Private Health Exchanges: Preparing for the Affordable Care Act

As the U.S. moves toward full implementation of the Federal Affordable Care Act (ACA, also known as Obamacare), employers are seeing new challenges and opportunities in the provision of health coverage and other benefits to their employees.
Some predict that ACA will lead to cheaper, better, universal health care. Others predict a calamity. But most agree that the law will drive significant change in the way health care is delivered, paid for and insured in this country. Employers are left wondering how to plan for and manage those changes while containing costs and meeting their employees’ expectations.
Human resource consultants and product vendors are responding by aggressively promoting their services as an answer to the complexity and administrative headaches created by the legislation.  Outsourcing benefits administration functions to these specialists is one approach. Another approach is to engage one of several service providers that have launched private health insurance exchanges in the two years since the ACA legislation passed.
These exchanges promise to address two critical challenges facing employers -1) ensuring compliance with the ACA’s complex rules, in addition to any applicable state and local laws, and 2) securing appropriate coverage benefits for employees at an affordable cost.

What Are the New Private Health Exchange Options?
Individuals and small businesses may use public, government-run exchanges like Covered California to compare and purchase insurance plans.
Larger employers can continue to arrange their own health care programs. As an alternative, some will direct their employees to the public exchanges if the exchanges deliver better pricing, better service and greater options for their employees.  Sixteen states and the federal government will have such exchanges operating come January 2014. This constitutes a threat to existing payors, who may see their business migrating to commoditized public exchanges. Private exchanges recently launched by health insurers, brokers, and human resources and administration consultancies, including major players like Aon Hewitt, Mercer, and Towers Watson, offer individuals and businesses an alternative to the government-run exchanges and traditional payor health care plans. At a minimum, these exchanges generally offer:

· An online self-service portal for covered individuals

· Pre-packaged insurance products (medical, dental, vision, life, other)

· Standard benefits products 

In pitching their services to employers, private exchange operators are touting the prospective advantages of:

· Outsourced regulatory compliance

· Standardized benefits

· Simplified administration

· Reduced costs

 

Key Questions to Ask
What do companies need to know when they begin researching their options and negotiating with an exchange provider? Some key questions that employers need to consider include:

· What are the company’s objectives for the exchange and how will they be assured? 

· How will quality and costs be measured and benchmarked? 

· What levels of service does the company and its employees expect from a private exchange?  Just an online site where employees can research and select their insurance plans? A call center that can provide individualized advice? Or interactive integration with the company’s existing benefits administration infrastructure?

· What kind of contractual relationship should the company have with the exchange provider?  Some vendors are putting forward their “software as a service” (SaaS) contracts as the basis for the relationship, but such contracts are inadequate for a broader outsourcing relationship encompassing higher-level customer care and back office functions. Behind-the-scenes business processes are not part of a traditional SaaS deal and must be addressed through appropriate due diligence and contract terms.

· Who assumes fiduciary responsibility?  Service providers typically want to avoid any fiduciary duty. On the other hand, employers and other plan fiduciaries want to mitigate their ERISA fiduciary liability by engaging a co-fiduciary. Depending on the specifics of the arrangement, the service provider may be assuming a co-fiduciary role, particularly if the service provider will handle employee funds such as premium payments or reimbursement accounts.

· Which party is responsible for ensuring compliance with applicable laws as those laws change?  Allocating responsibility for complying with federal, state and local laws–particularly during a period of significant change like the ACA’s implementation–can be problematic.

No doubt there will be many turns in the road as the Affordable Care Act moves towards implementation.  Those companies that can’t afford to wait for the legislative dust to settle are being forced to plan in an environment of real uncertainty.   In this environment a clear strategic roadmap, supported by thoughtful contracting, is more important than ever.