October 17, 2013 - William Gallagher Associates
The
Marketplace concept is the backbone of PPACA, to the point of requiring each
state to operate one, in some manner, as of January 1, 2014. In fact, on October
1, 2013, every employer was required to furnish employees with a Model Notice
that announced the existence of the public Marketplace along with more
information about where to find one. A gMarketplaceh is an online health
insurance clearinghouse from which individuals can select a health insurance
plan among several insurance carriers and varying plan designs. The Marketplace
is a concept that we will all likely become more familiar with in the months and
years to come, some of us sooner rather than later.
A public Marketplace is a very convenient forum that addresses several PPACA
goals: to mete out the health insurance premium subsidies to those who qualify,
to standardize health plan offerings, to engage
consumers in the selection process, to inspire price competition among the
insurance carriers, and to offer a solution for individuals who simply do not
have access to employer-sponsored coverage.
To make matters a little more complicated, there are both public and private
versions of a health insurance clearinghouse. gPublic marketplacesh are mandated
under PPACA and offered to individuals, who may qualify for premium subsidies so
long as their household income is lower than 400% of the Federal Poverty Level,
and they have no access to affordable coverage through an employer plan. Public
marketplaces also exist for the small business segment, known as Small Business
Health Options Program (SHOP). SHOP marketplaces do not provide premium
subsidies , but allow premiums to be paid on a pre-tax basis. The state of
Massachusetts operates a fairly sophisticated public marketplace by the name of
The Health Connector, which was borne of Mitt Romneyfs Massachusetts Healthcare
Reform law back in 2006.
gPrivate exchangesh, by contrast, are generally run by healthcare consultants
or other entities and are offered to groups of very large employers for the
benefit of their employees. Though federal premium subsidies are not available
through a private exchange, an employer can contribute to the purchase of
healthcare through a private exchange, most typically a flat dollar amount for
each employee.
| Public Marketplace |
Private Exchange |
| Federal premium subsidies available |
No federal aid available |
| Available for individuals and small businesses |
Available for employees of a certain employer |
| Post-tax premiums (for individuals) |
Pre-tax premium payment allowed |
| Offer a variety of carriers and plans |
Single carrier or multiple carrier models |
| Individual policies, not protected under ERISA |
Group coverage protected under ERISA |
PPACA may not have invented the idea, but the resurgence of the health
insurance clearinghouse concept is an exciting development for employers today.
Indeed, there have been positive news reports about retail giants such as
Walgreens and Sears embracing the concept for tens of thousands of employees.
There are many advantages for a large employer, for example:
- Allows an employer to earmark a specific budget for health insurance: Set
a defined contribution amount per employee per year. Fluctuations only
relevant to headcount.
- Enables employees to shop for the level of coverage that is right for
them. One size does not always fit all!
- Considered bona fide employer-sponsored group coverage. Employee protected
by all rights under ERISA, COBRA, HIPAA, etc.
- Promotes consumerism and cost awareness, two missing elements in group
coverage over the past decade.
- Streamlines plan administration and takes many tasks off the employerfs
plate, although some involvement is still necessary.
- Reduces the effects of adverse risk on the plan, the insurance carrier
generally assumes risk for all claims.
Despite the fact that private exchanges offer so many solutions for certain
employers, there is an undeniable layer of bureaucracy that exists in this
approach. In addition, itfs hardly an exact science. Employers need to be aware
of some of the pitfalls of offering coverage through a private exchange, not the
least of which is that it may take some time for a well-crafted model to emerge.
Some drawbacks of offering coverage through a private exchange include:
- Is limited in availability to very large employers such as national retail
chains and the like. While models may emerge for middle market groups, there
is yet to be any evidence of that happening.
Would generally require the
employer to fully insure the medical plans, which may be perceived as a
drawback if the employer is coming from a self-insured setting.
- Sending employees off to a third-party may distance the employer from the
offering of health insurance; employees may see less value.
- Will require a type of unknown administrative support from the employer
that may involve IT expertise, etc.
- Employers will have a little role in the annual rating of the premiums on
the plan, especially if the private exchange is shared with other
employers.
- Employer education would become even more important; employees will need
guidance on how to select a plan for them, especially if the offerings are
robust.
The correct approach depends on the employerfs size, culture, budget and
employee benefit goals. It is important that employers take some time to
quantify that now before more choices start emerging. Is this approach a way for
employers to effectively outsource health insurance or will it result in
de-valuing one of the core offerings employers have always been able to use to
attract and retain employees?
About the
Author
Sara
LaVallee is a Senior Vice President at WGAfs Employee Benefits Practice, where
she focuses on full-scale service to large groups. Her role involves the
handling of all lines of coverage in an account management and retention
capacity. She is also a key member of the Health Reform Advisory team at
WGA.
617.646.0355 | SLaVallee@wgains.com
| Connect with Sara on LinkedIn
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