insurance

Employers embrace health care exchanges

America's first federal-state health insurance marketplaces, or "exchanges," are scheduled to open for early enrollment this fall, marking a major milestone of health care reform.

But some of the estimated 159 million Americans with employer-based health coverage are getting a jump on the exchange experience by logging on to new private, corporate health care exchanges. Those are gaining traction with employers and offer lessons for future users of the other exchanges.

The private exchanges are touted as offering easy-to-use online shopping sites and selection tools to help workers narrow their plan options. So, they function the way the planned public exchanges are supposed to work, but the private exchanges have goals, underwriting and rates that are often quite different.

"The private insurance exchanges are aimed at large employers," explains Tim Jost, health law scholar and professor of law at Washington and Lee University. "The Affordable Care Act exchanges are available to individuals and small employers of 50 or fewer employees, expanding to 100 in 2016."

Whether you work for someone else or are self-employed, prepare to become an "exchange student" in this fast-changing world of health care choices.

Defined benefits vs. defined contribution

Unlike the state health care exchanges, which are supposed to provide affordable individual health coverage for as many as 30 million uninsured Americans, corporate exchanges aim primarily to address the group coverage headaches of corporate CEOs by giving workers more responsibility over their own health care.

Employers have borne the brunt of rising health care costs largely because of their traditional "defined benefits" approach to health care. Under this model, workers are typically offered a vanilla-or-chocolate choice of employer-designed plans, and the employer is stuck with the financial burden of rising costs.

Most private exchanges offer employers a way out of this squeeze by enabling them to switch from defined benefits to a "defined contribution" approach. Under this model, the employer provides employees a set cash amount to shop for the health plan that best fits their needs.

Employers, employees both win

A multi-insurer private exchange in turn helps employers and employees leverage this new approach by offering dozens of plans from different insurers with a range of benefits and rates. Health plans offered on private exchanges must meet the same new federal minimum benefit and pricing guidelines as those that will be available through the public health insurance exchanges.

Advocates of private exchanges say the employer wins by knowing their fixed costs for health care from year to year. They no longer have to trim back their plan benefits or pass the cost along to employees to pay for rising health costs every year. What's more, many corporate exchanges free the employer entirely from the burden of designing and administering health plans.

Health insurance exchange state chart

Employees are seen as winners, too, because they still enjoy group coverage with all the economies and tax advantages, plus far more choices. The young and bulletproof can opt for a low-cost, high-deductible plan while less healthy or older workers can shop for more robust coverage.

Major employers embrace exchange model

Aon Hewitt, a global human resources consulting firm, launched its Corporate Health Exchange last fall with Sears Holdings Corp., the operator of Sears and Kmart stores, and Darden Restaurants, the owner of Red Lobster and Olive Garden. A total of 100,000 employees were presented an array of health plans from three national carriers and two regional carriers, as well as three vision and three dental plans from which to choose. The result: Most chose to change their coverage; some moved to more expansive plans, others to less expensive plans.

"That's the value of the exchange," says Rob Malley, Aon Hewitt's national health exchange design leader. "It gives employees more choice than they've had before to make those types of distinctions between whether to pay at the time of service with a high-deductible plan or through their payroll contribution."

The dawning of an exchange era

Aon is far from the only player in the private-exchange game. Liazon, a company founded in Buffalo, N.Y., in 2007, began offering its Bright Choices private exchange to small- to midsize companies two years before President Barack Obama signed the health insurance reform law that put the health care exchange concept on the public radar.

Liazon co-founder and chief strategy officer Alan Cohen welcomes the publicity and even the confusion surrounding exchanges.

"I think the Affordable Care Act is going to bring this concept to life," he says. "Next year, something like 8 (million) to 12 million people are going to shop for their own health insurance. A few years from now, I think we're going to look back and say, 'I can't believe we ever did anything else.'"

Cohen maintains that exchanges are just as good a fit for mom and pop shops as mega-corporations. "The small- to midsize market really has the greatest need for a revolution in health insurance and employee benefits," he says.

Private exchanges raise concerns

Is a corporate health care exchange the proverbial better mousetrap that employer-based health insurance has been waiting for? Some experts say they'll reserve judgment until they see how well workers fare with the health plans being offered.

"We do have concerns that the private exchanges may make it easier for some employers to offer a very low level of coverage just so they meet the (federal) affordable coverage requirements," says Dania Palanker, senior counsel for the National Women's Law Center in Washington, D.C.

"Having more employee choice has the potential to be a good thing," says Jost, "but a lot depends on how things roll out."

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