By Barbara P. Gniewek (PwC) & Jonathan Har-Even (PwC)
While private exchanges are jockeying for market share and trying to meet the growth expectations of the street, many ask, why would you choose a benefit strategy that includes a private exchange (PIX)? While it is obvious that the answer has to do with cost savings to the employer, just how those cost savings are achieved is very different depending on the PIX. In fact, the models are changing and evolving quickly as are their value propositions.
While the value proposition of retiree health is pretty straight forward (fixing the financial liability, shifting the administrative burden), the value proposition for active health is not so clear. Private exchanges for actives are not just for employers who are looking to cut back on their benefit stewardship / responsibilities in the provision or design of benefits, nor are they only for industries with a lot of part-time / transient workers. Employers across industries are investigating the potential value of PIX to determine if they are a reasonable approach to providing benefits that will allow them to attract and retain critical workforce segments.
The “promise” of private exchange savings includes:
Financial savings: through increased consumerism (employees right-sizing their benefits options by buying down), defined contribution health care, the power of group purchasing (lower insurance premiums, ASO or PBM fees), carrier competition and insured rates
Network savings: best in class networks, high performing networks, use of narrow networks, contracting with ACOs, utilization of consultant cooperative purchasing arrangements
Integrated care management and/or wellness programs
Reduced HR cost through a shift of administrative responsibility
Interestingly, many PIX cite saving through several of these approaches. Additionally, some exchanges are selling the concept of a consistent experience over the various life stages of employment: part-time, full-time, retiree.
In addition to some of these savings, many exchanges provide other valuable services to employers including on-going consulting services, compliance, and benefits outsourcing. However, these are often provided at fee, or commissions are collected to fund these enhancements.
As new entrants come into the PIX marketplace and existing players refine their offering, they are enhancing capabilities that are reflective of their competition: moving from single to multi-carrier, adding broader administrative capabilities to support greater HR outsourcing, adding employee advocacy capabilities. This is creating a rather fluid value proposition, one that can be customized to meet a specific employer needs.