Private Exchanges Emerge As Option to Corporate Employee Benefit Plans

Employers are reconsidering their role as primary provider of healthcare advantages to employees and their dependents as costs continue steadily to climb and compliance related expenses from the Affordable Care Act (also called "Obamacare") enhance the burden.

Pharmacy giant Walgreens recently announced plans to go 120,000 employees from the company-sponsored intend to the Aon Hewitt Corporate Health Exchange in 2014. Within the move, Walgreen Co. provides eligible employees with payments for the subsidized purchase of an idea on the private-exchange marketplace.

Sears Holding Corp. and Darden Restaurants announced plans earlier to implement an exclusive exchange provider for healthcare benefits, also through Aon Hewitt.

Many companies began tinkering with private exchanges eight years back, when accounting changes forced public corporations to reveal their future health-care obligations. The move toward private exchanges has gained momentum since passing of the Affordable Care Act.

In a Wall Street Journal interview, Helen Darling, president of the National Business Group on Health, speculates that the recent economic recession can also be a contributing element in the private-exchange boom. She reports that employers are starting to "forget about the idea they could provide benefits without constraints."

Private exchanges such as for example Aon Hewitt generally offer policies from the host of insurers. Contracting companies give employees a set dollar amount with which workers can look for insurance through the private exchange. Qualified employees choose the plan best suited with their medical needs and budget. The purpose of private exchanges would be to create competition that lowers charges for employees within their expanding role as healthcare purchasers.

Time Warner Inc. announced plans this month to go its retiree benefit program to increase Health, a big private Medicare exchange run by Tower Watson & Co.

Extend Health may also begin providing retiree medical benefits for 110,000 International Business Machines Corp. (IBM) retirees in 2014. IBM told its retirees that its current coverage plan will end on Dec. 31, 2013. In a recently available employee notice, IBM reports:

"Healthcare costs under IBM's current plan choices for Medicare eligible retirees will nearly triple by 2020, significantly impacting your premium and out of pocket costs."

Up to now, Extend Health reportedly has registered over 300 companies, and contains jumped from three corporate customers by the end of 2007 to 76 by the end of 2010. About 1 / 3 have joined Extend Health in 2013 year alone.

Private Healthcare Exchanges from the Policy Perspective

Large employers like IBM and Time Warner are embracing private exchange programs in order to escape the healthcare business.

Apart from the cost of healthcare premiums, employers who manage their very own employee benefit plans must shoulder the responsibility of plan maintenance. By shifting the program management to an exclusive exchange, the employer is free of lots of the internal embedded costs connected with benefits personnel, communications programs, enrollment, and complaint management. As the premium contributions will stay a line item expense in the corporation's income statement (and could not change significantly), the operating costs will undoubtedly be assumed in large part by the exchange.

More importantly, employers will undoubtedly be relieved completely or partly of the legal and fiduciary liability that accrues to plan sponsors and administrators.

Private healthcare exchanges allow corporations to look at the defined contribution model now popular in 401(k) pension plans to the employee benefits market. Instead of providing a "defined benefit," employers only will contribute a set sum to employees for used in acquiring health insurance.

If healthcare costs continue steadily to climb needlessly to say, private exchanges may also shelter corporate sponsors from needing to deliver the bad news to current employees or retirees that their increasing premium payments may buy a declining degree of coverage. The employer's obligation is to give a subsidy, leaving employees with the responsibility of determining how exactly to allocate their healthcare budget.