When evaluating the merits of a private exchange, one industry insider suggests pursuing an overall financial strategy built around achieving true savings rather than simply shifting costs onto employees a warning that has been sounded for years in the traditional marketplace.
Sherri Bockhorst, a principal of health and productivity and leader of the health exchange solutions division of Buck Consultants at Xerox, detailed four key areas employers should investigate when conducting an analysis of private exchanges. Her recent WorldatWork commentary recommended that employers carefully review the breadth of services offered, the self-funding vs. fully insured model, a defined contribution buy-down and benefit limitations to help avoid a major disruption to employees lives.
Among the points she makes:
1. While the private HIX model offers anything from benefits administration outsourcing to member communications for free or at deep discounts, there could be hidden fees. Exchanges typically earn commissions on fully insured products, sometimes even including fully insured medical plans, she cautioned. In the same way that a retirement plan fiduciary needs to validate that the fees paid by the plan are reasonable, you need to make sure you understand the fees the exchange is earning. You may find they add up to more than you are currently paying for comparable services.
2. Private exchanges that steer their covered lives into fully insured plans may result in more predictable costs, but they typically last only a year and merely shift expenses onto employees. She also warned that this model can prove to be anywhere from 6.5% to 11.5% more costly per year than self-insurance because of risk margins and assessments under the Affordable Care Act, as well as state premium taxes, state-mandated benefits and brokerage commissions. Other factors to consider include paying the self-funded plan run out for populations that switch funding mechanisms and insured premiums, Bockhorst noted. She urged self-funded plans to maintain their control and purchase reinsurance products, such as aggregate and/or specific stop loss, as a safety net.
3. Moving to a defined contribution approach to health plan management can be enticing because she says employees are more apt to better align their plan selection to their personal needs and risk tolerance levels when allocated a set dollar amount to purchase expanded benefit options, she said. The danger is that adverse risk occurs when a generally healthier population buys less expensive, less comprehensive coverage, and the higher risk population buys the richer coverage options, according to Bockhorst, who cited implications for total out-of-pocket costs to employees and the 2018 Cadillac tax.
4. In order to minimize or avoid disruptions to employees, she urged employers to consider the cost and quality impact of benefit limitations in four key areas. They include the formulary list of covered prescriptions, network providers, covered and excluded services, and out-of-network provider reimbursement schedules.
Bruce Shutan is a Los Angeles-based freelance writer.
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