In the world of benefits administration, private exchanges are increasingly being considered as an effective compromise between shifting employees to a public exchange and maintaining the traditional employer-based model where only a few plans are offered. Indeed, the growth in private exchanges has been exponential. Enrollment via private exchanges grew from 3 million in 2014 to 9 million in 2015. According to a recent Accenture study, this growth shouldn’t slow down much - by 2018 private exchange enrollment will exceed that of public exchanges with 40 million people enrolling. However, despite this growth, the majority of companies plan to stick with their traditional benefits model, which leads us to consider the obvious question: why?
What is a private health insurance exchange?
To begin, we should define the term “private exchange” also called a “private exchange marketplace”. A private exchange differs from the traditional employer-based model in that its funding type is based on a retail model. Rather than the user picking from two or three plans, they are able to shop from a wide selection and choose how they will use a defined contribution sometimes supplemented by their own funds. In addition to a more varied selection of major medical plans, private exchanges extend consumer choice by making a range of supplemental insurance available. This range of offerings gives employees more flexibility in finding plans that best fit their health needs and their budget.
This should sound, then, like a win-win situation for everyone. Employers are able to adopt an online benefits solution that reduces administrative costs while simultaneously offering employees greater choice and decision making when selecting their benefits. Nevertheless, research from the National Business Coalition on Health has shown that 55 percent of employers don’t plan to move to private exchanges while Kaiser’s research has shown that only 20-33 percent of employers plan to move to private exchanges. The question comes back to: why? Why this limited adoption?
Not all private insurance exchanges are the same
The answer essentially lies in the fact that all private exchanges are not equal. The technological underpinning of any exchange is critical to its performance. If the framework around which the platform is built is too rigid, then that private exchange can be of limited utility or even a burden to the employer. For example, a private exchange may have an elegant user interface that allows the end user to easily enroll. However, if that user experience is not supported on the back end by the integral features that coordinate complex data exchange with carriers and payroll deductions, to only name a few, then it’s worse than useless because it creates additional headaches for administrators.
Benefits administration is inherently complicated. There are complex business rules that vary from company to company, and the private exchange platform must be flexible enough to accommodate the various requirements of a multitude of employers. An exchange that is immature or not adequately grounded in complex technological structures may have an attractive layout yet be incapable of keeping up with the heavy demands generated by the heavy volume of data that is required for employers to process.
The data is clear: employer migration to private exchanges is growing. What is less clear is whether they will take over as the primary means of employees enrolling in employer-sponsored coverage. Many employers are reluctant to lose control over the benefits their employees receive and are hesitant to throw them into what could potentially be poorly constructed exchanges with sub-par benefits.
Whether an employer migrates to a private exchange or chooses not to, their primary emphasis should be on increasing or at least maintaining the value of their benefits offering for employees. As health costs continue to spiral upward, however, this will become increasingly difficult to achieve. Employers will need to reduce their costs and the fundamental answer to achieving this lies in technology. A benefits technology platform that allows for seamless enrollment and administration offers a solution that can automate expensive processes and reduce supervisory burden while offering decision support features and plan comparison calculators that make benefits enrollment a more comprehensible process for employees.
Besides allowing the employer to choose plans they feel best serve their employees, the technology behind an online benefits platform has the added value of flexibility. Often built upon the same platform as a private exchange, the online enrollment solutions offer an easy transition to a private exchange model if an employer later decides to move in that direction. Furthermore, this flexibility allows the platform to anticipate a volatile regulatory environment – an aspect that is crucial in light of the legal challenges to the Affordable Care Act.
The essential point is that employers should not be driven by fear into a private exchange that is potentially ill equipped to serve their needs. Rather than a private exchange sitting in the driver’s seat of a company’s benefits strategy, that option should be weighed among many when deciding which strategy suits an employer best. For many, rather than moving to a private exchange, an online benefits enrollment and administration platform offers the flexibility of being a technologically sophisticated answer to reducing costs and maintaining or increasing employee value while potentially serving as a stepping-stone to a private exchange if migration to such a system becomes necessary.
Hear more on private exchanges at AHIP Institute 2015. Join Benefitfocus Director of Marketplaces Shandon Fowler and Enterprise Product Architect Tom Dugan for their session “Beyond Private Exchanges: What Companies and Individuals Really Want from their Benefits Programs” on Friday, June 5 at 9:55 am. And be sure to visit our Booth #1215 to learn more about our technology and meet our team!