Employee Benefit News recently published online “5 Reasons Companies are Hesitant to Move to a Private Exchange.” At KTP, we have assembled 75 key performance indicators to evaluate private exchanges for employers, trade associations, carriers and brokers. Below are our responses to what we have seen and learned about the private health insurance exchange marketplace.
1. Fear of the Unknown
This is a fear of the unproven; the unknown is employers don’t know if private exchanges contain long-term cost savings, Marianne Fazen, executive director of the Dallas-Fort Worth Business Group on Health, says. Private exchanges “are too new to demonstrate any real true value.” While year one may see dramatic cost savings that may be a result of employees buying a bare-bones level plan. Fazen’s members tell her, “There is no proof of long-term cost savings, only promises from those who put the market together.”
That is a fair observation. However, the same can be said about any health plan or insurance product currently offered by employers. There is no guarantee that the costs won’t increase in the future.
Cost savings from a private exchange are not based solely on employees choosing less expensive benefit plans, as Ms. Fazen describes. There are operational efficiencies that insurers are achieving by placing their products on exchanges. For example, a private exchange is a self-enrollment platform, which streamlines the enrollment process, allowing for lower pricing.
In a recent poll of plan sponsors that have switched to a private exchange, 75 percent have seen noticeable savings. The remaining 25 percent say it is too soon to tell.
As healthcare costs have skyrocketed during the past two decades, it is increasingly difficult for employers to provide health insurance coverage for their employees. Employers have therefore adopted a number of strategies to help control costs, such as offering consumer-driven health plans, shifting more of the cost onto the employees, reducing or eliminating benefits, and implementing wellness programs. Private exchanges are simply another strategy to help mitigate the rising cost of healthcare. As the private exchange market is still in its infancy, there are still be a lot of unknowns.
At KTP, we see the private exchange marketplace as a positive opportunity for plan sponsors rather than something to fear. We believe that over time private insurance exchange vendors will evolve and respond to employers’ needs with more compelling value propositions and solutions.
2. Early in the Process
The private exchanges market “is very immature, not just for just for employers but also providers and insurers.” For example, Fazen says her employer groups tell her that hospitals and physician groups have a lot of changes to make to their IT systems to accommodate a private exchange model.
Many of the country’s largest health plans and insurers have done the work necessary to place products on exchanges. These market participants are more important to the success of the private exchange marketplace than individual hospitals or physician groups who will continue to be compensated by insurers and health plans, including those on private exchanges.
KTP has found that many health and voluntary benefit insurers are conducting their own due diligence and becoming more and more involved with exchanges. Many carriers have created departments, focused solely on private exchanges. Some of the large insurers have even launched their own single-carrier exchange. The single-carrier exchange model enables health insurers to establish ongoing relationships directly with consumers while retaining control over product selection and presentation.
Many of Fazen’s employer groups say they worry employees will leave for competitors who are not on a private exchange, since they feel they may not be getting a good deal or their employer is cutting costs by making the switch.
While it is possible that some employees may feel this way and leave, that seems to be more of a problem of poor execution than an inherent private exchange problem. Employees could find reason to leave over any change in benefits. The risk of losing employees over health benefits can be mitigated if the employer continues to offer competitive health benefits and the employees find value in receiving them through a private exchange.
Private exchanges allow employers to offer a wide variety of healthcare coverage and pricing options for their employees. Private exchanges promote both choice and consumerism. Research surrounding the breadth of choice available to employees on an exchange has shown that, on average, when given the choice, employees are choosing a lower cost plan.
Additionally, private exchanges may offer employees a menu of supplemental insurance products that were not previously available to them. They include, for example, dental, vision, hospitalization insurance, life and disability insurance, etc. Some exchanges even offer employees important protection products, such as homeowners insurance, pet insurance, legal insurance, or identity-theft protection!
Employee reaction is one of the “most daunting things,” Fazen says. With a private exchange, employees need help making all these decisions and need to be educated on the changes. While many exchanges have consumer decision support tools, DFWBGH’s members say their employees want someone to help them make the decision. “One company’s HR department said, ‘My employee wants me to make the decision for them,’” Fazen says. “[Employees] are asking the benefit manager, ‘Which plan is right for me?’ They don’t know how to evaluate.”
With a private exchange, an employer’s human resource personnel can still help employees who need more guidance in their healthcare choices. The private exchange model is not a barrier to communication with employees.
While some private exchanges offer better decision-support tools than others, our own research indicates that the best tools include some type of “recommendation logic” where employees are asked a series of questions including age, health status, risk tolerance, as well as questions related to the employee’s expectations of care utilization. These tools have extensive algorithms behind them that generate and recommend a plan or package of plans that best fits the employee’s needs.
Some private exchanges offer a call center with highly trained advisors to help employees learn about their employer’s specific benefits as well as guide them through the choice of plans and the enrollment process.
5. Political Instability
Every year — or even every month — something changes, Fazen says. Employers have more uncertainty then anything, so, “wait and see is a safer route,” says Fazen.
Yes, the healthcare environment keeps changing. But this is not a new phenomenon. Most human resource professionals are experienced in assessing the relative significance of industry changes and recommending best practices to their employer and employees. We believe this “problem” diminishes the capabilities of human resource professionals to deal with changes in the healthcare industry.
KTP is constantly evaluating the private exchange market by tracking market trends and legislative changes to ensure our clients are optimizing their benefits strategy and dollars. Employers, who are uncertain about private exchanges or need help evaluating the complex exchange marketplace, should be assured they are getting unbiased advice.
A link to the original article can be found here.