Regardless of the controversy surrounding the Affordable Care Act (ACA), it has been clear for several years that the US health insurance industry was in need of a major overhaul. The employer-based defined benefits approach has demonstrated severe weaknesses, resulting in skyrocketing healthcare costs and a cost crisis for employers. One response to this phenomenon has been the rise of the private exchange model: essentially an online marketplace where employees shop for insurance coverage and pay for plans from employer-funded accounts. The growth of the private exchange model is the future of health insurance and may be just the non-legislative catalyst needed to bring the US system back from the brink.
Private exchanges put the insured in control: Employees use funds that are deposited, tax-free, by employers into an account intended for purchasing health care plans. Individuals access the online health insurance store to shop and compare coverage options, with a view to what best suits their unique needs. Private exchange platforms typically have a wide range of support tools to assist employees in making smart choices, such as physician finders, calculation tools and assistance with finding ideal plans. Employees have control over how their funds are being spent, make their own decisions about health insurance coverage and are accountable for the choices they make.
There are advantages to switching from defined benefits to defined contributions: The traditional approach to employer-driven health insurance plans is known as a defined benefit model, where the employers offer fixed coverage to employees. Individuals might receive benefits they don’t use, while others might need additional options that aren’t available. The switch to defined contribution means employees make their own choices based on what they want to spend: They’re not pigeon-holed into a plan that works for the group and the employer’s budget.
From the employer’s perspective defined contribution also has benefits. For one, companies are no longer “in the business” of providing health insurance. They don’t have to choose options, administer plans or monitor enrollment. They’re also able to control costs and better predict budgeting needs.
Private exchanges offer stability for the entire healthcare system: Transitioning over to a private exchange has benefits from a policy standpoint, beyond the cost considerations of individual companies and healthcare needs of individuals. The more people that participate in a marketplace, the more evenly distributed the risk becomes over the group. The market becomes more stable as whole, impacted very little by individuals coming in and leaving the group. The result is that healthcare plans will become more portable, whereas now many employees are tied to their job because of the health insurance benefits.
Paypro has partnered with Liazon to offer the Bright Choices® Exchange, for clients seeking to move away from the traditional defined benefits approach to health insurance. This private exchange offers significant benefits for employers to control costs and better predict budgeting; at the same time, it puts employees in charge of their own health care needs. To learn more about the benefits of a private exchange, please contact us to request a consultation with one of our specialists.