Health Care Exchanges are Changing the World of Benefits

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Even More than Parachute Pants Changed the World of Fashion

By Scott Carver

In the 1980s, a huge shift occurred in the way retirement plans were funded. Traditional, company-funded pension plans began to be replaced by self-funded 401(k) plans, which were cost-effective for employers and gave employees the unprecedented freedom to invest for their retirement. Many thought it would never catch on, but 401(k) plans were quickly adopted by companies of all sizes, and the retirement world has never been the same. Nearly 80 percent of full-time workers now have access to retirement plans like 401(k)s, and more than 80 percent of these workers participate in a plan.

The benefits world is now in the midst of a similar change, stemming from the rising popularity of private health care exchanges using defined contribution benefit models. The private exchange market, or a hybrid model in which employers adopt characteristics of an exchange such as defined contribution, ACA compliance and multiple health plans offered by diverse carriers, is projected to grow by the millions in the next few years. Six million U.S. employees and their dependents enrolled in a private exchange for their 2015 benefits, up from three million in 2014, according to an Accenture report from April 2015. We are just beginning to understand the implications of this movement, but it is safe to say that, like the retirement world, the benefits world will never be the same again.

The advent of the health care marketplace
The definition of a private exchange is still evolving. And like all new concepts, what it started as is not necessarily what it will end up being. But in its simplest form, a health care exchange is an online marketplace where consumers can shop for and enroll in health care plans. This model has far-reaching consequences, due primarily to the inherent retail nature of a marketplace. Traditionally, employer-sponsored benefits coverage used a wholesale model. Companies bought plans in bulk from a single carrier and parceled them out to employees, who had very little say in how and by whom they were covered. The consumer was removed from the purchasing process. Exchanges, on the other hand, use a retail model. In essence, a marketplace is set up with a variety of plans offered by multiple carriers and employees can pick the plans that are best for them.

Now, at first glance, this change from a wholesale to retail marketplace model may not seem too significant. But when you think about all that it implies, you realize that it is enormous. Retail is a lot different than wholesale. To be successful, a retail set-up requires a much higher level of service, transparent pricing, a broad selection of products, and an intuitive and attractive shopping experience. A retail experience puts consumers front and center in the purchasing process. They have the wallet and make the final buying decision. So by moving health plans from a wholesale to a retail model, the exchange marketplace concept has given consumers an unprecedented amount of control over how they get health care coverage.

With great power comes great responsibility
Exchanges have given consumers more power to control their benefits coverage, and in doing so, have also made consumers responsible for choosing appropriate coverage. The number of plans offered in a private exchange is typically three times higher than in a traditional defined benefit model. Choice is good, but it does require that consumers have enough information to make intelligent decisions. Let’s face it: benefits can be confusing, and many employees go into open enrollment armed with precious little knowledge about benefits plans and the terms used to describe them. This is remarkable, considering that insurance and benefits are typically one of the largest expenses in a family’s budget.

Back to the 1980s, when 401(k) plans hit the scene, the majority of consumers were ill-equipped to make investment decisions for their retirement funds. Eventually, however, an entire industry sprang up offering to educate and guide fledgling investors on the options that were right for them. We are seeing a similar movement today to fill the need for better education and guidance around health care plans and benefits. Employers are currently taking the lead in this effort, and many now conduct full-scale communication campaigns to educate their employees on what plans will be offered and explain some of the more commonly misunderstood benefits terms. A multi-pronged approach tends to work best with in-person meetings combined with videos, printed and online materials.

As control of health care plans shifts to the consumer and new regulations from the ACA are making benefits increasingly complex, it would be fair to ask: why are employers still in the benefits business? Wouldn’t it be easier to just leave it completely to the consumers? Easier, maybe, but probably not in the employer’s best interest. Benefits are a big part of an employee’s overall compensation and can play a significant role in attracting, retaining and engaging employees. According to the Metlife Employee Benefits Trends Study, 71 percent of employees who are satisfied with their benefits remain with their company, and employees who are satisfied with their benefits are four times more likely to be satisfied with their jobs. Many employers are finding private exchanges (or characteristics of exchanges) to be the most effective way to offer the best compensation package to their employees. But they do need help. And that is where technology comes in.

Technology is no longer optional
The world of benefits has become increasingly complex, especially with new reporting and compliance requirements set forth by the ACA. Health care exchanges have made it possible to offer more plan choices in a simplified way, but there are many more moving parts than in a traditional defined benefits model. To run an exchange effectively it is just not feasible to use paper plans to sign up employees for benefits. That is why more and more employers are adopting technology for benefits shopping and enrollment. Good benefits software saves employers time in administration and gives employees a much better benefits experience, educating them and engaging them along the way. Software with good decision support can be coupled with live support by licensed agents to make benefits shopping and enrollment quicker, easier and (dare I say it?) even enjoyable.

The 1980s taught us many things. Some things, like parachute pants and shoulder pads, are probably best forgotten, but the lessons learned from the shift to 401(k) retirement plans should be remembered well. Consumers ended up with more control of their retirement funds due to the shift, and now consumers are gaining much more control of their benefits coverage due to the shift to health care exchange models. So I say embrace the spirit of the 80s. Go put on your Members Only jacket, pop a Van Halen cassette in your boombox and rock on to the new wave of change health care exchanges are bringing.

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