At next week’s AHIP conference in Seattle, we expect private exchanges and defined contribution plans to be top of mind with attendees. Amid the turmoil with the rollout of the public health insurance exchanges, employers continue to struggle with the cost of healthcare. Many large employers are considering shifting their employee health benefits from a defined benefit to a defined contribution, similar to the shift from pensions to 401Ks over the past thirty-plus years.
Around the country health insurance carriers, brokers, and technology firms are creating private exchanges for employers so employees can access health insurance and ancillary benefits products. It’s likely that most of the plans on these exchanges will be underwritten by the insurance carriers instead of the employer self-insuring the plans. In addition, the transition to a private exchange may enable the shift to defined contribution.
Employers are making this change for a few reasons, but principally it is to make healthcare costs more predictable, with the ultimate goal of lowering the impact of healthcare costs on their bottom lines. But what will it take to achieve that goal? Unless we see a reversal of healthcare cost inflation trends, plans on private exchanges will increase in cost annually, or require higher deductibles or copays from individuals. Thus, to retain employees (and keep them happy) it would seem likely that employers would be required to increase their health benefit contribution or wages at a similar rate.
Moving to a fully-insured model will remove the risks associated with healthcare claims and higher-than-usual spend by plan participants, but most employers already buy stop-loss insurance to cover high-dollar claims and cap their healthcare spending risk. In our view, a key to reducing the risk of rising healthcare costs to employers may lie in employers enabling their employees and their dependents to lead healthier lifestyles.
Moving from self-insured to fully insured healthcare spend may be a very rational business decision for an employer. Private exchanges will offer employees a wide array of benefit plans with many attributes attractive to both employers and employees, and may well justify the widely published private exchange growth projections. It will be interesting to see whether private exchanges will get employers off the hook for healthcare costs.
Next week in AHIP Sneak Peek ‘Volume 2’, we’ll bring you our latest thinking on private exchanges, another topic that’s front and center of both our advisory work and research agenda — if you’ll be at AHIP and have interest in a discussion on defined contribution plans or private exchanges we’d like to meet with you. Until then, let us know what you think.