Big names such as Sears, Darden Restaurants Walgreens and, more recently, Time Inc. have moved their employees to private exchanges, and employer interest in the model shows no sign of slowing down.
Nearly half (47%) of employers surveyed by the Private Exchange Evaluation Collaborative, a nonprofit coalition of business groups, have implemented or plan to consider using a private exchange for full-time, active employees before 2018, up from 45% in 2013.
And for some employers whove made the jump to a private exchange, the move has been as much about the underlying role of benefits as a business strategy to attract and retain workers as it is about saving money over the long term.
Theres a philosophical shift I see occurring in the marketplace that is a question for each organization, and the question is: Are the medical plans we offer creating a strategic differentiator in the industry we are in, as well as among the workforce that we have? says Don King, vice president, compensation and benefits for Envision Healthcare, which moved about 9,000 of its approximately 14,000 benefits-eligible employees to consulting firm Towers Watsons OneExchange in January. When I looked at what we were offering, our designs were not that unique.
Smaller companies are feeling the allure of private exchanges as well. The Martin Group, a creative services firm in Buffalo, N.Y. that employs about 50 workers, has been with Lawley Marketplace a private exchange offered through its broker, Lawley Insurance for two years. The move was mainly prompted by a desire to get out of the day-to-day business of health care.
The health care thing, as an employer, has always been a nuisance in that its a cumbersome process every year, says Tod Martin, president and chief creative officer. And for small employers like Martin who do not have dedicated benefits staff, taking the weight of managing open enrollment off someones plate and handing it over to the exchange can have huge appeal.
Also see: Private exchanges will shift status quo
Tanna Davis, CFO of HOPCO Foodservice Marketing, a food services marketing company that works with restaurants, caterers, hospitals, schools and other food service providers in the Southeast, agrees. HOPCO moved its 170 employees to Liazons Bright Choices exchange last October.
From an administrative perspective, the consolidated billing that comes through [from the exchange] has reduced our admin burden, says Davis. When reconciling our insurance payables every month, its streamlined the process.
For all these companies, the move to a private exchange was prompted by several reasons, including escalating health care costs and a desire to better engage workers in their benefits and offer more choice of medical plans. At Envision, King felt he had exhausted available plan design and cost-sharing initiatives there was little, if any, room for more tweaks.
With health care reform, we did see our costs escalate faster. We were seeing that choice was being limited, he says. Health care reform has certainly defined the playing field in terms of what [plans] can and cant be offered that qualify, and when you combine those two things, employers like us are faced with limited options in terms of what we can do.
Envision Healthcare, based in Colorado, operates three main units: American Medical Response, Inc., an ambulance service provider; EmCare, a provider of outsourced emergency department and facility-based physician services; and Evolution Health, which provides comprehensive care to patients across various settings.
After receiving C-suite authorization to move ahead with a request-for-proposal process in December 2013, King knew he had to move fast to reach his goal of a 1/1/15 launch. He launched an RFP in January 2014, requesting proposals from the four major consulting firms that offer private exchanges: Aon Hewitt, Buck, Mercer and Towers Watson. The RFP concluded five months later, in May 2014, with Envision Healthcare ultimately deciding to go with Towers Watsons OneExchange in part because of the exchanges technology, approach to wellness and business fit.
Philosophically, I aligned much more with the way Towers Watson defined competition, says King, noting the exchange made it very easy for employees to see how all the plans compared. How do you go to employees and say hey, weve got all these carriers, go pick a plan? Towers Watson leveled the playing field when it came to plan design and I thought that was a very interesting and certainly valuable way to allow the competitive choice to play out.
Expansion of choice
For Envision, providing additional plan choice for employees was an important reason it decided to move ahead with a private exchange in the first place.
I saw an opportunity to expand the menu and bring competition into the equation by the carriers and truly give choice to employees, says King, adding he is excited to see how carriers are going to distinguish themselves in the increased competitive landscape.
Prior to moving to the exchange, Envision had one, sometimes two, carriers in each location with a total of two to four plan options. With OneExchange, employees now have four levels of standardized plans in every region offered by up to five carriers, giving them a selection of up to 20 plans from which to choose.
And the wellness component is fully integrated into the Towers Watson exchange, another important feature for Envision, which had been running what King calls a fragmented activity-based wellness program prior to moving to the exchange.
Towers Watson integrates wellness in the model and the health insurance plan design and I thought that was a significant differentiator among the providers of private exchange offerings, says King.
