Private Health Exchange – Fad or Real Solution Predictions for Employers in 2012
As the New Year kicks off and as we reflect back on 2011, there is little doubt that health insurance remains a principal issue for employers. It will likely remain a key issue for a long time, if not for the direct impact as an employee benefit, then for its budget and tax implications. Survey after survey show the two biggest issues employers face year after year, outside the economic impact of their business, is health insurance along with recruiting and retention of employees.
Predictions on the economy from reliable sources such as Martin Feldstein, top economist from Harvard University, state that things are not going to get much better in 2012. Even with best case scenarios in place, unemployment will remain around 8 to 9 percent. This does not take into consideration those who are no longer looking for work. Two major outcomes that cannot be predicted this coming year because of the changing variables, is who will be elected or re-elected as President, and how the Supreme Court will rule on PPACA (healthcare reform law) which is to be decided this summer of 2012.
Because of the ongoing trends and stats that are available, there are several easy predictions on how employers will handle their health benefits program in 2012.
1. Changes to the way employers offer health insurance benefits.
Either decrease the benefit coverage or increase the employee’s cost-share or both. The average increase in 2011 was 9% for employer sponsored insurance. What is masked in that increase is many of the employers have to painstakingly review multiple options, move their plans to another carrier or dilute them by increasing deductibles, co-pays or minimizing coverage. Another area of dollars that are going out from the employer that are not being tracked properly is self funded dollars through HRAs or non-tracked reimbursements. Having discussed with multiple employers, this is being done with no thought of managing this cost because they feel there is no other way.
2. Employers will have their health insurance plans terminated or been told that their plan would not be available to them in the future.
Latest 2011 census data shows that 58.7 percent of the nonelderly population had employment-based benefits, down from 69.3% in 2000. 2011 was on pace for employer dropout rate of 4% (54.7 percent coverage ESI) with this increasing each year as cost escalated and mandates were implemented from health care reform.
3. Employers will eliminate eligible classes of employees from coverage.
Outside sales, field staff, part-timers, seasonal workers or whoever, that had some sort of health coverage, will no longer be covered by the employer.
4. More incentives by employers will be introduced to employees to manage their own health to reduce premiums.
Wellness programs, especially incentive programs are at an all time high to help get health costs under control. The most adopted idea is paying employees to lose weight. Obesity costs the US economy at least 215 billion dollars a year in direct and indirect impacts including medical expenses and lost productivity, reported by Brookings Institution researchers.
5. Consumer Directed Healthcare will continue to be a driving force for many employers. Businesses will continue to move towards HRA and HSA type programs to help manage costs and have employees take more responsibility for their health and associated costs.
6. Last, but not at all least is the shift of the employer to Private Health Exchanges.
In this article, we will go through what this is and if it is just a fad or if it is truly a legitimate way for employers to manage their health insurance cost while providing quality coverage.
With all the moves and actions that employers will take from the 6 predictions above, only one will actually remove the employer from having to deal with health insurance benefits going forward. In other words, get the employer “out of the business of dealing with health insurance” and that is the move to a Private Health Exchange. No other single health benefit program currently in place:
1. Moves the cost of health care benefits from a variable cost to a fixed cost.
2. Consistently saves businesses as much as 50% in overall cost of offering health benefits.
3. Reduces the administrative activities and regulation requirements to almost nothing.
4. Allows employers the flexibility to provide benefit dollars for better recruiting and retention in areas of the organization that may be needed most.
5. Provides employees the ability to design their own health benefits and overall financial strategy for them and their family long term. (This is with the help of a Benefits Advisor)
Ok, so what is this “Private Health Exchange”? To take the words from Emily Berry, American Medical News, who posted an article on Private Health Exchanges on September 5, 2011, “A private exchange is an existing concept taking on a new name. The idea also being pitched as a “defined benefit” (contribution) plan and has been part of a package with a health reimbursement account. Simply put, a private exchange is an alternative to a group health benefit plan. Rather than paying a portion or all of a premium, an employer pays each of its workers a flat amount and sends each to choose his or her (own) plan.”
How does the exchange work? An employer decides what they can afford to pay for health benefits, it may be $100, $500, $700, $1000 or whatever dollars per employee per month. Instead of enrolling each employee into the same plan and using the dollars to pay for a portion of the premium, the employer makes available a monthly defined contribution that employees choose how to spend.
The way this works without violation of ERISA or HIPAA laws is this, the benefit is no longer the health insurance plan itself, the dollars become the benefit. The IRS allows the dollars to be used as the benefit as long as it is administered through a third party that acts as a clearinghouse. One of the original and well known clearinghouses is Zane Benefits.
Under a private exchange where an employee is selecting a health plan from the individual market, the employer should be “shielded” from knowing which plan the employee selects or where they filed claims. That’s where a third party clearinghouse comes in. The clearinghouse acts as the “Chinese Wall” between the employees and employer. Employees work individually with health insurance advisors (brokers) to choose a plan while maintaining the separation between the employer and the benefit plan.
The employees with the dollars provided by the employer have what is called a “supermarket” or “walled garden” option to pick and choose not only insurance plans to meet their specific health needs but use the dollars to cover other medical expense reimbursements that are allowed under IRS guidelines. It is the same guidelines that HRAs (Health Reimbursement Arrangements), HSAs (Health Savings Accounts) and FSAs (Flexible Spending Accounts) are under.
There are naysayers who will tell you that employers are concerned about improving employee’s health through wellness programs, and rely on group health benefits for feedback on the relative health of the group. Under the exchange they would lose that feedback.
Rick Lindquist, from Zane Benefits along with our organization, having dealt with hundreds of employers, we will all tell you, “Talk to (any) one of our clients, and they will say that’s not a benefit, that’s a hassle.”
William J. Dennis Jr., NFIB Research Foundation did a report that came out in June 2011.
They had spoken with hundreds of employers and this is what they found; employers, understanding how Private Health Exchanges work, were asked how likely they would change from their group plan. 60% said they were “Very Likely “ or “Somewhat Likely” to change.
So, what happens in 2014 when the “public state health exchanges” go into effect? That’s a great question. The Private Health Exchanges will work in coordination with the public exchanges. The good news is, employers will still be able to provide a benefit program for their employees, save money, have flexibility and still have a strong recruiting and retention tool. Employees will benefit from having a variety of choices working with a personal advisor to get advice they would not be able to get on their own through an online system.
2012 will definitely be another year of significant change. The great news is employers now have an option to leave the frustration and headaches of having a group health insurance plan behind.
About the Author
Thomas (Tom) E. Hamilton is founder and director of BeneFLEX (www.beneflexhra.com), provider of Private Health Exchange platform of third party and insurance services. He is also founder of BeneFLEX University, a training and education program for service providers looking to provide innovative solutions in the employer benefits market. Tom can be reached at email@example.com or 704.375.1112.