Private health exchanges: What new marketplace model means for business
By MARK MORGAN
The way companies provide health benefits is changing, as new choices emerge both in terms of what’s offered and how it’s offered. Private health exchanges, or marketplaces, are one of the “new kids on the block” and they’re fast becoming a compelling option for employers and employees. In fact, 6 million people enrolled in their employer-sponsored benefits through private exchanges in 2015, double the previous year.
Exchanges provide a way for employers to offer greater benefits options, simplify enrollment logistics and enable workers to make decisions regarding their own health coverage. And they are welcome news for employers looking to provide a plan that works for all employees, while also helping to address rising healthcare costs.
So how do they do they work? Think about employer-sponsored health benefits as a grocery store. In a traditional model, the company goes to the store, buys a few things, and then allows workers to purchase their goods from the company’s limited selection. In a marketplace model, companies give employees a certain amount of money, like an allowance, to shop for themselves. The company still provides funding, but employees select and buy what they want. A health exchange works similarly.
Unlike government-run public health exchanges, private exchanges are run by a company and allow an employer to contract with either a single or multiple carriers to offer benefits to employees. With a private exchange, companies offer employees a variety of plan options such as medical, dental, and vision. Employees then select their own benefits and use the allowance they received from their employer to offset the cost.
Exchanges offer more than just traditional health insurance products. Many exchanges offer financial support products, well‐being options, facilitation of HSAs, and other security products. Think of exchanges as an one‐stop shop for benefits during open enrollment.
Expanded offerings like wellness, life, and voluntary benefits make private exchange an attractive option for many small and mid-sized companies looking to compete with the benefits offered by larger firms.
Private exchange makes it simple for employers to shift to a defined contribution model, a practice that gives employees a fixed dollar amount – or allowance — to put toward their benefits. With defined contribution, companies are able to forecast their benefits costs, and contributions are tax deductible for employers.
Employees have more skin in the game, too. Visibility into the amount they’re spending, along with the amount their employer is contributing, helps them recognize the value of their benefits. Defined contribution also encourages employees to become better healthcare consumers because they purchase health benefits based on their needs and true out-of-pocket cost differences between plans, not based only on monthly premiums. This is important because in a defined benefit environment, employees sometimes buy more insurance than they need.
Instead of processing each employee’s health insurance enrollment through the employer’s human resources department, a private exchange uses a web- or phone-based sign-up process. In many cases, exchanges offer decision support tools which provide an employee with recommended plans that meet his needs based on his responses to a series of questions.
Once an employee selects his plans and coverage options, those choices along with his employee information, are electronically transmitted to the insurance carrier—without any cumbersome paper-based processing.
With their ease of access, reduced administrative complexity, and a retail-like online shopping experience, private exchanges are transforming the way insurance is offered and purchased. They are quickly becoming part of healthcare’s future: about a third of employers are considering moving to a private health insurance exchange model in the next three years.
Private exchanges offer a solution that helps employers transition to defined contribution, leading to more predictable spending. They also free employers from trying to find a plan that works for everyone, and instead put employees in the driver’s seat to choose plans for themselves and their families.
Mark Morgan is senior strategist for private exchange business in Humana’s employer group segment.