Determining whether a private exchange is the right move

While private exchanges hold promise for cost savings, increased choice and a better benefits experience for employees and retirees, the large employer market has been slow to respond. A recent study conducted by the National Business Group on Health (NGBH) showed that, although interest in private exchanges is growing slowly among large employers, many still have reservations about whether exchanges will offer more value than the plans they already offer. So, how does a large employer determine if a private exchange is the right move? Here are some key factors to consider:

Benefits and Rewards Strategy

Articulate the strategic objectives of benefits in your organization and then understand how moving your medical plan coverage to a private exchange will impact your Total Rewards and Talent Strategy. Make sure your move to an exchange supports your strategy for attracting, recruiting and retaining employees and an integral part of optimizing employee engagement and productivity.

Plan Designs

Determine what level of control you want to maintain over benefits plan design and the long-term costs. In order to build critical mass, exchanges need to commoditize (or at least standardize) products and services to provide benefits to many different types of employers.  With a private exchange, you may have less control over plan design and customization. Make sure you know what you are gaining and what you are losing.

Network Access and Provider Disruption

Assess the potential disruption associated with moving to new carriers through the exchange offering and determine the appropriate access levels required to meet your goals. After cost, disruption is one of the next biggest concerns for the majority of employers.

Also see: Private exchange enrollment doubles for plan year 2015

Funding, Plan Costs, Pricing and Contribution Strategy

Have a clear understanding of the economic reason for moving your organization to an exchange and what projected savings you expect to achieve in the first year – and beyond. Assess the advantages and disadvantages of fully-insured versus self-insured benefit plans and the administrative impact of a funding change in order to determine the best contribution strategy for your company. 

Understanding the cost control measures being deployed by the exchange and its carriers must be an important part of the evaluation.

Quality Assurance

Know how providers are selected to participate in carrier offerings and how often they are credentialed. Ask how the exchanges and carriers are managing and evaluating the quality of the providers and health systems. Are there outcomes-based negotiated payments between carriers and providers? What types of measurements and incentives are used to promote evidence-based practice guidelines and other quality assurance strategies?

Population Health Programs

Ask exchange vendors what products and services they offer to facilitate population health and what data they can provide to facilitate your programs. Some exchange vendors can coordinate with your current population health strategy while others may require a change in your program, too.

Customer Service

Employers should understand the types of customer service and employee touch points offered by the exchange (e.g., online chat, telephone IVRs, smart phone technologies). Ask how the exchange measures and monitors the effectiveness, efficiency and quality of multiple carrier customer service centers.

Administrative Platform

Your administrative platform should support your organization’s approach to managing the employee lifecycle of benefits, from hire to retire, including part-time employees. You should know whether the exchange vendor owns the platform or uses a third-party and whether the technology can integrate at all points within your organization.


Determine the total costs – both financial and opportunity costs – associated with moving to an exchange and assess how much of your overall savings is cost-shifting versus actual reduced cost. Additionally, it will be important to understand ALL revenue sources within the exchange and set transparency expectations. Complete knowledge of all sources of revenue to the exchange will ensure the most competitive pricing for employers.

Change Management and Communication

Assess your organization’s readiness level for change and what steps need to be taken to facilitate a smooth transition to the exchange. Make sure your chosen exchange can support the change management process and identify the types of communications assistance the exchange provides as part of their standard fee.

Vendor Management

Understand what contract terms are negotiable and how they will be measured once the contract is in place. Be sure to specify how often terms will be reviewed and what reasonable resolutions and penalty clauses will be used to address vendor underperformance.


Determine what services the exchange will provide to assist you in complying with requirements of the Affordable Care Act and whether they are included as part of the standard administrative fee or will be an added cost.

Other Benefits

Remember, your medical benefits need to be coordinated with your non-medical and voluntary benefits.  Determine whether it makes sense to move all of these benefits to the exchange and make sure your vendor can accommodate your desired plan design.

Exit Strategy

Monitor vendor performance to ensure that your exchange delivers on key metrics. Understand the terms of your contract and your options and be prepared to make a change if necessary.

The decision to move employees to a private exchange is a strategic business decision that requires objective analysis and assessment. Careful consideration of these key decision-making factors can help large employers understand whether or not the move to an exchange will support the company’s Total Rewards and Talent Strategy, and result in real sustained economic value over the long term.

Jody Hunter is vice president, marketplace solutions at Pacific Resources, a leading employee benefits advisory firm that works with Fortune-ranked and other large employers. 

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