The employer-sponsored, private benefit exchange is, at its core, a benefit administration and enrollment system paired with a dollar defined employer plan contribution. Employees have the ability to select the plan options that work best for their family and, to the extent that they spend more than the employer has contributed to the plan, the employee pays the difference as a pre-tax, Section 125 plan eligible payroll deduction.
Typically, for all but the largest employers, one health plan provider must be selected; however, a range of up to eight plan options provided by the chosen health carrier may be available as opposed to the two or three typically available in most traditional settings. Additionally, the employer contribution to the plan can be customized based upon the employer's preferences and/or their specific obligations under ACA's Employer "Shared Responsibility" Mandate.
Many small employers confuse the "employer sponsored private exchange" concept with the SHOP Exchange to be facilitated by, in Georgia's case, the Federal government. The SHOP Exchange will provide the potential benefit of a tax credit for certain small employers with less than 25 employees and very low average earnings; however, for most employers, the network access issues for plans elected through the SHOP Exchange will make the private exchange a preferential option.
To more fully elaborate on the importance of network access, most people are unaware of the fact that an Atlanta-based employee selecting a Blue Cross Blue Shield health plan through either the SHOP Exchange or via www.healthcare.gov will not have access to providers at Emory Healthcare, Wellstar Health System or Piedmont Health System. A group plan selected in the private market with Blue Cross Blue Shield will have the flexibility to provide a network option including these premier providers. As the network and coverage differences related to government exchange based plans come to be more fully understood, employees will be clamoring, perhaps more than ever, for access to employer-sponsored private health care options.
Now, with discussion of the SHOP Exchange out of the way, here's how the employer sponsored benefit exchange will work in practice. First, the employer's benefit broker performs a review of the coverage options available in the market, as they do today. Secondly, the employer selects the carriers that they wish to offer for medical, dental, vision, disability, life insurance, etc. and determines what dollar amount they wish to make available to employees. Lastly, once the enrollment system is programed, employees securely access the system, utilize the decision-support tools that help them determine which coverage options might be best for them, and then the employee makes their coverage elections electronically.
Now, you may be thinking, "that all sounds too good to be true" and, as with most things, there are potential speed bumps to consider as you determine whether the private exchange approach is right for you.
In particular it is important to realize that not all private exchanges are created equally. Specifically, each private exchange integrates most effectively with a defined set of insurance carriers. As such, working with a broker who has access to several exchange options will be of benefit to your organization. Additionally, your employees will need to take more ownership in their insurance selections than perhaps they have in the past. While most employees will welcome the increased choice available, some employees will require a little extra hand-holding at first.
Minor caveats aside, the long-term benefits of the private exchange structure are significant. For employers, the private exchange enables more effective management of benefit plan cost, maximizes tax benefits, minimizes compliance risk, streamlines administration, and provides employees with the ability to enroll in the array of insurance plans that most effectively meet their individualized needs.
For employees, the private exchange allows a benefit shopping experience unlike they have had previously, while still enabling them to enjoy the network access and pre-tax premium benefits to which they have come accustomed under their employer sponsored benefit programs.
David Bottoms is senior vice president of The Bottoms Group and a principal of TBX Benefit Partners.