What is a private exchange?
Private exchanges are organizations set up to facilitate the purchase of health insurance and other employee benefits. They are generally web based portals that sell insurance products to healthcare consumers. Private exchanges are typically operated by brokers, consultants, or insurers. They are simply another strategy to help mitigate the rising costs of healthcare.
What is defined contribution?
Defined contribution is a way for employers to control the amount they pay towards benefits. Defined contribution and private exchanges are often coupled together. However, they do not have to be. Defined contribution is just one funding arrangement employers may choose to implement when utilizing a private exchange. Through this option, employees receive an account credited by the employer for insurance. It’s similar to an “allowance” for the employee to spend on the health care they choose. If the employee wants more robust coverage than their employer’s contribution can cover, the employee can choose to pay the remaining portion of the bill.
What kind of savings can we anticipate moving to a private exchange?
Savings are specific to the strategy you wish to employ. The savings you will experience will be determined by:
- Enrollment technology implementation efficiencies,
- Reduction in administration and human resource costs,
- Lower consulting fees paid to employee benefit brokers/consultants,
- Decreased FICA matching through Section 125 benefit strategies by offering voluntary benefits through an exchange to compliment employer paid benefits, and
- Health insurance choices that will substantially reduce the employer cost of benefits to your employee population.
- Additionally, a direct impact on employee satisfaction with the benefit purchase process will provide a long term, positive impact on employee retention and ability to attract top talent.
Do private exchange plan designs/options allow customization by the employer?
Yes, many PHIX (Private Health Insurance Exchanges) do allow customization, however, negotiating the fees for customization is key. An exchange may charge a great deal to add new carriers and product designs to their platform. Additionally, the customized product designs must match the product configuration models built by the technology company. This is important because if the product configuration of custom carriers and products do not match that of the exchange, the decision support tools that help the employee make decisions will not be adequate.
What is the actual program implementation timeline to transition to private exchanges?
Once an exchange is chosen and contracts are finalized, implementation time could be between 2 to 6 months depending on the number of employees, location, and the scope of the communication strategy.
Have a question we didn’t cover in this edition of Ask Me Anything? E-mail your question to Jennifer Jones at JJones@KTPadvisors.com. We’ll answer 5 more of your questions about private exchanges soon!