As fall benefits enrollment approaches, employers will need to prepare for what one expert calls "the biggest change to occur in employee benefits since managed care": the introduction of public and privately run health insurance exchanges.
Some 44 percent of employers believe that private exchanges, or online marketplaces, will be the preferred way to provide health care benefits in the next three to five years, according to a 2012 survey by Lincolnshire, Illinois-based consultancy Aon Hewitt.
Between the growing number of companies expected to introduce a private exchange later this year and the state-run exchanges that open for business on Jan. 1, 2014, employee communication will be critical in the coming months, benefits experts say.
Recently released federal guidelines require employers to notify their workers of eligibility requirements for their state exchange by Oct. 1, 2013. To the relief of many, the U.S. Labor Department also provided model notices that employers can give to their workers, which eliminates the need to develop their own notifications.
"It's a huge paradigm shift," says Alan Cohen, chief strategy officer at Liazon Corp., a private benefits exchange firm based in New York. "Five years ago people thought this idea of an insurance marketplace was outlandish, but now it's on the tip of everyone's tongue. On the negative side, this represents a big change, but there's such big upside as well, and employers need to communicate that."
He says that the first four months of 2013 have been the company's busiest. Liazon, which was founded in 2007, caters to small and midsize employers that use the company's Bright Choices Exchange to offer a variety of different products including health, dental, vision, life and disability products from a number of national and regional providers. The company has about 2,300 clients, Cohen says.
Liazon, along with Bloom Health in Minneapolis, eHealthInsurance, in Mountain View, California, and Aon Hewitt are among the first to jump into the private exchange market. But a number of competitors, including Buck Consultants, Mercer and Towers Watson & Co. have also launched exchanges in recent years.
Eric Grossman, a senior partner at Mercer, which launched the Mercer Marketplace in January, says that employers introducing a private health exchange must tell employees not only how their benefits are changing but also how they are not changing.
"Just because their benefits will be delivered through an insurance exchange, their employer is still sponsoring that plan and providing them with coverage and not washing their hands of benefits," Grossman says. "One way to reinforce that is to put the company's name on the exchange. When an employer goes into the Mercer Marketplace portal they will see their employer's name front and center."
Decision support tools, like online health plan comparisons and cost estimators, will be key in smoothing the transition to a private exchange model, says Ken Sperling, Aon Hewitt's national health exchange strategy leader.
"We have invested significantly in decision-support tools," he says. "Employees are getting more choice than they are typically used to seeing, so it's very important. People can come online, and just like Amazon and Zappos, they can filter those plans however they want."
Employees can sort options by price, carrier and/or plan type, Sperling says.
Aon Hewitt, which launched its Corporate Health Exchange last year, enrolled more than 100,000 participants in the fall, including employees at Darden Restaurants Inc. and Sears Holding Corp. According to a post-enrollment analysis, 42 percent bought less coverage, 26 percent bought more and 32 percent chose a plan similar to their current coverage. Sperling points out that two-thirds said they had a good understanding of how the exchange works.
But perhaps the greatest communication challenge lies ahead as employees whose companies are moving to an exchange also start sifting through information on the public exchanges, which expect to enroll between 20 million and 30 million people.
Under the Affordable Care Act, employers will be required to offer health care benefits to employees who work at least 30 hours a week starting in January 2014. Employee contributions are capped at 9.5 percent of their income, which means that some employees may find a better package of benefits on the public exchanges if their employer's plan is considered unaffordable.
Families with income between 100 percent and 400 percent of the federal poverty level (between $23,550 and $94,200 for a family of four under 2013 guidelines) who purchase health insurance on the public exchanges are eligible for a premium tax subsidy to reduce the cost of coverage. Families offered coverage through their employer are not eligible for a subsidy unless the company plan does meet the minimum actuarial value of 60 percent or unless the family must pay more than 9.5 percent for the premium.
Explaining who is eligible for what won't be easy, Mercer's Grossman says.
"The real conundrum for employers, especially for those with large segments at or below two times the federal poverty limit, will be finding themselves in the uncomfortable position of preventing employees from getting a federal subsidy to purchase insurance on the public exchanges. It will require lots of communication requirements and lots of personal counseling and coaching. The problem is that the vast majority of employees will be eligible for an affordable plan, which prevents them from getting a subsidy. It won't be easy for employees either."