Author: Kate Beebe

KTP’s Barry Eyre, vice president of business development, was recently interviewed on the Institute for Healthcare Consumerism Radio Show. In this episode, Barry shared his knowledge of the private exchange market, including what he has seen and heard from employers who are exploring the private exchange option for their employee benefit strategy. He stressed that understanding the right questions to ask is critically important to making the best choices. With dozens of benefit advisors offering a private exchange option of their own, employers need to take this information with a grain of salt, he added.

Barry went on to explain that there are more important questions employers should be asking than simply “What are my exchange options? What are the exchanges that serve my industry type? What carriers are offered on the exchanges?  While these are good questions, employers might be better severed by first reflecting on what their benefits philosophy is and what they hope to accomplish by moving to an exchange.” During the program, Barry also touched upon: implementation timeline, resources found on private exchanges, and public and private exchange integration. He ended the interview with a final piece of advice to employers: “Understanding your needs (as an employer) is critical to being able to evaluate an exchange offering. Time spent upfront to understand your goals could help to eliminate a lot of potential vendors from consideration.”

For the full interview on IHC Radio, please click here.

What is a “Private Exchange Technology Platform?”

These are typically software companies that have developed, and in most cases, continue to refine proprietary technology that powers private health insurance exchanges. They may sell or lease the use of their software to other exchange vendors and sometimes may integrate it with other employee benefit services. They may also license users on a SaaS (software-as-a-service) basis, charge fees to those who wish to private label and co-brand the technology, and may even play the role of a “marketplace” for the purchase of employee and retiree group health plans. Many of these companies will work to add members to their own exchanges by working directly with employers or through brokers and consultants without a private label or co-brand arrangement.

What is a “Private Exchange marketplace?”

A private health insurance exchange “marketplace” is an organization set up to facilitate the purchase of health insurance and other employee benefits. The exchanges are similar to shopping malls with a broad variety of products and competitors. Marketplaces provide standardized health care plans and ancillary benefits, such as dental, vision, life, disability, accident, cancer, critical illness, hospital indemnity and other products, offered by different insurers.

Essentially, a marketplace is a “distribution channel.” These marketplaces are typically sponsored by insurance brokers, insurance carriers, industry associations and affinity groups, and benefit consultants who, in many cases, have paid a license fee to use the enrollment software, built and powered by a private exchange technology company.

What is a “single carrier exchange?”

Single-carrier exchanges are operated by a single insurance carrier. These exchanges carry the same definition as a ‘marketplace’ but are owned and offered by insurance carriers to employers and employees and retirees for the exclusive purchase of their own health insurance products. However, some insurers are considering offering another carrier’s specialty or ancillary products. Most single health carrier exchanges pay for the right to use technology software from PHIX technology companies.

What is a “multi-carrier exchange?”

A multi-carrier exchange is operated by a third party (not the insurance carrier or the employer), which, in most cases, is a broker or consultant. These exchanges contract with multiple insurance carriers for health and voluntary benefit plans. However, multi-carrier exchanges can come in many forms. For example, some are set up to compete for enrollment by offering multiple health plans and pricing structures, along with additional services. Others are “customized” exchanges in which plan designs are tailored specifically by the employer or the exchange.  In that example, the exchange may contract with multiple carriers but offer employers only one carrier per region. Additionally, in a customized exchange, an employer may choose to only offer one carrier from what’s available on the “product shelf” and then offer employees different plans from that one carrier.

What is HealthCare.gov?

HealthCare.gov is a health insurance exchange website operated by the federal government under the provisions of the Patient Protection and Affordable Care Act (also known as ACA, or ‘Obamacare’). This federal exchange facilitates the sale of private health insurance plans to residents of the United States and offers subsidies to those who earn less than four times the federal poverty line. The website also assists individuals who are eligible to sign up for Medicaid, and has a separate marketplace for small businesses.

