In Twitter lingo, #PrivateExchanges is a trending topic. But the discussion about private exchanges vastly eclipses trendy tweets. Company executives from the finance department to HR are seriously considering the switch to defined contribution plans on private exchanges. But, before they jump, they have questions.
Do defined contribution plans offered on private exchanges provide the medical cost predictability and relief that so many companies desperately need? Employers win with lower administration costs and lower plan costs thanks to carrier competition for members on the private exchange. Or, do such plans create a competitive disadvantage in the labor force for the companies that switch to them?
Many companies worry that they are setting up for failure in the fierce competition for skilled workers if they force employees away from their traditional health insurance benefits into a private exchange with a defined contribution. What if we do, but our competitors dont? If competitors retain their traditional health benefits, wont they develop a talent recruiting advantage over those who switch?
While some studies show as many as 70% of employers engrossed by the cost advantages of sharing insurance costs with their employees on defined contribution plans, many are also wrestling with these kinds of tough questions.
Some insurance experts are happy to point out the pitfalls of the defined contribution approach, especially because it is still unknown how employees will react to new and complex insurance options.
Issue: Declining workplace morale. Employee confusion and frustration could erode workplace morale and the companys image. Employee ability to access an exchanges website and sort through details to make good health plan choices may be implausible.
Reply: To be compliant with the Affordable Care Act, all plan choices must meet mandated minimum coverage rules. Employees will choose among compliant plans. To hedge against frustration, many private exchanges or employers provide a private adviser to guide employee plan selection. Ultimately, most employees will be guided to select a plan option that is best for them and their family, unlike the one-size-fits-all approach of traditional defined benefit plans.
Issue: Compounding unhealthy behavior. Participants may be setting themselves up for health failure if they buy down to skinny benefits in order to pocket part of the employers contribution. Doing so may create financial barriers to necessary health care or preventative services, which could increase the risk of chronic illness and, ultimately the employers risk of higher downstream health benefit costs.
Reply: Private exchange platforms provide companies with the ability to control how employees use leftover money such as restricting it to purchase disability or dental insurance bundled with their health plan. Employers concerned about buy-down may reinvest their private exchange savings into additional and popular health benefits such as a convenient Healthstat health center to ensure employees have access to proper (and usually free) health care and health promotion. Doing so not only improves the health and productivity of employees today, it also lessons the risk of chronic illness later.
With so many carriers competing for participants on a private exchange, their built-in wellness and disease management programs may become less effective. Whats stopping employers from offering desirable health promotion resources, incentives and even onsite coaching and care coordination? Such programs have proven return on investment and serve to strengthen productivity and decrease downstream health risks.
Issue: Fading consumerism. Because Americans have largely been shielded from health care cost-quality tradeoff decisions, added exposure to health care costs may not turn them into better consumers of health services. Participants in defined contribution plans may bear more of the brunt of annual medical cost inflation, yet that may not arouse better consumerism as much as it creates more confusion.
Reply: It is true that defined contribution works for the employer because it can budget a fixed amount to contribute to employees to purchase health insurance on a private exchange, thereby placing more of the burden of medical cost inflation on the employee instead of the employer. But employees win in this scenario, too, with more choice of plans that are better suited for their needs. Private exchanges provide and encourage the use of consumerism tools such as cost and quality transparency information as well. To ensure their employees think about their healthcare purchases, employers can also provide consumerism incentives as part of their health promotion (wellness) program.
Employers thinking only about deceasing their immediate costs by switching to defined contribution plans on private exchanges may very well suffer a competitive disadvantage in the labor market. However, employers that support their workforce by reinvesting their savings into new, highly desirable wellness benefits and onsite health care will experience a greater labor market advantage over their competitors that stick with legacy solutions and face a future of continued medical cost inflation.
Kaegi is chief strategist at Healthstat Inc.
