Exchanges may not be the best solution for your plan

By Shawn Patterson
Fri, Jun, 19, 2015 @ 10:06 AM

shawnpatterson-resized-600Private exchange enrollment has not skyrocketed as predicted, especially among large employers. The reason seems to be that exchanges are relatively new and have not demonstrated an ability to deliver more value than a traditional group plan. There is confusion and a lack of consensus about exchanges and long-term affordability, employee engagement and retention, potential adverse selection and cost shifting.

Therefore a deliberate evaluation of exchanges is recommended before embarking on changes. Following are considerations large employers have expressed about their exchange decisions.

Consumer choice and adverse selection

The financial case for exchanges remains vague. Hypothetically, bringing buyers and sellers together creates competition among carriers, drives efficiencies of scale and provides consumers with more choice. Greater choice allows individuals to find the most value for their premium dollar. However, insurance is based on the majority of people paying premiums in excess of the value they receive in order to offset costs for those require more services. Greater choice for employees has the potential to shift cost to the employer over time due to adverse selection.

Loss of benefit plan control

Some exchanges encourage moving to a fully-insured plan. The economics that lead large companies to manage their own risk don’t change when they enter into an exchange, nor does the desire to influence plan design, vendor selection or utilization management options, among other factors.

While some employers consider getting out of health plan administration an appealing proposition, the companies may also lose substantial control about how their plans operate. That may be why early adapters of have been employers with low wage employees, where an exchange may be perceived as a new benefit versus a take away from an existing program.

Benefits are a key consideration among current and prospective employees. Health benefits, for many employers, become part of the company’s brand. Losing control over plan design could have broader business implications.

Objective advisors

Large employers frequently engage national consulting firms to help evaluate benefit options including the decision to move to an exchange. Now, many of those same consultants offer their own exchanges, introducing a potential conflict of interest. Exchanges drive a reliable annuity stream that far exceeds the business potential of consulting services alone. Company procurement departments should be made aware when a consultant enters the exchange business and take steps to assure that consultant remains objective and does not inappropriately self-refer business that is not in the company’s best interest.

Furthermore, one consultant exchange may feel uncomfortable providing product details to a competing consultant as part of a RFP process, leaving the potential for no-bids and fewer participating vendors. Obtaining transparent data within consultant exchanges is virtually impossible, which underscores the need to seek independent advice to understand the financial implications to your health care and pharmacy spend.

It’s worth a look

Exchanges represent a new and interesting option for packaging, purchasing and delivering health benefits. It’s an area that is definitely worthy of a thorough evaluation. Each organization should have a clear understanding of its objectives before evaluating new options. Also, if using benefit consultants in the evaluation process, companies should be knowledgeable about potential conflicts of interest that may bias the ability to deliver an accurate and independent recommendation.

 

Mr. Patterson is practice leader at Burchfield where he is responsible for growth, retention and profitability as well as product development. He serves as strategic counsel for clients and prospects as they identify prescription drug benefit goals and the means to attain them. For more information, call 800-778-1359 or send a note to burchfieldgroup.com/contact/.

The Burchfield Group helps self-insured employers optimize the value of their PBM and specialty pharmacy relationships. As an independent consulting firm you can trust that our recommendations are always aligned with your best interests.

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