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Emergence of a new health insurance model

“Change brings opportunity.”
—Nido Qubein

While many parties in the health care industry are dealing with the complexities of implementing the Patient Protection and Affordable Care Act, a new health insurance opportunity is gaining traction among both employers and employees.

That opportunity is called the private exchange, and its origins date to the late 1970s when employers began experimenting with defined-contribution benefit plans by offering employer-sponsored cafeteria plans.

Although not actually part of the Affordable Care Act, private exchanges are now being created throughout the country to help employers manage health care costs better and to offer improved coverage options for employees. Media attention and the adoption by some major insurers and brokerages have helped increase the popularity of private exchanges and support forecasts of a very successful future.

A survey released by the Private Exchange Evaluation Collaborative found that 45 percent of employers surveyed plan to consider or will be using a private exchange for their employees before 2018.

In addition, the consulting firm Accenture estimates that 1 million individuals will enroll this year in private exchanges, with that number possibly growing to 40 million over the next four years.

Why are private exchanges so popular, and what should employers and employees know about them?

First of all, with a private exchange, employers choose a contribution amount to make available to employees for the purchase of health insurance and other employee benefits. The employee then can choose from an array of benefit options.

Depending on the type of private exchange model, companies can choose either fully insured or self-insured funding arrangements as well as a selection of employee decision support tools.

These decision support tools help employees select plans. They can forecast their annual premium costs and estimate their out-of-pocket expenses. Proprietary tools can further help employees to project the number of physician office visits, specialty and emergency room visits, and hospital days as part of this process.

Private exchanges hold promising possibilities for the employers that seek to divest some of the financial responsibility for medical inflationary pressure. They can help companies reduce health care costs and simplify their benefit plan administration.

As with any new product or service in the health insurance marketplace, it is important for both employers and employees to understand the composition, benefits and value offered by private exchanges.

They might just find that change brings opportunity.

Tom Henschke is the manager of exchange solutions for First Niagara Benefits Consulting, a division of First Niagara Risk Management that recently established the First Niagara Benefits Exchange.

6/20/14 (c) 2014 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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