Private exchanges are a hot topic in employee benefits, and they're continue to pick up steam. [Our May 16th HNI U event on the topic has shattered our previous record for webinar registrations, and more and more
These exchanges (or private marketplaces) provide an accelerated pathway toward defined contribution health care — an age-old strategy that can be taken to the next level with the right exchange platform.
Here’s how a defined contribution health plan works: the employer determines how much they are willing and able to contribute toward the health care of each employee, and plan participants have the ability to use those funds to “shop” a variety of health plans on a private exchange. Depending on the employer, employees may also be able to apply the funds to other products such as dental coverage, voluntary disability and more.
Here’s why this strategy is working so well for many employers:
There is no one-size-fits-all health plan that will meet the needs of all of your employees. With a defined contribution strategy, you’re giving employees the freedom and financial support they need to pick the plan that works best for them.
The key to effective private exchanges is the decision support tool that helps employees select the plan that works best for them. Tools may ask them questions about things such as risk tolerance, what kinds of health events they expect in the coming year, and what their utilization of benefits was like in the past year. From that, the tool can recommend the best plan for them and give them a ballpark estimate of the costs they can anticipate.
With any strategy that incorporates defined contribution, there are no surprises when it comes to costs. The employer sets an amount to contribute — and costs are essentially a flat line from here to eternity, or they can be indexed to inflation or the growth of your business. [Either way, you are at the mercy of the insurance market and rising rates no longer!]
To the woe of many benefits professionals, employees usually don’t know the full value of the benefits package offered by their employer today. While the employers are shouldering a large portion of the cost of offering benefits, the employee generally only takes note of the cost that they see — their portion of the premium.
A private exchange platform allows you to turn this scenario around by clearly stating what the employer is contributing as the first part of the conversation. It immediately reminds employees what they're getting from the employer, and makes benefits feel like a benefit again!
The straightforward nature of a private exchange makes plans easier to administer, especially in multi-location operations. Employers will decide on a pre-packaged bundle of plans instead of working on the details of a single plan design (no deductibles, copays, coinsurance to fine tune to meet the needs of every employee). Employees will enroll online or by phone in most cases, and the private exchange feeds the enrollment data directly to carriers, eliminating much of the paperwork and time (ongoing and annual) related to enrollment.
We’re taking on this topic in our next HNI University event, Private and Public Exchanges — A Whole New Marketplace for Healthcare on May 16th. Attend this workshop for a better understanding of defined contribution strategies and exchanges — public and private — and how these options might affect your benefits strategy in 2014 and beyond.
Have you considered a defined contribution model? What questions do you have on how this model works? Comment below and let us know!