ConnectedHealth CEO John Fiacco took a few minutes recently to answer some of the more popular questions he hears about healthcare marketplaces and defined contribution.
1. What type of employers have the most success with using a private exchange?
A private exchange — whether it uses traditional group insurance or offers individual insurance for all or some of the benefits — can help an employer implement nearly any type of benefits strategy. It is most often paired with a defined contribution approach where the employer gives each employee a fixed amount of money to spend on his or her benefits. A private exchange lets employers offer more options to employees with far less administrative burden, and employees love being able to choose their own benefits.
The reality is that people are taking a more active role as consumers, and in some ways they have always been here, and they’re really starting to shop for coverage as consumers. But healthcare — particularly insurance — is historically confusing, and our goal is to make the shopping process for coverage like any other online retail experience: simple.
Regardless of industry, if a company can provide an easy retail experience for their employees or members, healthcare marketplaces will continue to grow and gain broad appeal among companies and consumers alike.
2. Can a defined contribution strategy save employers money?
Absolutely, and we’re already seeing that with our clients. It puts the employer in the driver’s seat for determining exactly what they want to spend on benefits.
One recent example is an employer client that saw a 62% trend reduction in expected benefit costs for employees through their defined contribution strategy, and their employees saw a 13% reduction in their benefits costs.
3. In a private exchange that uses group insurance, the employer remains the plan sponsor but delegates the selection of insurers, plan design options and the administration of employee enrollment to the exchange. What is the advantage?
Not many employers want to be in the insurance business — they want to focus on their company. Adopting an exchange that brings solutions to them — or gives them a set of options to pick from — makes their lives phenomenally easier. Because it’s so much easier administratively, you could say that a private exchange is an alternative to outsourcing their benefits.
4. What should plan sponsors be thinking about if switching from a self-funded approach to a fully insured approach, and does one of these approaches work better on an exchange?
There has been a shift from self-insured to fully-insured on the part of some employers who want more predictability in benefit costs (e.g., Walgreens and other participants of the AON/Hewitt private exchange).
At the same time other small and mid-size employers are pursuing the opposite strategy to see if they can achieve a new level of cost savings by shifting to a self-insured model.
We believe that both trends will continue and will result in broader adoption of private exchanges with more contribution transparency from employers to employees.
Keep in mind that there is a difference between being fully-insured in a defined contribution group platform compared to being fully-insured in a defined contribution individual platform, something we’re seeing great interest from small- and mid-size employers. As opposed to being fully insured on a group platform, a defined contribution model paired with an individual platform eliminates all risk for the employer as it relates to variations in future premiums: they can decide to contribute more if they want in the future, but they have full control over that decision. The savings in administrative costs is the icing on the cake.
5. Moving from one exchange to another or moving from an exchange back to a traditional employer-directed benefit program could be a difficult process and present significant issues. What should employers understand about “exit barriers” associated with private exchanges when evaluating exchange strategy and partners?
Clear employee communication is obviously critical, no matter what the benefit strategy is. Helping employees understand the value of what their employer is offering them, regardless of the form, goes a long way toward making the benefits enrollment successful. Having said that, private exchanges typically give the employees much more flexibility and control than traditional benefits over how they spend their benefit dollars, but that consumer control is happening throughout healthcare anyway. With the advantages to both employers and employees, we believe the market shift toward consumer choice will grow rapidly over the next five years.
