Private Health Insurance Exchange Model: Viable New Approach to Employee Benefits or Elaborate Cost-Shifting Scheme?
WillisWire expert warns organizations must address underlying health care cost drivers to make the private exchange/defined contribution
NEW YORK, November 20, 2013- With momentum building around the private health insurance exchange marketplace, and many
organizations considering the marketplace as a way to redefine their approach to employee benefits, a WillisWire
blog post and video published today warns organizations about the potential pitfalls in shifting to a
private exchange/defined contribution strategy.
"Firms that are considering migrating to a private exchange/defined contribution strategy without considering the overall management of
the underlying health care trend, risk simply engaging in an elaborate cost-shifting process," said WillisWire expert
Jim Blaney, CEO of Willis North America's Human Capital Practice, a unit of Willis Group Holdings
(NYSE:WSH), the global risk advisor, insurance and reinsurance broker. "Until we acknowledge and address the fact
that it's our high degree of demand and utilization of health care resources that is driving
costs, will we innovate a private exchange strategy that is really meaningful."
Under the defined contribution model that underpins the exchange system, he explained, once the employer's defined contribution
is exhausted, "the entire cost is borne by the employee." Failure to bring down health care
cost inflation, he said, could "result in an employee of the future that won’t be able
to afford health care" in the exchange environment.
"The private exchange/defined contribution model offers a variety of benefits to organizations looking to advance consumerism as
we know it today - by providing employees more accountability, responsibility and choice within a defined
contribution environment," he said. The way to make this model sustainable, he said, is to integrate
wellness programs and other health management initiatives into the exchange strategy to reduce consumption of medical
"Employers that have invested in worksite wellness and total population health management have seen the benefits related
to increased productivity, reduced absenteeism and lower health care costs. Organizations that maintain that strategy within
the private exchange construct are advancing consumerism in a healthy way that allows employees greater choice,
flexibility and accountability, in a more sustainable cost-containment environment."
According to Blaney, recent data suggests between 5% and 20% of mid-market firms will move to private
exchanges by 2017. The private exchange model is proving particularly appealing for employers with high concentrations
of seasonal workforces and those in the retail and hospitality sectors. Organizations that may be subject
to additional responsibilities for providing coverage under the Affordable Care Act are also considering a shift,
There are currently a number of private exchange strategies on the market today. "The majority of these
strategies," he said, "focus on aggregating volume as a means to drive cost down. We believe
that's not a sustainable cost containment measure. We believe that until we start to address the
underlying factors that drive consumption of health care resources we will not be able to stabilize
and reduce medical trend."
Click here to read the blog posting and watch the full video interview on WillisWire.
Willis Group experts regularly post their thoughts on WillisWire about the risk and insurance implications of significant
events and trends, giving readers real-time information and insight into risks facing their business.
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