By James A .Woehlke, CAE
With group health benefit costs spiraling out of control, associations’ member-employers clamber for their associations to give them solutions. But associations historically have difficulty marketing group health insurance as a member benefit. A different approach to benefits, now five years old, is proving to be a solution. Known as “private health care exchanges” or just “private exchanges,” this approach is popular with associations’ member-employers and, more significantly, their employees.
Group health insurance is a difficult sell as an association member benefit for several reasons, particularly in community-rating states like New York. Typically, associations worked with a broker, who, where possible, negotiated a price break with the insurance carriers. Unfortunately, price breaks are not permitted under community-rating regulations, which typically affect all employer-groups under 50. Where price breaks are negotiated for larger employers, it didn’t work because they took the negotiated rates to their own brokers, who found a way to meet them. Either way, the association benefit program fizzled.
Some associations themselves became brokerages to give it a go. However, that entailed a number of legal and tax concerns in addition to the associations’ assuming significant entrepreneurial risks.
How Private Exchanges Impact the Benefits Purchase Process
Typically, employers purchase group benefits by negotiating what executives believe to be the best deal, balancing cost and coverage. The employer doesn’t know its cost until it selects the plan(s) features (design, co-pays, deductibles, etc.). The final executive decision is then presented to employees, who often undervalue and occasionally even resent the end result.
Private health care exchanges work by putting this process upside down. First, the employer decides what it will spend per employee and notifies the exchange. The employee uses this amount to choose the benefits they want from the exchange’s expansive menu of benefits. If an employee wants benefits costing more than the allowance, the employer withholds the difference and remits to the exchange or directly to the insurance carrier. The selection process puts the employee in the driver’s seat. Typically, they are much happier because they appreciate having the choice. In addition, they are able to choose from a much larger menu of benefits than is typically offered, including life, disability, and even pet insurance. The end result is a happier employer, because out-of-pocket costs are set upfront, and happier employees, because they have more control over their benefits.
From the association’s viewpoint, the employer-members’ satisfaction translates into successful member benefits programs. These programs work, because the member-employers are sold on the approach—not insurance policy features—and don’t see private exchanges as something they can game with their own insurance brokers. The member satisfaction translates into revenue, which is structured in line with legal guidelines generally applicable to member benefit programs. One potential disadvantage applies for associations that have granted exclusive affinity arrangements relating to the additional types of insurance offered through the exchange.
James A. Woehlke, CAE is chief operating officer and general counsel of MBL Benefits Consulting, Corp., a benefits broker specializing in service to the association and nonprofit community. He is a member of NYSAE Public Affairs Committee. He can be reached at 212-578-4504 or jwoehlke@mblbc.com.