As employers begin to look at private exchanges as a means to provide health care benefits to their active employee population – 45% of employers surveyed recently by the Private Exchange Evaluation Collaborative said they have implemented or plan to consider using a private exchange for full-time active employees before 2018 – questions are being raised about potential conflicts of interest for consulting firms that also act as exchange purveyors.

“I think that the private exchanges are rife with conflict of interest, because they’re being mounted by people who are supposedly advising them and so there are issues there,” says  Brian Klepper, president and CEO of the National Business Coalition on Health.

And while employers say they recognize the importance of independent advice – 69% of the 723 employers surveyed by the PEEC said it is very important their adviser be independent of any exchange they are considering – it’s unclear how many actually seek out that advice because best practices in the private exchange space are still evolving.

Large consulting firms were once touted as independent third-party consultants and received a preponderance of their revenue from fee-based consulting.  Now, with the launch of their own private exchanges, many of them are also generating revenue from administrative fees or commissions tied to their own private exchanges.

“Now they're really selling a product rather than dispensing independent, objective advice,” explains Chris Goff,  president and CEO of Employers Health, a coalition of employer groups. “Because of the fact that they are competitors … [they] are not going to give them [other consulting firms] access to their private exchange trade secrets, the question then becomes:  How can one dispense objective, independent advice?”

Put another way: When employers hire a consultant and then look at a private exchange that is sponsored by that consultant, “you can’t really rely on that consultant or brokerage firm to give you an unbiased opinion as to which is the best private exchange on the market for your organization [and] your employees under the circumstances,” says Jim Napoli, a partner and ERISA practice group co-chair with law firm Constangy.

But Dave Osterndorf, chief actuary, health exchanges with Towers Watson, which offers the private exchange OneExchange for active employees, says consultants are most likely to refer employer-clients to their own exchanges with good reason.

“It is likely that every firm with an exchange will refer clients to the firm’s own exchange.  Consultants know how the exchange was designed and the plan choices so they can ensure it meets the specifications of the employer,” he said in an emailed statement. “If there is a need to adopt new elements of plan design into the exchange, consultants have more control to meet the employer client’s specifications with an exchange operated by their own firm.”

Major consulting firms that also offer private exchanges for active employees include Aon Hewitt (Aon Active Health Exchange), Buck (RightOpt), Mercer (Mercer Marketplace) and Towers Watson (OneExchange).

“A commitment to helping clients make the right decisions is our most deeply held value at Mercer,” said Mercer’s senior partner Eric Grossman in an emailed statement. “We believe our solutions – including Marketplace – are market leaders and we have no hesitation recommending them to clients in the right situations. Of course, we will never stand in the way of a client exploring alternatives. Ultimately clients need to make their own decisions about what solution best serves their needs.”

Legal experts and others say it’s incumbent upon plan sponsors to follow the same fiduciary principles when selecting a private exchange as they would with any other major plan purchase.

“I think that the most obvious thing is whatever exchange you decide to go on, intentionally make it different than the people that you’re using to advise you on your benefits,” says Klepper. “Create a buyer wall there, so the consultants are required to give you truly objective advice.  And make that clear at the outset of your engagement with them -- that you won’t pay [them] otherwise,” says Klepper.

An request-for-proposals is common practice in the retiree health exchange environment, and it should be no different for exchanges for active employees, says Napoli. “That is common practice for any fiduciary-type decision of any magnitude,” he says.

If the plan’s primary consultant works for one of the consulting firms that is providing a bid, “at a minimum I think there has to be a wall placed between that consultant and the team that is working on preparing the RFP and actually responding to the request and putting in a bid,” says Napoli. “I don’t think there should be overlap, because there is at least an appearance of a conflict of interest.”

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