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Employers eye private exchanges for employees’ health benefits

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By Jerry Geisel, Crain News Service

LINCOLNSHIRE, Ill. (Feb. 20, 2014) — While only a sliver of employers now offer employees health insurance coverage through private exchanges, many are actively considering the approach, according to a survey released Feb. 19.

One-third of more than 1,200 employers surveyed in December and January by Aon Hewitt, a Lincolnshire-based human capital and management consulting service, said offering coverage through private exchanges will be their “preferred approach” over the next three to five years. Five percent of respondents now use private exchanges.

Interest in the exchange approach is being driven by rising costs and the desire to give employees more plan choices, Aon Hewitt consultants said.

“Private health insurance exchanges are generating a great deal of interest among employers because they create more predictability about future healthcare costs and give employees access to a broader range of health choices,” Jim Winkler, Aon Hewitt’s chief innovation officer for health and benefits in Norwalk, Conn., said in an email.

The exchange model deploys a defined contribution approach in which employers provide a fixed contribution with employees paying more or less for their share of the total premium depending on the level of coverage they choose. Through that approach, an employer can cap what it will pay for health plan coverage for its employees.

At the same time, exchanges typically offer employees more plan choices than their employers previously provided.

Keeping role as plan sponsors

While more employers may offer employees coverage through private exchanges, few intend to end their roles as plan sponsors. Over the next three to five years, just 5 percent said they will end plan sponsorship.

There are several factors, including higher costs, for the continued willingness of employers to remain in the group market, Mr. Winkler said.

For example, paying the Patient Protection and Affordable Care Act (PPACA) $2,000-per-full-time-employee penalty that will be assessed on employers not offering coverage, plus boosting employees’ compensation to help offset their costs in buying coverage in public exchanges, is likely to exceed many employers’ current costs in offering coverage, he said.

“In addition, the competitive dynamic makes it difficult for any employer to be the first or second in their peer group to stop offering coverage,” he said.

Pre-Medicare retirees

In a separate survey of 424 employers involving retiree healthcare coverage, about 20 percent of respondents said they are considering moving some or all of their pre-Medicare retirees to public exchanges.

“This movement will be slow and methodical, as the public marketplaces evolve and as employers understand the implications of the 2018 excise tax, which will only impact group-based health insurance plans,” John Grosso, an Aon Hewitt senior vice president in Norwalk, said in a statement.

That PPACA provision is to impose a 40 percent excise tax on group health plan premiums that exceed $10,200 for single coverage and $27,500 for family coverage in 2018.

This report appeared in Crain’s Business Insurance magazine, a Chicago-based sister publication of Tire Business.

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