Is a Private Benefit Exchange Right for Your Company?

In an effort to make the administration of employee health plans easier—and hopefully reduce plan costs—more and more companies are gravitating to private benefit exchanges.

Starbucks is one of the latest to do so. The coffee giant is now offering its employees a choice among six different health plans—including local carrier Kaiser Permanente (as Group Health)—through the Aon Active Health Exchange. Starbucks joins Sears, Starwood Hotels & Resorts, Walgreens, and other companies that are transitioning benefits distribution to online platforms.

Private exchanges explained

For those new to the concept, private exchanges are online marketplaces that offer individual employees an array of health plans and voluntary benefit options. Employers choose a package of plans and benefits through an exchange. Then employees choose the combination of benefits that best fit their needs.

Most exchanges are operated by consulting companies or brokers. Some of the better-known exchanges are OneExchange from TowersWatson, Mercer Marketplace, Aon Active Health Exchange, and Liazon.

Touted benefits and actual results

At the outset, private exchanges were expected to be an attractive way to help companies control their health care costs. And they may well be. But as of yet, the jury is still out.

On the one hand, the advantages sound attractive. The Society for Human Resource Management (SHRM) sums up the top benefits of exchanges:

  • Relief from plan administration duties for employers.
  • More health insurance options for employees.
  • The promise of lower company costs (primarily through a defined contribution benefit strategy).

Early results are promising. As of 2015, 64 percent of employers that have moved to a private exchange said the move has saved money.

 

Choosing a private exchange

 

On the other hand, The Bureau of National Affairs points out that private exchanges have yet to live up to their early growth expectations. For instance, in 2013 Accenture originally projected private exchanges would cover 9 million enrollees in 2015. But in April of that year, they revised that figure down to 6 million.

Says the article’s author, Mike Gaal, “There is a compelling case to be made for employers to migrate active employees to private exchange environments as a way to reduce the administrative burden of their human resources staffs…However, the case of overall active employee health care cost control is one that private exchange operators have yet to make, and this appears to be the key reason that enrollment in private exchanges has not lived up to its early expectations.”

A perfect vehicle for defined contributions

One reason companies migrate to private exchanges is to move from a defined benefits strategy to a defined contributions one. Employers set aside a fixed amount of money to contribute to an employee’s health coverage and allow employees to pick and choose the array of coverage they want from an exchange. Any costs above the defined contribution become the employee’s responsibility.

Such an arrangement allows employers to predict premium costs. Companies are able to move plan administration to the exchanges themselves, freeing up human resource hours for other priorities. Exchanges allow companies to offer a range of plans from national insurance companies to local carriers, as well as a variety of voluntary benefits such as life, disability, and even pet insurance.

The Kaiser Permanente view of private benefit exchanges

Kaiser Permanente appreciates exchanges as they’re organized for an “apples-to-apples” comparison. By standardizing the offerings, exchanges allow employees to base their health plan decision on the carrier’s brand, price, physician network, and unique value. All of which remove some of the confusion from the selection process.

We currently participate in the Mercer Marketplace, which caters to large groups, and Liazon’s Bright Choices, which services small groups (10 or more enrollees) as well as large groups. As noted above, Kaiser Permanente (as Group Health) has been offered to Starbucks this year through the Aon Active Health Exchange. In 2017, our plans will be available to all of Aon’s clients on that exchange.

Giving employers a choice

Participating in private exchanges is just one way Kaiser Permanente works with companies. Our entire approach is to work with employers to find the best possible plan solution given employee health, risk tolerance, cash flow, and other unique circumstances.

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©2018 Kaiser Foundation Health Plan of Washington

All plans offered and underwritten by Kaiser Foundation Health Plan of Washington or Kaiser Foundation Health Plan of Washington Options, Inc.