There’s something new in the health insurance arena that is not Obamacare but that is causing nearly as much confusion and concern. It is private health insurance exchanges—not to be confused with the government-run insurance exchanges, or marketplaces, that are part of the Affordable Care Act, known as Obamacare.
The idea is that rather than selecting and managing their own health insurance programs, employers provide payments to eligible employees and/or retirees, who then shop for subsidized insurance on a privately run exchange made up of a range of plans from one or more insurers. For many employees and retirees, this new way of obtaining health insurance already is here or on its way, and your employer could be next.
A recent study by benefits consultant Aon Hewitt found that 28% of large and midsize employers expect to participate in a private health exchange within the next three to five years. Management consulting company Accenture PLC projects that 40 million Americans will get their health coverage this way by 2018.
Walgreens is shifting about 160,000 employees out of its company health plan and into an online private exchange starting in 2014. Sears Holdings and Darden Restaurants, which owns the Red Lobster and Olive Garden chains, announced similar changes last year. IBM and Time Warner are shifting thousands of Medicare-eligible retirees to private exchanges, and Caterpillar and DuPont have done so. Both new and existing retirees will be affected.
Five things you need to know if your employer, your spouse’s employer or a former employer that’s providing you with retiree health benefits switches from employer-provided coverage to a private exchange (also see three ways to cut your costs now—click here…)
You’ll probably pay a larger share of your health insurance costs down the road. Employers making the switch tend to reassure their employees (or retirees) that the company will pay as large a share of their health insurance costs as before. And that’s probably true—for now. Trouble is, health insurance costs inevitably rise over time, and it’s very unlikely that the subsidies that employers provide to help their employees purchase coverage on these exchanges will keep pace.
Currently, many employers feel that their bottom lines are at the mercy of rising insurance premiums. When health-coverage costs rise—as they do virtually every year—employers must either shell out more for employee benefits or risk alienating those employees by seeming to cut back on benefits.
With the private exchanges, employers can provide a fixed amount of money each year for employees to use to obtain coverage through the exchange. When insurance premiums rise, the employer doesn’t have to look like the bad guy—it can accurately note that its contributions to employee health coverage are as generous as ever…but the employee will pay more.
Your contributions to coverage costs still will be pretax. Your employer almost certainly won’t pay 100% of your cost of obtaining health insurance through a private exchange. The good news is that your share of the premiums will be withdrawn from your paycheck on a pretax basis, just as it typically is with employer-provided group health plans. That’s not the case if you obtain coverage through an Obamacare exchange—those premiums are paid with post-tax dollars. On the other hand, many of the people who participate in Obamacare exchanges can get tax credits that lower out-of-pocket costs.
Your insurance options are likely to improve—but how much they improve depends on which exchange your employer selects. Most private insurance exchanges are being established by benefits consulting firms such as Aon Hewitt, Buck Consultants, Mercer and Towers Watson. These likely will offer a wide range of coverage options—in many cases, more than a dozen different plans in all from multiple insurance companies—plus online tools to help employees select the plans that are best for them. In contrast, the typical employer health plan offers only one, two or three coverage options.
With more options, you can select a plan that best fits your needs, perhaps because it includes your doctor in its network or because it covers a type of health-care provider you frequently use—such as chiropractors or psychiatrists—particularly well. Different plans can have substantial differences in terms of premiums, deductibles, co-pays and other costs, too.
However, insurance companies such as Aetna also are starting to set up private exchanges. Insurance company-backed exchanges might offer plans only from that particular insurance company, resulting in a far less impressive range of options.
Your network of doctors and hospitals might become more limited. Insurers know that when people select insurance from an exchange, they generally do so primarily based on costs such as premiums, deductibles and co-pays. One of the few ways that insurance companies can offer lower costs and still make a profit is to restrict plan members to a small number of health-care providers. That way, the insurer can negotiate very aggressively with health-care providers and include only those willing to charge relatively low rates.
One thing we’ve learned from the Obamacare exchanges is that when health insurance companies compete with one another on an exchange, the result often is plans with extremely limited provider networks. With these plans, only a relatively small number of specified doctors and hospitals are covered at in-network rates.
Expect less help from your employer. If your employer shifts its employees to a private health-care exchange, there’s a good chance that human resources cutbacks are in your company’s future. With no company-sponsored health insurance plan, there’s no need for the company to pay employees to select and administer that plan.
That could mean that there won’t be anyone on staff to answer your insurance benefits questions. Instead, you might be told to contact the private insurance exchange with your questions, which may be a cumbersome process.
