While we've heard a lot in the last few months about public health care exchanges, another, less publicized change is taking place in the world of employer sponsored health care: private exchanges.
"A lot of the administrative responsibility of running these programs comes off of the employer's shoulders."
Chip Kerby
There's an old joke that General Motors is a health care company that happens to sell cars on the side. But it's a joke with a kernel of truth. Providing employee health care is a significant cost to most companies, large and small, and it's a source of frustration. Chip Kerby, owner of the Liberte Group, a Washington, D.C. law firm that specializes in employee benefits, said, "You can have an HR department, but this is not your primary business. You're building a product, or you're selling a service."
Kerby said that while in recent years, most big corporations have been self-insured, taking on a significant amount of risk and rising health care cost, now some are starting to consider a new model. "There are a number of attractive features of the private exchange that are generating significant interest in the marketplace," he said. "Many of my clients are looking at this with an idea that they might decide to do it."
A private exchange is run on the same principles as the public exchanges that have been developed in the last year. The exchange, usually run by a consulting firm, signs up several insurance companies that commit to offer a number of differently-structured plans.
The employer contracts for service with the exchange for a fee, and then its employees can choose any of the plans on offer. The employer gets one simplified bill from the exchange, and it can stop thinking about all the complex tasks that go along with providing health care to employees. "A lot of the administrative responsibility of running these programs comes off of the employer's shoulders," Kerby said.
The other attractive feature of using a private exchange is that instead of providing a defined benefit model, it's a defined contribution. In other words, the employer says how much it's prepared to contribute towards employee premiums. That means it can put one single number on its health care costs for the year, shifting cost to the employee and risk to the insurance companies. Ken Comeau of the Connecticut Business and Industry Association said, "The employer gets the ability to establish their budget for the program, their contributions. Then, employees with that knowledge have the freedom to select what works best for them and their family."
CBIA runs a private exchange that may well be the oldest one in the country, established in 1995, and aimed at its small business members -- companies with fewer than 50 employees. CBIA's Phil Vogel said that while their exchange has always been well subscribed, they've watched the concept of private exchanges gain a much higher profile over the last year. "Once the ACA was introduced," he said, "the exchange discussion really started to take off."
The Affordable Care Act not only established the public exchanges, it also changed the type of plans insurers could offer, even for businesses in private exchanges. Ken Comeau said it's caused tremendous confusion. "In fact," he said, "that's been a real focus for us over the last year, and in the last six months in particular. The information getting out to employers was fairly limited. It stopped at the 30,000-foot level. The reality is this law has its most significant impact on small business."
Changes to rating structures and plan designs and new coverage mandates mean CBIA's exchange has had to sign every one of its customers into new plans for 2014. While there have been wide variations in rates for these new plans, Vogel said the big impact hasn't generally been for the companies themselves, but for the employees. "From a company standpoint the norm is not as wide," he said. "But when you get inside the actual company, and take a look at specific employees, the spread is enormous. We were seeing plus and minus 100 percent on their rates."
With big employers like Sears and Walgreens either signing up or contemplating private exchanges, the risks and rewards of a new employer-sponsored health care model could be coming soon to a company near you.
