December 12, 2012
Authored by: Chris Rylands
A while back, we posted some of our thoughts about compliance obligations that employers should consider before jumping into a private corporate health exchange. Since that time, we have had a chance to hear and research a few more details about how some of these private corporate health exchanges would work and recognize that some of the concerns we expressed are mitigated by the structure.
As we understand it, the policies offered through these exchanges will not be individual policies, but will be group policies issued in the name of the sponsoring employer. This alleviates concerns we had that employers might believe incorrectly that they were not sponsoring an ERISA plan and it limits the number of Schedule A filings an employer would have to make. It also addresses our concern about multi-state insurance requirements, since the insurance contracts would presumably be governed by the state in which they are delivered (most likely, the state of the employer’s primary office).
The exchanges we’ve heard about would offer specific, non-negotiable plan designs set up by the exchange provider, but with a broader selection of insurers than most employers typically obtain themselves. The broad array of insurers would allow employees to select the insurer with the most favorable network in his or her area, which is a feature an individual employer may not be able to secure on its own.
However, contrary to what many employers believe, the group policy for a particular employer would still be underwritten based on that employer’s experience; the experience would not be combined with other employers in the pool. To counterbalance that, the insurance products are rated on a regional basis, so that employers can take advantage of insurer efficiencies in regional markets.
On the flip side, the exchange provider is responsible for insuring the plans meet the necessary actuarial value thresholds to keep employers out of the “play or pay” penalties under health care reform due to the minimum value requirements. However, whether the products are ultimately affordable will depend on the level of employer subsidy provided.
The bottom line in all of this, at least from what we have heard so far, is that employers will essentially be giving up control of plan design in exchange for ease of administration. Whether that trade makes sense for any particular employer is a question each has to answer on its own. If you’re considering a private exchange, or if you have thoughts to share about private exchanges, let us know your thoughts!