How transparent are private exchange fees?
HR departments lack a clear understanding of fees and commissions attached to private exchanges, with many early exchange adopters uncovering fees once they start using the model.
Fewer than 1-in-10 (9.8%) benefit decision makers at companies representing 1 million employees and 2.75 million covered members surveyed by Chicago-based brokerage Pacific Resources say they have a complete understanding of all the fees and commissions that would be generated by the companys participation in an exchange.
Part of it is the newness of these exchanges. Although they have been here for a little while, until recently [companies] were not using requests for proposal to shop for them says Jody Hunter, Pacific Resources vice president of marketplace solutions. There is no pricing sheet he is aware of that shares all of an exchanges fees at a given time.
Some of the fees may pop up as the exchange is already being implemented or used. I think some of these exchanges are still being built in-flight, Paul Rogers, president and chief operating officer at Pacific Resources, says. They are still in learning mode.
Mike Thompson, principal at consultancy PricewaterHouseCoopers in New York City, says some of the private exchanges are getting fees from a number of different sources. It is important to ask the right questions to understand the total revenue model that is supporting the service offering, he says. If you ask the right questions, you will get a straight answer. But if you simply ask what our fees are, you may not fully understand how that business model is supported.
Often the most transparent of the costs is the commission, as many of the consultants and brokers offering private exchanges accept commission on insured products. Those commissions can be substantial and will help offset other fees, Thompson, a member of the Private Exchange Evaluation Collaborative, says.
Overcoming the fee question
To overcome these transparency questions, the easy answer is for exchange operators to be upfront about all costs when an employer connects with an exchange, such as pay to play and commissions, Rogers believes.
Currently, many employers are relying on their existing advisers to tell them about private exchanges, and that presents an inherit conflict, Thompson says. You really do need an independent adviser to ask the tough questions and make sure you are appreciating all angles around that. It ultimately leads to fewer surprises and a more transparent relationship that is less likely to have hiccups downstream.
There is a growing need for an independent consultant to play an active role in evaluating exchanges, Rogers says. When an employer decides to actively [look at exchanges] these types of fees and lack of transparency will be surfaced" by an independent consultant, he says.