Growth Predicted for Private Health Care Exchanges

By John Scorza Jun 29, 2015

LAS VEGAS—Now that the Supreme Court has made it clear that the Affordable Care Act (ACA) is here to stay, the health care landscape will continue to change at a rapid pace. And it’s likely that private health insurance exchanges will be a big part of that changing landscape as employers look for new ways to hold down the cost of employee health benefits, said the presenters at a June 29, 2015, concurrent session on health care reform and public and private exchanges at the Society for Human Resource Management (SHRM) 2015 Annual Conference & Exposition.

Looming on the horizon is the ACA’s “Cadillac tax”—a potential 40 percent excise tax on the value of health insurance benefits exceeding certain thresholds that is set to begin in 2018. “The excise tax is the big issue,” said Jay M. Kirschbaum, senior vice president and national legal and research group practice leader atWillis’ Human Capital Practice National Legal & Research Group (NLRG) in St. Louis. Employers will do whatever they can to avoid the hefty tax, he said.

Initially, the Cadillac tax wasn’t a concern to most employers. In theory, it would have only applied to the gold-plated benefits provided to corporate executives, Kirschbaum said. But now, as health care costs continue to outpace inflation, the Cadillac tax will hurt rank-and-file workers, too. “It applies to everybody,” he said. A more apt name for the excise tax, he suggested, would be the “Chevy tax.”

So as 2018 approaches, employers will have to lower the value of their employee health plans to avoid the tax. To that end, employers are likely to turn increasingly to private exchanges, said Rob Harkins, private exchanges practice leader at Willis in Boston. “We’re in the midst of a transformation in our industry,” he said. “The concept of a private exchange will be the norm.”

In 2014, about 6 million employees had insurance through a private exchange, according to Deutsche Bank. By 2018, that number is expected to increase to 50 million.

Private exchanges are essentially online marketplaces that provide employees with a new and different insurance shopping experience, Harkins said. These technology-based platforms not only offer employees more insurance options but they control employer costs, as employers provide a specific contribution to employees to purchase insurance on the marketplaces.

While not a panacea, private exchanges offer several advantages:

  • The defined contribution component provides employees with a pretax, fixed-dollar amount that they choose how to spend.
  • The employer decides how to allocate the defined contribution amount.
  • Employees benefit from additional plan options to meet their unique needs.
  • Employers enjoy reduced administrative responsibilities.

In the coming years, as private exchanges and other innovations take hold, employers will need to reset their expectations, as well as those of their employees, about the stability of employee health care benefits, Kirschbaum said. Change is going to be the norm for at least several years. “It’s not going to look like it has in the past,” he said.

John Scorza is associate editor of HR Magazine.


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