7 reasons employers are hesitant to adopt private exchanges

August 21, 2016 8:40 PM

“Things have decelerated a little bit in terms of rapid growth, however 35% growth is significant,” Scott Brown, managing director at consultancy Accenture, says. “We continue to see interest from employers and continued investment by private benefit exchange operators and those that participate in the space.”

The Pacific Business Group on Health, a purchaser-only coalition representing 60 public and private organizations across the U.S that collectively spend $40 billion a year purchasing healthcare services for 10 million Americans, recently surveyed members on why they have not moved to a private exchange. Here, Emma Hoo, the group’s director, shares some insights.

7 reasons employers are hesitant to adopt private exchanges

For the 2016 benefit plan year, Accenture estimates that 8 million people enrolled in a private exchange nationwide — a 35% increase over the prior year, but lower numbers than anticipated. The growth was fueled by midsize employers of 100 to 2,500 employees.

“Things have decelerated a little bit in terms of rapid growth, however 35% growth is significant,” Scott Brown, managing director at consultancy Accenture, says. “We continue to see interest from employers and continued investment by private benefit exchange operators and those that participate in the space.”

The Pacific Business Group on Health, a purchaser-only coalition representing 60 public and private organizations across the U.S that collectively spend $40 billion a year purchasing healthcare services for 10 million Americans, recently surveyed members on why they have not moved to a private exchange. Here, Emma Hoo, the group’s director, shares some insights.

7) Senior management not well educated about private exchanges

There is a tendency to conflate private exchanges with public exchanges and the federal marketplace. Some common misperceptions include loss of control over benefit design and contribution strategy. In fact, depending on the vendor or platform, employers can maintain a lot of control over design features, Hoo says.

6) Loss of control or stewardship (72% of PBGH members say this is a concern)

There is a misconception about whether private exchanges represent a shift toward defined contribution. While an employer can set contribution to a fixed amount, more commonly there is indexing for inflation or linking the contribution to a percentage of premium based on some averaging of the rates or the least cost plan.

5) Potential cost to switch exchanges, if not satisfied (72%)

Many large employers have existing outsourced HR/benefit administration systems and rely on those relationships for managing customer service support, data administration and coordination with additional vendor-based services, such as wellness or disability management. Switching vendors may entail decoupling some of the data exchange relationships and re-establishing with all the attendant data security validation, data mapping and testing, and so forth. For mid-sized employers who might be implementing an HR/ben admin platform as part of an exchange implementation, there is a major initial transition that is resource intensive; once established, it may not be as resource-intensive to switch exchanges.

4) Maintaining a self-funded option (76%)

This is an important feature for large multi-state employers who want to maintain a consistent benefit design offering for their employees. In shifting to insured health plans, an employer undertakes additional complexities in communications about state-mandated benefits (e.g., mental health parity, autism coverage, etc.)

3) Control of consultant relationship (77%)

Large purchasers often have specialized consulting relationships, such as for actuarial support, benefit strategy, prescription drug benefit management or health and wellness services. Some exchanges wrap consulting services within their programs such that an employer might lose such flexibility — or pay more to maintain external consulting relationships.

1) Stability of carrier/network relationships (81%)

To the extent that many employers have consolidated carrier relationships, there may be established processes for notification and identification of employees who could be affected by a provider contract termination. In adding carriers, including regional plans, it may be more challenging to stay on top of local provider negotiation issues. Similarly, some exchanges knit together optimal provider networks in specific markets to optimize premium rates and a challenging provider contract renewal could create access or disruption issues for members, or result in unexpected price changes in a given market.

7 reasons employers are hesitant to adopt private exchanges