What are Private Exchanges?

What are Private Exchanges? Private Exchanges are not to be confused with the public exchanges that are a part of the Affordable Care Act. Premium subsidies are only available through the public exchanges. Private exchanges have received a lot of attention with several large employers making a decision to have all or a part of its health plan members purchase coverage through private exchanges. AT&T announced that it will require retirees to purchase coverage through a private exchange (multi-carrier options) and Walgreens announced that its part-time employees will be required to use a private exchange to obtain coverage beginning in 2014 (limited to plans with United Healthcare). According to Kaiser Family Foundation, 1% of employers will offer coverage through a private exchange in 2014. However, 30% of employers indicate that they may choose a private exchange option in the future.

What is a Private Exchange?

A private exchange is merely an electronic enrollment portal in which plan sponsors can allow members to select coverage among several choices. These portals often have decision making tools that guide the members in making plan decisions. Some exchanges offer plans from a single carrier while others offer multi-carrier or cross-carrier plan choices. In most cases, plan sponsors are utilizing a defined contribution strategy in conjunction with the private exchange. A plan sponsor will choose a group of plans from either a single carrier or with national account employers, a multitude of carriers. Ideally, the group of plans will range from low benefit-low cost plans to high benefit-high cost plans. In addition, the plan sponsor will designate a specific amount that they are willing to pay for coverage and members will “shop” for coverage using the exchange. The idea is that medical as well as ancillary lines could be offered through the exchange allowing members to spend the employer’s money on what is important to them.

The Discussion

Budgeting – plan sponsors using a defined contribution strategy would be able to budget for the current year and future. Because this strategy does not solve the problem of increasing medical costs, companies would have to determine how they wish to increase contributions over time. Without an increase in annual contributions, the defined contribution becomes a significant cost shifting mechanism.

Choice – members would have a greater choice of plans and price options and employers would not be forced to choose a plan(s) that they hope will work for all members. Large employers will have the option of cross-carrier plans through national/international consultants. However, it appears that mid-market and small employers will not have the same multi health carrier options. In fact, most private exchange vendors have limited carrier relationships. Anthem has opted to contract its private exchange option through Bloom; Aetna is constructing their own Marketplace (Benefit Focus) and will invite only ancillary carriers to participate. UHC is constructing a proprietary exchange for its 2014 release. They have also been open to partnering with Liazon and Plan Sponsors on a customized exchange front. Medical Mutual has partnered with Benefit Focus inside their private exchange offering. There is a concern that members will choose the lowest cost option not realizing that they will have higher out of pocket costs when they require care. This concern may translate into low employee morale as members are asked to assume more of the premium costs from year to year as well.

Cost Management – the thought is that crosscarrier exchanges will force competition and drive down costs. This has yet to be proven of course. In fact, the early premium indications are running above market values. Cross Carrier Private Exchanges resemble the outdated Multiple Employer Trust approach which failed due to market dynamics that still exist today. There are no cost containment strategies inherent with these private exchanges—No Accountable Care Partnerships, no unique network offerings, no population health management tools, no proactive approach to claim cost containment and no behavior change incentives. Health/productivity efforts will be in vain as the premiums will be unaffected. In large private exchange models, the premiums will be community rated and insured. When the pool’s experience yields poor results (as it will due to inflation, adverse risk and lack of cost containment measures), the premiums will increase and marginalize the defined contribution.

Further Information

At the present time AssuredPartners NL does not have a multi-carrier exchange option. However, regarding establishing a Single Carrier Private Exchange (or Multi Carrier on Ancillary), there are several vendor partners with whom we can work. Any of these partner options would allow an employer to deploy a defined contribution strategy offering multiple medical plans, as well as ancillary plans such as dental, vision, life and disability, flexible spending accounts, wellness programs and other worksite products.

Article by: Bill Sullivan, Managing Director, and Kelly Hagan, Director of Operations, Employee Benefits
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