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More companies benefitting from private health insurance exchanges

Private insurance exchanges, which, unlike public exchanges, can address the needs of employers of all sizes, are gaining favor among businesses.

Since the passage of the Affordable Care Act (ACA) in 2010, more attention has been focused on public health insurance exchanges, rather than private exchanges. Nevertheless, during this time, private health insurance exchanges have flourished quietly, and this growth is expected to continue for the next several years.

Approximately six million U.S. employees and their dependents enrolled for their 2015 employer benefits through private health insurance exchanges, up from three million in 2014, according to an April report from Accenture, a consultancy based in Dublin, Ireland. And by 2018, 40 million people will be enrolled in private exchanges, Accenture estimated.

Under the ACA, employers with 50 or more full-time employees (or full-time-equivalent employees) are required to offer healthcare coverage to full-time employees and their dependents or pay penalties. With private exchanges, employees -- and some retirees -- go to online portals with subsidies from their employers to buy private group healthcare coverage that complies with the ACA. The idea behind private health insurance exchanges is similar to the way public exchanges operate under the ACA, which offers government subsidies to buy private health insurance for qualified, uninsured Americans.

Private insurance exchange interest on the rise

Private exchanges can address the needs of employers of all sizes, unlike public exchanges, which are aimed at individuals and small groups. Although the government is not involved in private health insurance exchanges, the products these private exchanges offer must still conform to ACA requirements.

Private exchanges are running rampant. They are growing at an accelerating rate.
Shawn JenkinsCEO, Benefitfocus Inc.

By early 2016, all employers with 50 or more employees that provide self-insured health coverage to their employees will be required to file annual returns with the IRS reporting what health insurance they offered those employees.

With more enterprises now considering moving to a private health insurance exchange model to save money and offer top-notch experiences for their employees, company executives, as well as HR and IT managers, are beginning to contemplate what such a move means for their business processes.

"Private exchanges are running rampant. They are growing at an accelerating rate," said Shawn Jenkins, CEO of Benefitfocus Inc., based in Charleston, S.C., a provider of a cloud-based benefits technology platform on which other companies build their private exchanges.

Jenkins said Benefitfocus operates 25 different private exchanges for its customers through health insurance companies or firms like New York-based Mercer LLC, which runs one of the largest, independent private exchanges in the country.

Companies benefit financially from private insurance exchanges

"What's really interesting about what's happening with these private exchanges is, inside the enterprise, if I'm a CIO, a CEO, a chief financial officer or a benefits administrator, pretty quickly I realize two things -- there's a big financial component to it, so this makes sense for us financially," Jenkins said. "But the other piece then becomes, so what's it going to do to my technology? For example, is it going to destruct my ERP installation? Do I have to replace my HRIS (human resource information system)? What about my payroll vendor?"

Bruce Elliott, manager of compensation and benefits at Society of Human Resource Management, based in Washington, D.C., agreed that private exchanges are continuing to expand. "We're already starting to see that with companies like IBM, CVS, Rite-Aid, UPS moving to them," he said.

And that means there will be an even bigger impact as it relates to senior executives, chief human resource officers and HR and IT professionals to the extent that more companies are moving from a defined benefit model to a defined contribution model to manage their overall benefits costs -- employers giving employees a chunk of money and access to a private exchange to pick the plan that's best for them, Elliott said.

"So, IT managers are going to have to adapt their benefit administration systems to communicate with private exchanges though various data feeds," he said. "There will need to be data feeds from the employers' HRIS platforms to the private exchange providers' platforms."

The challenge: Making benefits offerings competitive

But that shouldn't be a problem because most employers' HRIS systems already talk to benefit vendors through data feeds, and this is just a new data feed, Elliott said. The bigger challenge for employers will be communicating this change in models to employees and continuing to make their benefits offerings competitive.

An employer that gives its employees choice through a private exchange is, in effect, outsourcing a solution and that provider is coming in with a private exchange tool, said Rosemarie Day, president of Day Health Strategies, a consulting firm in Somerville, Mass., that's focused on the design and implementation of health care reform programs.

"And [the providers] do the training and education around how employees should use that tool and those outsource firms invest in keeping the tool up to snuff and improving it," Day said.

Exchange participation affects companies in many ways

There are a number of ways participating in private health insurance exchanges can affect an enterprise, Jenkins said. One revolves around the proliferation of data types and trading partners. When a company moves to a private exchange, the number of insurance carriers grows significantly, Jenkins said. And that means employee and family data has to flow back and forth between the enterprise and those trading partners, as well as between a whole host of insurance programs.

"There are more people to interact with from a data exchange standpoint, which certainly impacts the financial people and the technology," he said. Smaller employers are probably collecting this data on spreadsheets, while larger employers might have HR systems, benefits systems and even payroll systems.

"[So, for larger employers] there might be three disparate systems and all three of those are going to have to connect because you're going to need benefits data, you're going to need to track employees' employment and hours worked," said Karen Frost, senior vice president of health strategy and solutions at Chicago-based Aon Hewitt, which launched a private exchange in 2012. "And then you need your payroll [vendor] or your tax preparer to actually file the information with the federal government like they did with W-2s and other tax forms."

Disparate systems need to be coordinated

There needs to be coordination because not one system has everything that's needed -- it's those three systems together that have all the required data, Frost said.

Additionally, benefits administrators have to aggregate that healthcare data from those multiple sources, analyze it, and translate it into information the employer can use to identify the drivers of healthcare costs and design plans that better meet the needs of their employees, according to Jenkins.

Once the data is aggregated, employers also have to decide whether they want to store it on-premises, Jenkins said. The data, which contains personal health information, has to be stored and shared -- with health insurance exchanges and the IRS -- securely to avoid violating the Health Insurance Portability and Accountability Act.

"Do you even want to house that information? Do you want to have it on-premises? The answer probably is no," he said. "Then you have all the regulations about protecting it. So, that's just another factor for these executives to begin to consider."

For example, what Aon Hewitt does is have each of the employer's disparate systems -- aka source systems -- own its own data, which is then brought together for government reporting, Frost said.

"It's at that point that we ask all the source systems to send to one place everything that's needed, and then if it's needed for government reporting, we want whoever is doing W-2 and government filings -- they already do it -- to do that kind of filing," she said. "If it's a notice that has to be sent to employees, we might say, 'We'll do it.' The way we look at it is, who has the data and who is the most logical party to complete the action based on the capability they already have, whether it's government filing, whether it's statements, or some other kind of reporting."

When it comes to ACA compliance, employers could also outsource reporting requirements to third parties rather than implement an ACA reporting system in-house, said Day, who served as the founding deputy director and chief operating officer of the Commonwealth Health Insurance Connector Authority in Massachusetts.

"That's just not stuff you want to have any headaches around," she said. "You want to hand that over as fast as you can so that outsource firms deal with all the data and IT issues."

Next Steps

Read more about the IT impacts of the Affordable Care Act

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Learn how integrating HR and finance can help

Public health insurance exchanges and what it means for HR, IT


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