While just over half of employers in a recent survey said it was very important for a private exchange to accept ERISA fiduciary responsibilities for the plans purchased on the exchange, the reality is employers cannot offload their fiduciary responsibility by moving to a private exchange, say legal experts.
Youre still talking about group benefits and youre still talking about the employer being the primary plan sponsor, says Glenn Dill, a consultant with herronpalmer LLC.
In the 401(k) realm, the employee bears responsibility for their particular investment choices in the plan, yet the plan fiduciary bears responsibility for selecting the vehicles that go in to that initial investment lineup. Its a similar concept with private exchanges, explains Jim Napoli, a partner and ERISA practice group co-chair with law firm Constangy.
Theres going to be a fiduciary whos going to select the private exchange and then the offerings that are available through the exchange to the employees who participated in that plan, he says.
Fifty-one percent of employers surveyed by the Private Exchange Evaluation Collaborative said it was very important for a private exchange to accept ERISA fiduciary responsibilities for the plans purchased on the exchange.
Barbara Gniewek, a principal in the health care practice with PricewaterhouseCoopers Human Resource Services, believes some of the uncertainty about fiduciary responsibility stems from general confusion about what an exchange is and what it does from the employer's perspective. I really think that is because there is not a lot of clarity in the market on what an exchange is.
If you Google what an exchange is you will get easy 50 answers, she continues. That is why we tend to go back to just [explaining that] an exchange is an online transactions where a consumer can buy insurance. Everything else is noise.
If private exchanges and the offerings under them are vetted properly, that will go a long way in resolving any alleged breach of fiduciary duty, says Napoli, who believes its only a matter of time before lawsuits of some kind or another arise in the private exchange realm.
I think where youre going to potentially see the litigation here is on the communication side of it, says Napoli. There could be confusion on the employees part are we in a private exchange or are we in a public exchange? Its just going to have to be a lot of communication, a robust communication campaign that has to go on at the time of implementation both prior to implementation, during the implementation and then well after the implementation.
From a litigation perspective, the plan sponsor, the plan administrator and the various service providers have to make sure that they understand what their roles are and who should be communicating to whom and when, Napoli cautions, adding that exchange communications are not something employers should simply tack on to other benefits communications. I think in some areas its so important to make sure that the communication is clear and its not muddied by what discussion about their [other] benefits. I think this [area] is ripe for confusion. People barely understand what the public exchange is, let alone private exchanges.
Indeed, any move to a private exchange requires a seismic shift in communication, says Dill. For employers, key considerations include not just the plans that I'm buying, not just the business case around the pure dollar savings that I can get [and] not just the cool website, but what is the transition program from A to Z? says Dill.
Before going the private exchange route, Gniewek recommends employers answer the following questions:
- What are you trying to do with your health care benefits; whats your overall talent management strategy? Most employers are [looking at private exchanges] because the CFO has read something and says: Why arent we doing this? Why dont we get into one of these private exchanges we can save money and we can reduce our HR spending, she says. So its critical they understand what their health benefit and overall talent objectives are because depending on what theyre trying to do, different exchange models will best meet their needs.
- What are you looking for in an exchange? What kind of services are you trying to buy? What are the criteria that are important to you when you evaluate exchanges? At its most basic, an exchange is simply a technology transaction between an individual and a health care company. However, explains Gniewek, different exchanges offer different services beyond the mere transactional. Some exchanges also have consulting services and health sourcing services set up and administration services beyond the online enrollment, she says.
- How is the exchange structured? Is it a single carrier or multicarrier exchange? Does the exchange determine what the benefits are, or is there flexibility for the plan sponsor?
- What kind of products are you looking for? Are you looking for just health care benefits or do you want to put more products on the exchange? What type of decision support for employees are you looking for? How much wellness do you want integrated; how much care management?
Those are the decisions we make and based on what the employer is looking for, that will determine which exchanges might best meet their needs, says Gniewek.
See also: Employers take a wait-and-see approach to private exchanges
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