Note: HealthCare.gov is designed to serve residents of the 36 states that have opted to not create their own state exchange. Fourteen states – Washington, Oregon, California, Nevada, Colorado, Minnesota, Kentucky, Maryland, New York, Vermont, Massachusetts, Rhode Island, Connecticut, and Hawaii –operate their own “state” exchange, with different websites. However, all state exchanges are considered “federal marketplaces” under the ACA.

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. I’ll answer five more of your questions about private exchanges soon.

On Friday, June 5, KTP’s Barry Eyre, vice president of business development, will be interviewed on the IHC radio show. Barry will share his extensive knowledge of the private exchange market, including what he has seen and heard from employers who are exploring the private exchange option.

In this interview, Barry will help guide employers to the right set of considerations when exploring private exchange solutions. The show airs Friday (June 5th) at 11 a.m. (ET). Tune in here.

In October 2013, the Affordable Care Act kicked off to a rocky start.  The Kaiser Family Foundation Health Tracking Poll has tracked and reported American’s favorability rating towards the law since the bill was signed in 2010.  For years now, the foundation’s findings have shown the majority of adults look unfavorably towards healthcare reform. However, after its second year of enrollment, the ACA has surpassed expectations, enrolling upwards of 12 million people since its implementation.  Most importantly, for the first time in 29 months, April 2015 marks the first report of a favorable view from the public.

See the interactive Kaiser Family Foundation Health Tracking Poll Report here.

KTP’s Barry Eyre, VP of Business Development, will be moderating a panel at the Private Healthcare Exchange Conference in Chicago this July! The session, titled “Carrier’s Strategies and How They Affect Employer Choice on Private Exchanges,” looks at carriers’ strategies for addressing health care reform and more specifically, the rapidly evolving private exchange marketplace.  These strategies will directly impact which exchanges offer particular carriers.  Carrier strategies can vary based on size of target client, geography, and competing carriers on a particular exchange.   Exclusivity requirements have the potential to impact the choice availability to plan sponsors as they select a private exchange.  This session will explore the strategic development process on the part of both healthcare carriers and voluntary benefit carriers as they seek to gain market share.

Have questions you want to hear Barry propose to our panelists? E-mail your question to Jennifer Jones at JJones@KTPadvisors.com.

The conference takes place on July 23 & 24, 2015. We hope to see you there!

For more information, please click here.

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!

Specialty drugs prescribed for hepatitis C and cancer treatments are taking prescription drug costs to new levels for many Americans.  The numbers speak for themselves:

• Estimated number of individuals in the U.S. who are taking medicines worth more than $50,000 annually rose 63%.
• Estimated number of individuals in the U.S. who are taking medicines worth more than $100,000 annually skyrocketed 193%.

Read the full article from the Wall Street Journal here.

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.

3. Competitors

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!

4. Complexity

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.

United Health Group will acquire Catamaran for a reported $12.8 billion.  United Health Group will merge Catamaran into its OptumRx unit.  This brings more consolidation within a rapidly evolving market.  The high cost of prescription drugs, specifically specialty drugs, has employers and insurers concerned about the direction the market is headed.

Read more here in WSJ: United Health Group to Buy Catamaran for $12.8 Billion in Cash. 

and here at United Heath Group.com: Catamaran and OptumRx to Combine

Yesterday the Supreme Court Ruled in favor of the employer in the case of M&G Polymers USA, LLC vs. Tackett, U.S. Supreme Court, No. 13-1010.  The ongoing litigation began in 2006 when M&G announced they were requiring retirees contribute towards their retiree health care benefits.  The union and retirees argued language in their contract implied a lifetime duration of full company contribution to the cost of health benefits.  The employer however pointed out the duration of the benefits was not clearly stated in the contract.

Justice Clarence Thomas, on behalf of the court, wrote “when a contract is silent as to the duration of retiree benefits, a court may not infer that the parties intended those benefits to vest for life”.

This is not a simple win for M&G Polymers USA; the case is to be retried.

Both employers and unions alike should take careful note of this situation in regard to their own health care benefit contracts.  This outcome, as well as the impending extra trial, is a well-publicized example of two parties neglecting to produce clear and concise contract language.

For related articles, click here for Insurance Journal or here for Employee Benefit Adviser.