So, we want to know why consumers, payers and employers are turning toward private insurance exchanges.
Could private exchanges be the alternative to Obamacare? Why are private health insurance exchanges gaining in popularity? What are the trepidations from an employer and payer perspective? How did they emerge? What are the features and benefits?
We are all, or most of us anyhow, familiar with the public exchanges which are called marketplaces. These marketplaces are government sponsored and managed at either the federal or state level, depending upon the option chosen by each individual state. Some of us know about the exchanges because they have been the talk of the government for quite some time and all over the news. Others of us are more familiar with them because of the www.healthcare.gov debacle in which one technological issue after another has enabled fewer consumers to actually complete the enrollment process than would have otherwise.
On the other side of the coin, and not receiving as much publicity are the private insurance exchanges which are managed independent from the government by agents and brokers. A private exchange is a business entity run by brokers and agents which enables consumers to shop, enroll, and fund insurance plan choices. Some of the advantages include on-line access to compare and contrast plans, the ability to purchase supplemental insurance such as dental, vision, or disability, and to provide guidance and recommendations based upon individual consumer needs. Additional support is provided throughout the process as well as after enrollment is complete which contributes to the one-stop shopping concept.
Why are private insurance exchanges emerging and growing in popularity?
The simple answer is the result of supply and demand and the quest to reduce healthcare spending. Healthcare costs are rampantly rising causing employers to review all contributing factors to their rising costs/expenses. One such result is switching from defined benefit to defined contribution health plans which enables employer to both cap expenses and limit future liabilities. Consumers are demanding more choices, better education to make those choices, and the ability to purchase not only major medical but supplemental offerings such as dental. The private exchanges provide for portability in ensuring a smooth transition when changing employers. Multi-carrier private insurance exchanges are emerging as well in order to provide additional choices to consumers while providing risk sharing opportunities.
Employer Concerns about Private Insurance Exchanges
Both employers and payers have valid concerns which lead to their hesitation in joining or creating private insurance exchanges. Some of the employer concerns include:
- Lack of education – Employers need additional education in regard to transitioning from defined benefit to defined contribution. It is a change in mindset but which can offer substantial savings in the long-run. The retirement industry made this transition many years ago again in an effort to curtail expense. It is the fear of the unknown and what exactly are the tax and reform implications associated with the transition?
- Concerns about maintaining competitive benefits – Health benefits have long been an attraction for potential new employees. Moving to the exchanges has caused trepidation to enter the minds of employers in being able to attract and retain good talent. Many employers have benefited from this as a competitive advantage.
- Unfamiliarity and novelty – The private insurance exchanges are new, untried and untested. That paired with inexperienced staff makes employers question the level of quality customer service and is it sustainable.
- Uncertainty of health reform – Between the government going back and forth on reform and the mandates and other provisions being delayed, there is a lot of uncertainty surrounding healthcare and healthcare reform. Employers are taking a step back to watch and see what will happen before diving into private insurance exchanges.
Payer Concerns about Private Insurance Exchanges
Not only do employers have concerns, but so do payers. Following are some of those concerns:
- Margin compression – Payers fear that the private insurance exchanges will reduce their margins. Higher transaction fees may be on the horizon including brokerage fees. Other fees may be looming also.
- Administrative burden – With employers switching to the private insurance exchanges, more decision support may be required which will add to the administrative costs. Product, member and billing data will need to be integrated which will certainly add to the administrative burdens which are already high.
- Disintermediation – Instead of the payers being in the driver’s seat, this shift of power is moving toward the exchange administrator, who with the private exchanges may very well be in charge of the sales and marketing process and reducing the customer contact and the relationships built upon.
What are the Features of a Private Exchange?
- Funding for coverage – Insurance coverage on the private insurance exchanges can continue as they are with pre or post tax contributions. Additionally, in an employer based plan, funding can occur through a defined contribution plan and placed in an account such as a health reimbursement account or HRA.
- Inventory of major medical plans – Consumers are given many choices of plans and features which may not currently be available in the traditional health care market. Providing choices allows the consumer to choose products which are conducive to their individual health needs and can reduce healthcare spending.
- Supplemental insurance products – Along with the ability to shop for major medical products, consumers also have access to supplemental products through the private exchanges. These might include dental, vision, disability, etc. Generally, these products are sold at a discount which may provide decreased overall costs than purchasing a traditional benefit-rich plan.
- Decision support – With offering more choices and being web-based, consumers require more assistance in making educated choices. Tools are available in the form of questions on the sites. The answers to those questions can provide recommendations to assist in making the best selection for each individual. Additionally, live responses to questions are available through chats and other mechanisms.
- Comprehensive support services – the private insurance exchanges are designed to run the full spectrum of services from choosing the plans to the enrollment process to funding the coverage. Additionally, the exchanges can serve as a resource not only during the enrollment process but after the transaction is complete.
Private exchanges are on the rise. Many think they will help reduce healthcare costs. They do provide an alternative to the public exchanges sponsored through the federal and state governments. There is hesitation by employers and payers as they are still very new and no one really knows what will happen with healthcare reform. It will be interesting to see if the hurdles are overcome providing viability and sustainability in an otherwise chaotic healthcare environment.