOT be able to keep the plan they had plays out nicely for private exchanges and the defined contribution approach. There are very low expectations by employees regarding their health plans and contributions, and employers are not necessarily the scapegoats now -- the Feds are the “bad guys.”

My recommendation is to thoroughly examine private health care exchanges. As long as there are a reasonable number of choices, the exchange handles the entire benefit offering, and the electronics behind the system are functioning properly, I believe the outcome will be positive for all. I am very excited that CBIZ has created its own private exchange, CBIZChoice and I look forward to seeing what the future of private health care exchanges holds.

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