Why should an employer offer a private benefits marketplace (also known as an exchange)? Our experience suggests the value proposition with a private employer marketplace can vary by the employer’s size.
Mid-size employers – defined as having over 100 employees and up to 5,000 employees – may have unique reasons for deploying a private exchange. Unlike organizations with significant resources that can be brought to bear, the mid-market views the tax penalties associated with not adequately covering their workforce as well as potential human capital costs as too onerous for them to walk away from offering group insurance. Also, the physical infrastructure in terms of staff and financial resources may be inadequate to continue to manage and innovate within their existing benefit administration platform.
In fact, recent reports point to continued growth in both the number of employers and employees on private employer marketplaces. And data shows that growth has been especially significant among mid-sized employers. Some employers considering private marketplaces anticipate cost savings as employee “buy down” to less rich benefit packages. Others have embraced defined contribution strategies to control cost, where they provide employees a set financial contribution toward their benefits to reduce volatility in benefit costs and managing benefit spend while attempting to get employees more engaged in their own benefit choices. However, since both of these strategies can be accomplished without a private marketplace, why should a mid-size employer deploy an exchange strategy?
Here are five things mid-size employers should consider when evaluating a benefit marketplace:
- Does the marketplace relieve much of the administrative burden associated with enrollment and benefits selection process?
This includes eligibility, payroll integration and ACA reporting compliance. All employers are looking to take advantage of technology and forego the “heavy lifting” associated with this administrative burden – especially since HR departments are often stretched thin. Yet employers should know that there will be more ACA compliance and reporting requirements down the road, placing yet another strain on the their internal resources. Having admin support from your exchange is critical. And, of the implementations that do not go smoothly, all too often it is due to the service (or lack thereof) and not the technology. So, it is important to understand how the work will be done and managed.
- Does the marketplace combine a range of products with decision-support tools to help make benefits selection more of a retail shopping experience?
In the case of a mid-size employer, the range of products available may be more extensive than what the employer could secure on their own or exceed what they’re willing to support in their benefit administration system. At the same time, employees want more choice in their benefit selection, and an exchange can make that easy.
- Does the marketplace provide a “total workforce solution” for benefits, meaning can IT enable full-time, part-time, retiree and contracted employees the access to shop for insurance?
By supporting multiple benefit models – both group and individual, simultaneously – the employer can address the needs of those eligible for group coverage and support those who are not eligible, such as contract and contingent (1099 and part-time individuals). The back-end business rules of some marketplaces can easily support this diversity.
- Does the marketplace offer a level of transparency as to benefit costs, whether or not it is done in conjunction with defined contribution?
Again, this can be done outside of a marketplace, but the reality is that most user experiences now are structured to mimic an online shopping experience, complete with virtual shopping carts and running totals on dollars spent. Consequently, employees have a much greater understanding of the costs and tradeoffs available with different benefit choices.
- Finally, does the marketplace give the employer the capability to engage employees beyond open enrollment and act as a gateway for other health and wellness tools (including cost and quality transparency tools)?
This might include a communications platform that is integrated with a Customer Relationship Management system to help HR engage employees throughout the year regarding their benefit options, particularly as they experience new life events (i.e., a pregnancy, moving to a new city, etc.).
The private employer marketplace is a new starting point for an engaged employee or consumer. The longer-term benefit of a private employer marketplace is to offer more personalized products and services (think high value and narrow networks or even new types of health insurance and drug coverage). The private employer marketplace lays the groundwork for helping employees select and manage their benefits to ensure health and financial security. This is the long-term benefit and vision that encourages mid-size employers to move in this direction, recognizing that their limited sources can be better deployed elsewhere.