Employers Weigh Risks, Benefits of Private Exchanges

One advantage of adopting a private health exchange is that it takes the responsibility of administering health insurance benefits off of HR's plate completely. But there's more to know before making the leap.

One of the many questions surrounding healthcare reform is how the introduction of private health insurance exchanges and state health insurance exchanges—could affect how—and eventually whether—employers offer health insurance coverage to employees.

HR departments face the age-old challenge of keeping health insurance premiums low and benefits offerings competitive. That hasn't changed.

But research indicates that as much as one quarter of American employers is considering moving benefits to a private health exchange within the next three to five years.

Meantime, the number of consumers covered under a private health exchange has grown from zero a year ago to three million today, and it's estimated that 18% of the US population will hold such coverage by 2017.

One of the greatest advantages of adopting a private health exchange is that it takes the responsibility of administering the health insurance benefits off of HR's plate completely. Many consumers also like being able to choose their own coverage and the opportunity to compare different plans in a retail-like environment.

This shifts the responsibility of understanding those benefits to the employee, however, which has potential to end badly, should the employee not thoroughly understand all the options, costs, and risks.

While ending up overinsured—paying too high a premium for a plan that is too comprehensive—isn't great, the larger danger is choosing a plan that looks inexpensive—but that has a high and hard-to-meet deductible.

Joe Donlan, president and co-founder of ConnectedHealth, a private health exchange vendor headquartered in Chicago, walked me though some of the considerations HR executives should be weighing before switching to a private health exchange.

HLM: What are the top benefits of employing a private exchange rather than traditional health insurance plans?

Donlan: First, a private exchange will help reduce HR's benefit administration burden. Employers also have more predictability in terms of cost, as they determine a set amount to offer their employees to use toward their benefits through defined contributions.

Also, many employees say that they like the personalized benefit solutions based on their own individual needs, behaviors and attitudes.

HLM: Tell us a bit more about some benefits of private exchanges as opposed to traditional health insurance Plans.

Donlan: Perhaps the most important aspect is the broader array of benefit options being provided to employees. Health insurance used to be a one-size-fits-all kind of thing. At most companies, an employee could expect between one and three options—none of which [might have been] the best fit for the consumer.

Many people ended up overinsured, some underinsured. Private health exchanges offer a broader mix of benefit designs, from least to most coverage, and offer your employees more options. They get to pick the plan that is best for their circumstances.

HLM: Some HR pros worry about confusion among employees or negative customer experience when dealing with a new system such as private health exchanges. What are your organization and others doing to ensure a positive customer experience on the exchange?

Donlan: Well, we're doing a couple things. First, we acknowledge that we're dealing with a diverse workforce of employees who are eligible for group-oriented benefits. We know that we need to offer benefit solutions that will work for everybody within that workforce.

The communications and information about plans and individual offerings that we provide to employees really help them once they embark on enrolling in different products and services.

We also like to make sure employers have decision support tools provided to end users. Employees are starting to buy higher deducible health plans, which means consumers may be more financially exposed.

Our system helps individuals figure out which plan is best for them based on their personal risk tolerance and how they use health insurance. We make it a point to show them what their total financial exposure might be. Not just via premiums, but total out of pocket health costs. With that information available, people can start making trade-offs to decide what risks they want to take for dollars they might save.

I think [human resources leaders] need to know that if you don't have those tools available, you run the risk of an employee realizing they bought a plan with a $10,000 deductible without realizing it. That's not a place you want to be.

HLM: On that topic, how can the industry overcome potentially uninformed consumers? What are you doing to ensure they are not surprised by a high deductible, high copayment, procedures and services not being covered at all?

Donlan: Decision support tools. Healthcare is overwhelming, confusing, and can get emotional. It's important for organizations… to help users navigate the system. We need to provide context and framework to help create an informed consumer, so that consumer will make very good choices and be able to properly make tradeoffs at certain decision points as they utilize healthcare services.

We don't want to see customers on the front page of the paper because they chose a plan where they didn't know what their total exposure was and are now deep in debt. We want to set customers up with the right product and services.