Online retail commerce is revolutionizing how people shop and merchants sell. Employee benefits haven't been affected quite so profoundly yet. But private benefits exchanges—commercially marketed platforms on which employees can shop for a wide range of employer-sponsored health and voluntary benefits—are gradually evolving as businesses adjust to rising health care costs and employees' desires to select a customized benefits mix that better meets their needs.
Private exchanges are typically administered by a benefits broker or consultancy. Employers give each eligible employee a fixed amount each month to spend on plan premiums, and the employee pays the rest of the cost, choosing among differently priced plans from competing insurers.
State of the Exchanges
The number of employers that have shifted to a private exchange, while growing, is still relatively small. "If we were looking at an evolutionary curve for digital enrollment platforms, I would say we are probably still hunched over dragging our knuckles," said Shandon Fowler, principal of Charleston, S.C.-based benefits consultancy Four8 Insights.
Last year, consultancy Accenture reported that only 8 million people were enrolled in health coverage through a private exchange—a 35 percent increase over the year before but lagging behind the bullish predictions some had previously made.
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But exchange advocates such as Alan Cohen, founder of Liazon PIX (acquired by Willis Towers Watson in 2013), remain confident the concept will take firmer hold as offering a wider range of benefits choices becomes more crucial to recruiting and retaining employees. Giving people control of their benefits dollars, along with price transparency and a wide variety of options, Cohen said, will "create a quasi-free market in benefits" that can lead to happier employees.
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Making the Switch
Jamie Benton, managing director of HR at Atlanta-based Rollins Inc., which operates pest control businesses nationwide, made the switch to the Mercer Marketplace private exchange in 2015. Rollins is in 49 states with no state having more than 1,000 employees, Benton said. "We needed some variability and scalability to have plans that were attractive to our technicians in their mid-20s who don't go to the doctor a lot, and for our older employees who are planning to retire in the next five to eight years."
Trying to manage national health networks "meant we were struggling with the rise of regional health systems offering lower-cost services at designated centers of excellence," generally hospitals or clinics deemed to offer high-quality, affordable care, Benton said. "We have been able to use the private exchange platform to offer more-localized networks that we couldn't do before because of the administrative burden it put on my department, which has two people for 13,000 employees."
Emily Erkel, director of benefits at Little Rock, Ark.-based telecom provider Windstream Communications, will switch to a private exchange platform in 2018 after several months of evaluating the best way to offer employees more choice in plans and insurance carriers and to manage health and welfare benefits costs.
The exchange approach, she said, "allows us to offer more than one health insurance carrier across the entire U.S. and to take advantage of discounts that different carriers have negotiated with regional networks."
In addition to providing their employees with new health plan choices, both Benton and Erkel are using private exchanges to offer a variety of voluntary benefits such as pet insurance, health coaching for chronic disease management and identity theft protection.
"These are things that not 100 percent of your workforce will choose, but those that use them will have a positive reaction to your benefits program because you offered them," Fowler said.
Benton's firm, Rollins, realized more than $3.3 million in savings in its first year using the private exchange platform, with 52 percent of employees that year choosing a new, low-premium, high-deductible plan and health savings account.
"The term is 'rightsizing,' " Benton said. "Some people were overinsured.
"It's another tool in your toolbox," he continued. "If you have a workforce centralized at large corporate offices, enabling you to control health costs through onsite clinics, for instance, then a private exchange may not be a good fit." But for employers with a widely dispersed workforce, "you have to look for solutions that are out of the box, and this is one of them."
What to Consider
Benton and Erkel offered the following tips for those considering or using a private exchange approach:
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Start planning now for 2019 and beyond. Erkel said Windstream began evaluating private exchanges in the summer of 2016 and made its final decision in February of this year. "More than likely, you'll be doing an entire benefits enrollment platform change as well, then selecting the carriers and plans, negotiating contracts, and doing all that it takes to be ready to go for open enrollment," she said.
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Analyze your health care offerings. "We do an analysis every year on what is the best network from a national carrier to offer in every ZIP code," Benton said. "The first year on the exchange, we offered Anthem, United Healthcare and Baylor Scott & White in the Dallas-Fort Worth area, for example. We added Kaiser Permanente in Southern California last year and will make it available across the country for next year, so there are little tweaks we do annually."
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Bring the C-suite on board. "Part of what we did internally was educate our executives and benefits decision-makers about what a private exchange is versus what the public exchange is, and we did that early on in the process," Erkel said. "We talked about how we had been self-funded from a medical standpoint and how with a private exchange you can keep that approach. And we talked about how we could still be experience-rated [linking premium costs to health claims], particularly if you are going with the self-funded model, so you don't lose the benefits from providing wellness-promoting initiatives."
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Give employees plenty of information. Windstream set up a separate
website to provide its employees with a comprehensive resource on what going to the exchange platform would mean.
Greg Goth is a freelance health and technology writer based in Oakville, Conn.
Related SHRM Articles:
How Private Exchanges Are Coming of Age,
SHRM Online Benefits, December 2016
At Hilton, How a Private Exchange Dropped Costs, Upped Satisfaction,
SHRM Online Benefits, May 2015
How to Evaluate Private-Exchange Options,
SHRM Online Benefits, January 2014
On Private Health Exchanges, Choice Drives Satisfaction,
SHRM Online Benefits, March 2013
Time for Defined Contribution Health Care?, SHRM Online Benefits, September 2013
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