Sept. 29--If you work for a pretty big company, there's a reasonable chance that sooner or later you'll be choosing your health coverage and other benefits through a private exchange.
It's a growing trend in employee health insurance, and it has good and bad aspects for workers.
The good: You might get more choices than under the present system run through the company HR department, and the exchange might be able to hold down costs.
The bad: The exchanges are part of a shift away from the idea that companies will pay a certain percentage of health insurance costs. Instead, more companies want to give workers a fixed dollar amount for benefits, and anything above that is on the employee.
The company controls its costs, but more of the risk of rising health spending shifts to the workers.
First, let's clear up some confusion. These private exchanges for employee health coverage have nothing to do with the public exchanges being set up under Obamacare. The Obamacare exchanges are for individuals buying insurance on their own.
Now let's add some new confusion. There are also private exchanges selling individual insurance (see accompanying side story). But they're not what this column is about.
Big national benefits companies are setting up the employee benefit exchanges. They are rounding up employers to participate. Basically, the exchange sponsor takes over the task of negotiating deals with big health insurance companies, something HR used to do.
In theory, the exchanges should be able to bargain better deals, because they'll be offering lots of business from multiple employers using the exchange.
"It's the same concept as buying paper towels at Sam's Club," says Mary Jo Condon, of the St. Louis Area Business Health Coalition. Buy in bulk and you get better prices.
Aon Hewitt, for instance, says it has 18 insurers bidding for the 600,000 people on its exchange, although the 18 won't offer coverage in all cities. Aon Hewitt hasn't released figures on costs yet, so we don't know if the concept is working.
The system ought to mean more options for employees.
"We're expanding choice dramatically. Most employers would have had only one or two plans previously," said Abigail Neary, Midwest corporate exchange leader at Aon Hewitt.
The exchanges offer health insurance, dental and vision coverage, pre-tax funds for extra medical expenses and day care, disability coverage and other options. The Mercer Marketplace exchange, which will open in January, offers auto, home and pet insurance, too.
Employees sign up for coverage by going to the private exchange's website. The exchanges also have customer service reps and computer software to help employees make choices. Employers decide what options will be available to their employees. If the boss doesn't like pets, they'll be no insurance for Rover.
The big exchange sponsors, such as Aon Hewitt, Towers Watson, Buck Consultants and Mercer, are generally targeting big employers, although Mercer's will be open to companies with 100 workers.
The concept is taking off. Mercer says its surveys show that 56 percent of employers are considering a private exchange.
Walgreens, Sears, Darden Restaurants and others have announced moves to exchanges. IBM and Time Warner are moving their retirees there.
"Private health insurance exchanges will rapidly upend insurance purchasing for many of the 170 million people who receive benefits through their employer," reports the Accenture corporate consulting firm.
The St. Louis Business Health Coalition, which represents big local employers, doesn't know of any St. Louis companies that have yet opted for an exchange. But there is lots of local interest. The coalition held a seminar on the subject last spring and it sold out.
The exchanges are promoting a switch in how companies pay for insurance.
"It's a way to move toward defined-contribution," says Condon, a senior director at the coalition.
In a defined-contribution model, the company decides on a fixed dollar amount it will pay of an employee's benefits. The change would do away with old model, in which companies pay a fixed percentage of the cost -- say 70 percent of a health care premium.
The company gets to control its expenses. But the worker has to worry if company will raise its contribution as fast as the rise in medical premiums.
It's akin to the shift in retirement plans over the past two decades. Companies shifted away from old fashioned defined-benefit pensions, which promised retirees a set monthly payment no matter what. Instead, companies decide how much they'll contribute to a 401(k) retirement plan. The worker takes the risk that it won't be enough.
Advocates for exchanges say the switch is no big deal. After all, the company is paying a lot for coverage now. The change just makes that dollar amount obvious to employees, they argue.
"Fundamentally, it's not that different. But it's different in how you communicate it," says Alan Loretta, a partner at Mercer. "Now, you communicate about how much an employee must pay (in paycheck deductions for health care). With the exchange, the communication is over how much money the employer is providing."
The Aon Hewitt model also changes how companies pay for employee coverage. Most big employers self-insure today. The company pays medical claims, using an insurance firm only for administration and to bargain prices with hospitals and doctors. But on Aon's exchange, very large employers buy insurance again. The insurance companies take the risk that employees' medical costs will be higher than they expect.