For HR: Health Insurance Exchanges beyond the buzz
The reality of the new marketplaces and what’s not so new
If you’re lucky enough to be in the insurance industry or are responsible for handling insurance for your company, you’re probably hearing a lot about the exchange marketplaces. There is a whole lot of “new” thrown around without a lot of substance so let’s get to the bottom of this.
First, what is the difference between a public exchange and a private exchange?
It’s actually easier to see what is similar about public and private exchanges. Mainly, they tend to provide more plan options. With a typical enrollment you can choose two or three plan options. Shopping on an exchange you can expect seven, ten, or even twenty plan options.
Exchanges are shopping instead of picking. It’s not red plan or blue plan, it’s a rainbow of plan options. Of course, people already had difficulty choosing red plans or blue plans. Now we are giving them more colors than ever before.
Ok that’s really it. I really wish we brilliant brokers had let the Public Exchange be and called our brainchild something else. But if not succinct, the private exchange moniker is appropriate. The vast majority of the private exchanges today are the products of mad scrambles by insurance brokers to come up with an answer to healthcare reform.
As the dust begins to settle, I think we’re seeing what most rational insurance professionals knew. A website that sells individual insurance and facilitates meager government subsidies for some low income earners is hardly going to drop the employer insurance world on it’s head.
So the private exchanges are the result of Me-Too Strategy, does that mean they are a bad idea?
Actually, the core tenets of private exchanges are exactly what we should be and will be doing with employer sponsored medical plans. It’s the future. It’s like insurance brokers all over the world were so scared PPACA was going to destroy their world they packaged some good bits we’ve been missing for far too long into a nice box and said here, take this. What you got now, Obamacare?
We know fear is a motivator. Judging by how creative insurance brokers got all of a sudden, they must have been pretty scared. Here’s some good ideas that found their way into private exchanges:
- Defined Contribution — This along with a multitude of plan options is key to creating a shopping experience.
- Decision Support Tools — One of the challenges with the amount of plan choices is helping members pick a plan best for them. Decision support tools typically ask a series of questions to determine the best fit plan for each individual or family. Most exchanges rent or bought a platform that’s been doing this for a while; 9 out of the top 10 national broker firms use Liazon.
- Online Enrollment — Real online enrollment, getting away from brokers and HR meeting with employees in a big room. HR should be accessible to answer benefits questions, but broker enrollment meetings have misaligned incentives.
The above infographic attempts to explain the varieties of exchanges we see today. Multi-carrier exchanges are wildly different than what most employers are doing today because they don’t control what insurance company their employees enroll with. We can discuss for hours the merits or perils of such a system but seriously… no one knows yet.
Myth 1: These exchanges are setup by the government.
It makes sense why people think that private exchanges still have some link to the government. Few heard about exchanges before PPACA; after PPACA, exchanges are everywhere. Exchanges existed on some level prior to PPACA but were not popular. Insurance companies, brokers, and everyone else are just capitalizing on the PPACA media to create their answer to the public exchange and that’s with their private exchange.
Myth 2: Defined Contribution is linked to exchanges.
Defined contribution simply means participants get a single allowance with which to spend on plans. For example, they may get $200 per month and can use that money toward plans on their employer’s cafeteria plan. This is merely a contribution strategy different than for example contributing a percentage of the total cost of each plan. That said, you can do a defined contribution strategy without using an exchange and in many cases you can even use an exchange without going defined contribution.
Myth 3: If I send my employees to an exchange, I may pay a penalty.
Well I guess it’s true that you might, but not because of the exchange. It’s important to separate private exchanges from healthcare reform in your mind. Private exchanges are a mechanism for getting coverage for your employees, you are still a plan sponsor. The same rules apply to you in a private exchange that would if you were sponsoring a group plan. The plans have to meet minimum requirements, affordability must be determined, and eligibility rules must be in compliance. The US Department of Labor doesn’t care about your nifty enrollment technology or defined contribution, buzz words be damned.
