For decades, employers primarily collaborated with insurance brokers and carriers to provide health benefits to their employees. Public and private health insurance Exchanges will soon provide a new avenue for health coverage that employers may want to explore.
Each private Exchange is different. Consequently, employers must ask questions about features and be skeptical about promises. Joining a private Exchange is bound to change both a company’s relationship with its employees and how it administers health care benefits. To determine the potential effect on the organization, employers should answer the following questions:
- What role does the employer want to play in health care delivery? Employers need to consider whether they will be offering health care coverage, in light of the Affordable Care Act provisions. The driver of this decision tends to be financial, partly because employers must look closely at the implications of the Affordable Care Act’s employer shared responsibility penalty and excise tax.
- What is the employer’s long-term strategy and its Employment Value Proposition (EVP)? It is important to know if health care benefits play a major role in employee attraction, retention and engagement. Many employers compete for the best employees by focusing on benefits. If an organization joins a private Exchange, each employee would pay a different premium, partly because each employee would choose a plan that best fits his or her needs. How employers address this issue would depend on their EVP and the extent to which they want to make their employees financially “whole” by increasing their compensation and/or benefits. Employers also need to consider whether joining a private exchange may damage employee perceptions that their health care coverage is employer-sponsored. Moreover, it may be difficult to gauge how employees feel about the new arrangement.
- Is the private Exchange considered individual or group market coverage? Federal rules govern the tax status of employer-sponsored insurance coverage. If private Exchanges are considered group health coverage, then employers will likely be able to continue to use Health Reimbursement Accounts (HRAs) as a purchasing vehicle for the coverage. However, if private Exchanges are using the individual market, HRAs cannot be used to purchase the coverage on a tax-preferred basis.
- Will joining a private Exchange improve the employer’s access to high-quality health plans? With a private Exchange, employers can choose from a menu of insurance carriers, which will help employers that are geographically diverse. Employers should compare their current plan offerings with those in the Exchange to determine if the benefits they currently offer are similar to those being offered through the Exchange and whether the networks are similar or different. They should also look at the premium rates and investigate whether the quality of care would be reduced within an Exchange. The Exchange model may give employees more freedom and choice of coverage options, but employees could enroll in a less rich plan and be subject to more out-of-pocket costs than intended in time of illness. The immediate next step would be to carefully evaluate the Exchange options to make an informed decision.
It is important to understand that not all private Exchanges are the same, and they are different from the public Exchanges. In order to make informed decisions, employers need to fully understand what private Exchanges are and how they operate, all while continuing to set annual health care budgets.