State-run health care exchanges, as mandated by the Patient Protection and Affordable Care Act (PPACA), are scheduled to become available by 2014, with the federal government stepping in to run exchanges for states that are not ready. For 2014 and 2015, states can decide whether to include businesses with 100 or fewer or 50 or fewer employees in their exchange. In 2016, all businesses with 100 or fewer employees must be able to purchase insurance through these exchanges.
The exchanges have the option of including employers with more than 100 employees beginning in 2017. In the meantime, mid-size and large U.S. employers are exploring alternate health care models, such as private corporate exchanges, to deliver high-quality, cost-effective health care plans to their employees.
The Private Exchange Alternative
An exchange is a marketplace that connects insurance companies with individuals or employees wishing to purchase insurance, often through a website. The more volume the exchange brings, the more competitive prices can be offered from insurers.
Under the corporate exchange model, the privately run exchange contracts group-specific rates with participating insurers. Employers provide their employees with money to purchase coverage, and the employee then picks a coverage level and insurance network based on health needs, employer contribution, provider network participation and risk tolerance.
Employer Interest Grows
In the second half of 2011, HR consultancy Aon Hewitt surveyed U.S. employers with 100 or more employees in a broad spectrum of industries. According to the firm's Corporate Health Exchange Survey report, released in March 2012:
• 94 percent of employers were committed to offering and supporting financially health benefit coverage for their workforce in some form.
• 72 percent were very or somewhat interested in exploring whether a private exchange model could be an effective long-term solution for managing the cost of an employee health plan.
• 44 percent believed that they will provide employees health benefits through a private exchange in the next three to five years.
Employers ranked the ability to reduce costs (86 percent), improve access to quality plans (45 percent), enhance health and wellness programs (43 percent) and increase health care choices (43 percent) as the most important features when considering a private exchange.
"Large employers will continue to provide valuable health care benefits to their employees," said Ken Sperling, national health exchange strategy leader with Aon Hewitt. "The emergence of corporate exchanges allows employers and employees to benefit from the competitive dynamic that exchanges create and the promise this competition can have in lowering costs."
In addition, 75 percent of employers that believed they could reduce health care costs by moving to a private exchange said they would use a portion of the savings to lower labor costs. Meanwhile, 64 percent indicated that they would use the savings to invest in expanding health and wellness programs, and 62 percent said they would redirect these funds to nonhealth care related initiatives.
"Every employer, whether they participate in exchanges or not, has a vested interest in the health and performance of their employees," said John Zern, U.S. health and benefits practice director with Aon Hewitt. "Investing in wellness and health improvement will continue to be a priority with employers regardless of their delivery model. That said, exchanges may enable employers to reduce the staff time focused on benefit plan design, increasing attention on efforts that improve health and lead to increased workforce performance."
Employees Show Interest in State-Run and Private Exchanges
A sizable percentage of health plan members who are covered under an employer-sponsored program—39 percent—indicated they would shop for insurance through a state exchange if they had the opportunity, according to marketing information firm J.D. Power and Associates' 2012 U.S. Member Health Plan Study, released in March 2012.
The study of member satisfaction with 141 health plans throughout the U.S. revealed that in 2012 only 37 percent of health plan members said they would not be likely to use an exchange if it were available, compared with 50 percent in 2011 who expected to continue obtaining coverage at work.
"Health insurance exchanges are meant to appeal to individuals who must buy coverage on their own, yet the level of interest among those who obtain health insurance at work could have important implications for the future of employer-sponsored coverage," said Rick Millard, senior director of the health care practice at J.D. Power and Associates. "Satisfaction among some health plan members may be low enough that an alternative, direct retail model could become more attractive than traditional wholesale purchasing by employers."
In addition, the study found substantial interest among health plan members in private health insurance exchanges, in which an employer might provide employees with vouchers for purchasing health insurance independently. Approximately 41 percent of employer-insured health plan members indicate they would use this approach if it were available.
"The private exchange model could further erode reliance on obtaining health insurance at work," said Millard. "Creating new channels for purchasing insurance could trigger more changes. It could mean more attention will be paid to direct purchasers and also make higher levels of satisfaction critically important for health plans that strive to acquire and retain members."
In 2012, overall member satisfaction with their health plan averaged 702 on a 1,000-point scale, compared with 696 in 2011. There were notable gains in satisfaction for the information and communication, statements, and claims processing factors.
"Health plans that excel in member satisfaction know how to create simpler benefit designs that members perceive to be consistent and dependable," said Millard. "As health insurance exchanges take hold and consumer shopping for coverage increases, it will become even more critical for plans to communicate in clear and concise ways."
The J.D. Power and Associates study was fielded in November 2011 and January 2012, with responses from more than 32,000 members of commercial health plans.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
On Private Health Exchange, Choice Drives Satisfaction, SHRM Online Benefits, March 2013
HHS Issues Final Rule for State-Run Health Exchange, SHRM Online Benefits Discipline, March 2012
State Insurance Exchanges: What Employers Need to Know, SHRM Online Benefits Discipline, March 2012
Build a Bridge to Health Exchanges for Early Retirees, SHRM Online Benefits Discipline, February 2011
Group Policies vs. Subsidized Individual Coverage—The Impact of Exchanges, SHRM Online Benefits Discipline, April 2010
Exchanges Will Alter Competition and Choice, HR News, March 2010
New Private Health Exchanges Offer Large Companies Cost Control, Treasury & Risk, April 2012
SHRM Online Benefits DisciplineSHRM Online Health Care Reform Resource Page