Group Benefits: To Exchange or Not to Exchange?

group-benefits

With rising health care costs and tightening regulatory requirements under the Affordable Care Act (ACA), employers are taking a hard look at their group benefits strategies. Overall, employers are still committed to providing employees a competitive group benefits package, but they’re increasingly on the hunt for new ways to keep costs down.

According to the 2015 Health and Well-being Touchstone Survey from PricewaterhouseCoopers LLP, many small and large employers are attempting to lower their group benefits costs through plan changes, including adding new options such as High Deductible Health Plans (HDHPs). Eighty-three percent of employers currently offer an HDHP, 56 percent offer an HDHP with a Health Savings Account Plan (HSA), and 18 percent offer an HDHP with a Health Reimbursement Arrangement (HRA).

And there are other options on the table …

  • Cost shifting through increasing employee contributions
  • Increased prescription drug cost sharing
  • Moving to a defined contribution approach
  • Offering more medical plan options to optimize discounts by offering network alternatives
  • Incentivizing employees to use Accountable Care Organizations (ACOs)
  • Expanding wellness programs

What about the exchanges?

Exchanges are an attractive option for employers looking to shift health care decision-making to their employees. Employers with fewer than 50 full-time employees have the option of sending workers to the public exchanges without penalty, while for other companies, private exchanges can offer more affordable insurance than they could get on their own. Twenty-eight percent of employers are considering moving their active employees to a private exchange according to the PWC survey.

But do private exchanges really solve the health care cost issue?

The insurance world talks about private exchanges and the employer defined contribution model as if they’re a magic pill for controlling health care costs while offering employees benefit options that fit their lifestyle. Several brokerage firms have even gotten into the game by creating or buying exchanges.

While a private exchange – where your employees can pick and choose the benefits they want – can be a great option, will it really solve the health care cost issue?

In our opinion, it won’t.

It’s true that a defined contribution within an exchange can bring financial stability to an employer, since the employer has one set cost per employee per month. But it does nothing to actually manage or maintain health care costs, and certainly will never do anything to bring health care costs down.

Also, over time, unless the employer’s contribution continues to increase every year – and it likely won’t be a small increase that’s required – businesses will discover that keeping health insurance premiums at the ACA’s “affordable” rate for employees isn’t getting any easier.

Then there’s the upcoming “Cadillac tax.” If you offer an exchange to your employees and some choose to enroll in what will soon be considered a Cadillac plan, you could be faced with the 40 percent excise tax on employee premiums, simply because you’re being kind enough to offer such a rich benefit plan.

Bottom line: Are private exchanges really the answer for group benefits? Or should they be trading in the idea of a private exchange for something better, something that actually helps them reduce health care and health insurance costs, and something that can actually affect their bottom line?

Check out our 4-part blog series titled “The High Cost of Health Care” from earlier this year and subscribe to our blog (in the upper right corner of this page) to receive our upcoming series on Real Savings for Employers: The Only Way to Cut Health care Costs. It’s no longer just an HR conversation; benefits have become the CFO’s “frenemy”!

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