The mobile capabilities of the exchange whether employees could access the exchange and make their plan selections via smartphone or tablet, for example were also important for Envisions employees.
Our workforce is mobile they live and die by their smartphones, says King. The bulk of our employees are sitting in ambulances so theyre sitting on their smartphones.
In general, private exchange proposals all tend to show significant savings but theyre not always clear on the assumptions actuarial valuations of the plans on the exchange, for example, or the number of employees projected to opt for cheaper plans they use to create those savings, says Barbara Gniewek, a principal with consulting firm PricewaterhouseCoopers. She cautions employers to look carefully at the underlying assumptions used by the exchange.
Even if we put the RFP out and stipulate how people are supposed to respond to it, they arent clear until you really push back and say what assumptions did you use, what are the actuarial valuations of the plan designs, what were your migration assumptions things like that, she says. Even though there are standard actuarial value calculators out there, all the [exchange providers] use different ones.
Indeed, when going through the RFP process, King and his team were very conscious of identifying cost savings that would occur due to plan migration versus cost savings due to plan utilization and behavior changes.
You will see a migration, but true engagement and behavior changes are a different component of the costs savings and you should distinguish between the two, he says.
Beyond cost savings, employers are seeing other advantages to the private exchange model.
The first is to improve or enhance the employee experience, whether its through additional choice or enhanced support, says Gniewek. The other reason is the fact it will ultimately lighten the HR burden.
Yet not all employers are eager to leave the traditional model of employer-sponsored health care behind. Just 3% of large employers (defined as those with 500 or more employees) are currently using private exchanges, according to Mercers 2014 National Survey of Employer-Sponsored Health Plans, released last November. Mercer, which runs its own private exchange, also found that less than one-third (28%) of survey respondents indicated that theyd make the shift within five years. And just 1% of large employers (defined as those with 5,000 or more employees) surveyed by the National Business Group on Health plan to move their active employees to a private exchange this year.
And while employers surveyed by the NBGH for its Large Employers 2015 Health Plan Design Survey expressed confidence in the ability of private exchanges to outperform employer-sponsored health plans in terms of plan choice and complying with regulations, they are less confident in the ability of private exchanges to control costs or engage employees in better health care decision-making.
While noting Envision just finished enrollment and doesnt have hard numbers yet, we saw more people move to account-based health care [high-deductible health plans with a health savings account] than weve seen in the past, which I thought was very interesting, says King. Its a change he attributes to the better integration of wellness into the plan design because employees can see there are significant dollars they can earn if they went with an HSA option versus paying it all in premium and lower deductible plans.
Apart from the quick implementation time frame, King says one of his biggest challenges was educating managers and senior executives about the private exchange model.
Even the term private exchange had some people thinking we were moving to the public exchange, he says. So I had to educate management on what the private exchange model is for us, and why its a good thing.
Moreover, just because the C-suite approves it doesnt mean its a free pass to move forward and everythings going to be great, says King. I had to do more meetings among management and have targeted communications for the management teams so they could understand how this works.
King emphasizes the importance of communicating to senior managers and supervisors, with messages focused primarily on the expansion of choice.
Our message was this is not about cost-shifting. Whatever savings we saw in the projections, we gave it back in seeded dollars. our message was about extension of choice and competition, not how much money can we save in year one, he says.
The Affordable Care Act and its impending Cadillac tax may have sparked employer interest in private exchanges but its a strategy for benefits delivery that predates the ACA, believes PwCs Gniewek. If were moving people to high-deductible health plans and we are giving people the tools to better manage that front-end deductible and pick more efficient providers [through private exchanges] is very logical, she says.
Gniewek expects 2015 and 2016 to be big years in terms of employers looking at private exchanges and deciding to go, especially as they position themselves to mitigate [the effects of] the Cadillac tax, she says.
And while the employer mindset is still largely I dont want to be first; let someone else be first, if employers can see consistency over time in exchanges ability to control costs, I think you will see more movement, says Brian Marcotte, president and CEO of NBGH. He believes private exchanges are ultimately a good thing for health care. Theyre another pathway to providing health benefits, and employers need to watch that, he says.
King believes Envisions move to a private exchange positions the company as an industry leader, a role he is happy to assume. We are ahead of a curve thats coming, and I do think that this [move] is a game changer, when you look at what employers are faced with and what options we have, he says.
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