Allison Martiny really didn’t have many options when choosing health insurance for her family at annual open enrollment. Only one of the two plans her employer offered made any sense, and even that didn’t include the dental coverage her kids need.
Then her company, a small IT recruiting and staffing firm in Atlanta called eCommQuest, did something you’ll see a lot more companies do in the next few years: Instead of sponsoring an insurance program that offered only a few choices, it is giving employees some money and sending them to shop for their coverage online in a marketplace operated by an outside firm.
Martiny and her colleagues can pick and choose, buffet-style, from a dozen or more plans offering insurance at different prices, with low to high deductibles and big or small co-payments, for medical, dental and vision coverage.
“I like it so far,” Martiny said. “It will take a little time to make sure we’re choosing the best option for us financially, but I prefer having the ability to make my own decisions regarding my family’s coverage.”
The outsourcing of employer-provided insurance to what are known as “private exchanges” stands to radically transform the way health insurance is provided in the American workplace, experts say. They have been described as similar to a 401(k) plan, and they could someday become as common as the retirement program.
For employers and employees alike, the health insurance program forces tough decisions. But while they offer both employer and employee something desirable in the bargain, the private exchanges also shift responsibility and possibly additional cost to workers, some of whom might not be prepared to handle it all.
“This is part of a fast-evolving strategy in which employers transition from the “defined benefit” strategy they have employed for decades, in which the employer was responsible for providing for a set percentage of the coverage expense, to a “defined contribution” strategy, in which the employer provides a set-dollar amount, said David Bottoms, vice president of The Bottoms Group, an Atlanta employee benefits consulting firm.
“This closely mirrors the evolution in the retirement plan space from defined benefit plans — pensions — to defined contribution plans — 401(k)s,” he said.
The very idea makes some people nervous.
“You’ve got to do all the legwork,” said Steve Rossey, 42, of Moreland, Ga., who gets employer-provided coverage now through his job working for a home restoration company. “I wouldn’t be a big fan of it. The common employee doesn’t know anything about picking the right insurance, and what they don’t know can cost them thousands of dollars.”
UNDERSTANDING PRIVATE EXCHANGES
Private exchanges, unlike the public exchanges, which were created under the Affordable Care Act and which opened on Oct. 1, are little known to most consumers. A survey by consulting firm Accenture found 83 percent had never heard of them, and only a million people are signed up for them now.
But health insurance consultants say they could be the next big thing, and employers in surveys admit looking at them seriously. Accenture estimates 9 million people will use them by 2015, and 40 million by 2018. About 170 million Americans currently get health insurance through an employer.
Private exchanges are emerging because of a confluence of factors. Improved technology allows for better online shopping. Consumers also are more comfortable shopping online for products such as insurance, and in some cases are demanding more opportunities to do so because they want more choices. And employers are increasingly concerned with managing their health insurance expenditures and see the marketplaces as a way to contain their costs.
The number of plans employees will have to choose from can vary, but a dozen or more is conceivable. While employers can be involved in picking the exchange and providing a subsidy, employees would have to make their own choices based on their research and any guidance offered by operators of the exchanges. Large firms such as Aon Hewitt, Mercer and Towers Watson are among those running them.
A few major companies, including Sears and Walgreens, have already announced that they are making the move away from traditional insurance programs that are selected and administered by employers and their human resources staffs. Others, including IBM and Time Warner, are moving their retirees to private exchanges.
Just this month, consulting firm Mercer announced it has signed up 33 employers, including Petco, to take part in its private exchange next year.
Under the exchange structure, workers will be able to customize the kind of insurance they want, but will take on the new responsibility of making sure they buy what is appropriate for them. Previously, their employer, for better or worse, presented them with just a couple or a few basic insurance choices.
Often, analysts say, they were offered more coverage than they needed — a “better safe than sorry” approach.
Employees using private exchanges typically spend less, and their purchases are more suited to their needs, said Alan Cohen, co-founder of Liazon, a private benefits exchange company that serves about 100,000 employees. It operates the exchange eCommQuest will use.
One risk for employees is that they might, for example, choose a higher-deductible, lower-premium plan that would save them money in the short term but could leave them undercovered.
Another risk to employees is that employers might gradually reduce the amount of money they contribute toward their insurance. Experts point out that employers can cut back on the insurance subsidies they provide their workers at any time, however, and many already have done so.