Despite a great deal of information and publicity, private exchanges are still widely misunderstood. That’s a big problem. Private exchanges may be a viable option for your company—possibly as soon as this upcoming renewal! But unless you properly understand what they are all about, how can you know whether one may be right or wrong for your company? We have extensively covered private exchanges throughout our 2014 series of Mid-Sized Retirement and Healthcare Plan Management conferences. I’m going to give you a very brief summary here; significantly more information is available through our Resource Center, and we will of course be exploring these further in our 2015 programs. First and foremost, know one thing that private exchanges are not—and one thing that they are.
- Private exchanges are not part of, nor are they associated with, the public Healthcare Exchanges that were established with PPACA. Although they may share the name exchange, private exchanges are very different and distinct from the Public Exchange. (To help avoid confusion, the federal government has renamed PPACA’s Healthcare Exchanges to Healthcare Marketplaces.)
- Private exchanges are a relatively new, alternative way to purchase health and other benefits for your employees. You as the employer are still providing the benefits and paying a portion of the premiums (although possibly, as discussed below, via a new “defined contribution” approach.) The actual choice of provider(s) is now made through the private exchange rather than through traditional channels.
What follows are three high-level questions and answers that can help improve your understanding of private exchanges:
1. What are some potential reasons to move to a private exchange? Are you seeking:
- Better quality and lower costs? Cost is the top driver of virtually all benefits decisions right now. Private exchanges may enable you to offer equivalent quality—or possibly better quality—benefits at the same or lower cost.
- Greater choice without sacrificing quality? This may or may not be the case for a given private exchange. Just remember that the number of choices you offer isn’t everything: a plan with 10 bad options is not as good as one with five good options.
- Ease of administration? One example: instead of having to contract with each of the different providers, the private exchange does it for you. Less benefits administration allows your HR staff to focus more on HR.
- Ways you may be able to avoid the Cadillac Tax? The Affordable Care Act’s excise tax is looming in 2018. Moving to a private exchange may give you ways to alter your benefit lineup and possibly offer alternatives that will enable you to avoid the Cadillac Tax.
- A different way to fund your employee benefits? Many private exchanges offer a “defined contribution” approach for the employer’s portion of benefit premiums. This allows an employer to specify exactly what they will pay per employee. If this is a funding method you are interested in exploring, moving to a private exchange might be the best route. Although there’s nothing legally stopping employers who are offering benefits in the traditional manner from moving to a defined contribution funding arrangement, often systems are not able to adapt to that change. The private exchange would offer the full technology platform that could make that shift significantly easier.
2. What are some potential drawbacks of going to a private exchange?
- Negative initial reaction from employees. Employees have always been skeptical about changes to their benefits plans. When companies make benefit changes, often the initial employee suspicion is that you’ve taken something away. Plus, when they hear the word “exchange,” your employees may think you’re dumping them on the public exchanges, which have been subject to heavy criticism. Communication is critical to making the move to a private exchange work well.
- Reduced service quality. While covered by your previous plans, employees may have gone to your benefits office with questions and issues. Under an exchange, they will go to private exchange personnel. This may be something you favor to take away some of the load from the HR and benefits staff, but be careful that the private exchange you choose offers customer service that will meet the goals your organization has set.
3. What are some other things you need to know?
- There is a lot of variation among private exchanges. If you decide to go to a private exchange, you need one that meets your company’s particular needs. One private exchange might work well for you, while another might be disastrous. It’s not one-size-fits-all—you need to know your options and interview a variety of providers. Make sure you take the time to examine all aspects of the private exchanges you are reviewing and choose the one that will best meet your needs.
- Communication to employees is crucial. Benefits communication is always a big deal, and it is particularly important with private exchanges. How effective you are in communicating a move to a private exchange significantly influences how effective the move turns out to be. As I noted above, employees are naturally suspicious of change. My experience has shown that being up front with employees goes a long way. Let them know the advantages of your new relationship with a private exchange, but also let them know about any tangible changes that they may see so they are not surprised.
- You need to manage the process. If you don’t drive the process, the process will drive itself. If you consider moving to a private exchange, you need to have a plan of action for getting the program in place. Monitoring and managing the process, both during implementation and post commencement, is extremely important. You need to ensure that the new arrangement is working well for your company and for employees and is operating as you had intended it to operate.
We have many experts who discuss all the aspects of a move to private exchanges at our conferences. There is also information available for you on our Resource Center, especially “Examining Private Health Insurance Exchanges,” an article in Sibson Consulting’s Spotlight that looks at the misconceptions, nuances and attributes of private exchanges, and “What Makes a Good Private Exchange,” a Health Insurance Exchange article that examines the differences among private exchanges.
We will of course be discussing private exchanges—along with a host of other topics in both healthcare and retirement—throughout our 2015 conferences: March 8-11 in San Diego, April 26-29 in Boston, June 7-10 in Chicago and September 27-30 in San Antonio. We will be posting many things, both here and in our Resource Center, between now and the start of our programs.
Keep in touch, and we look forward to seeing you in 2015!