The Future of Benefits

New research shows interest in private exchanges continues to rise.

By Barbara Gniewek and Greg Mansur

While the adoption rate of private exchanges in 2014 may have been disappointing for some, employers are still exhibiting a strong interest in this benefits approach, according to the second annual employer survey conducted by the Private Exchange Evaluation Collaboration (PEEC).

The term private exchange means a lot of different things to different people. At the core, it’s the technology that is used for an employee to purchase benefits. However, there are more than 100 different companies that refer to themselves as private exchanges, and they vary significantly in capabilities, services, and costs. They range from simple technology solutions that allow people to select and enroll for benefits to more elaborate consulting solutions that include the front-end benefit selection/enrollment technology, full benefit administration outsourcing, and complex consulting strategies around network, wellness, and care delivery programs. What differentiates them is:

• Financing: how much they cost (including what they are collecting in commissions, directed fees etc.), funding options (fully insured versus self-insured), and contribution approach

Model: single carrier, multi-carrier or best in-area networks as well as fixed options or ability to customize benefit options

Products: medical, dental, pharmacy, life, disability, voluntary, and financial

Decision support: ease of technology use, tools to engage consumers included transparency, cost estimators, and advocacy

Forty-seven percent of employers have or will consider a private exchange strategy for full-time, active employees before 2018, up slightly from last year. The national survey, based on the responses of 446 employers, reports not only a continuing interest on the part of employers in private exchanges as a strategy for full-time employees and retirees, but a very strong commitment to continue to provide health benefits to their employees (97 percent of employers indicating a likelihood to offer benefits in 2016 versus 77 percent last year).

Interest in exchanges exists across industries and employer size. Initial impressions suggest exchanges make sense in the retail and hospitality spaces, but the survey indicates the applicability goes across industry segments, and is often especially attractive for companies with multi-generational and tech-savvy workforces, as well as those with a culture of innovation.

The survey results show an increased understanding of the benefits of private exchanges. Employers’ top priority is still cost: plan design offerings (98 percent of respondents indicating it was important), exchange and potentially outsourcing fees (97 percent), and exchange revenue including commissions (95 percent). In addition to cost savings, organizations expect (at a higher rate this year) that exchanges will provide employees with an enhanced consumer experience through a combination of plan options and decision support tools and reduce administration burden. Healthcare education tools and mobile apps are increasingly more important with 85 percent indicating so up from 70 percent, and mobility important grew from 20 to 36 percent. Demand for single-sign-on capability, transparency tools, and member satisfaction is also high.

Employers continue to want broad networks on their exchanges, but the interest in alternative networks is on the rise as organizations are more open to narrow networks up 20 percent to 48 percent and high- performing exchanges as well as the use of accountable care organizations (up 6 percentage points to 71 percent) and centers of excellence. This movement is consistent with how many of the vendors are evolving their private exchanges, integrating smaller more cost efficient network options as a choice in their offering to encourage increased consumerism and positively impact the cost of care.

In addition to the many financial, member experience, and administrative requirements, employers are
not looking to give up control of their benefit plans entirely, if at all. Flexibility of funding type (self versus fully insured) and contributions approaches (defined contribution versus defined benefit, or salary-related benefits) remain very important. Organizations also look to have the ability to keep existing vendor relationships and programs, especially around wellness, health savings accounts (HSA), and other often “carved out” programs (ancillary vendors, PBMs, even advisors for example). Implementation and communication support are critical elements that an exchange has to bring. Employers also expect to be able to monitor results on an on-going basis via management reports and cost reporting from the health plans.

Companies are increasingly requesting their exchange advisor be independent (71 percent up from 69 percent). As the number of private exchanges continues to grow, employers are looking for external help to better understand and evaluate the various options and value propositions. Fifty-seven percent of employers also indicated that if an industry peer moved to an exchange, they would be more likely to do so.

Early adopters advised a few key points. First, communication, change management, and education are critical, and shouldn’t be underestimated. This is a significant change, much more than a vendor change, and appropriate planning is critical. The resources and commitment of the exchange should be fully vetted. Since many just implemented in 2014, savings estimates were often not available. However, the majority felt they saved money and no one expected that the exchange would cost more.

Considerations for Organizations

While the survey demonstrates continuing strong interest in private exchanges, employers are taking the time to evaluate the complex exchange landscape. Because of the variation in models and vendor solutions, administration and consulting bundling should be thoroughly evaluated to better understand what services are being provided and at what cost. Some key areas for evaluation include:

• Quality of the member experience. Consider technology, tools, and resources available to promote and support the right type of healthcare consumerism.

• Quality of the employer experience. Research the support provided and how it impacts the organization’s current benefits delivery and management model.

• Model/type. Know what is included: on-line benefit enrollment and management, inclusion of benefits consulting, requirement for benefits administration outsourcing, carrier and plan options available.

• Financial. Review the flexibility of funding and contribution options, the level of fee transparency, and comparability.

• Network options and integration with wellness programs. This will ultimately help drive cost savings, and extend existing strategies if desired.

• Services. Consider the level of vendor management and reporting available.

The private exchange marketplace is complex, and takes time to evaluate. Organizations recognize
that considering a private exchange offers value but choosing that path does not require them to abdicate their role in defining their employee benefits and cost- sharing strategy. This approach will not have employers relinquish their responsibility to apply proper supplier management principles to a private exchange vendor to ensure proper transparency in the fees paid and accountability for the results to be achieved.

Barbara Gniewek and Greg Mansur are both principals in the PricewaterhouseCoopers human resource services healthcare practice.

Tags: jan-feb-2015

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