“How wedded are private Exchanges and defined contributions?

The Trend

Work force mobility helped build the case for private sector pensions to shift investments risk from the corporate sector to households; healthcare is experiencing a similar shift today. While finance and accounting reform set the climate for the change with pensions from defined benefits to defined contributions, healthcare reform is setting a similar stage opening opportunities for companies to transfer risk to individuals while shaving benefits. However, defined benefits won’t lose to a pure breed of defined contribution approaches where employers give workers a handful of cash to purchase health insurance totally on their own. The future of healthcare defined contributions will be a hybrid approach. Ezekiel Emanuel, in his recent book ‘Reinventing American Health Care’ suggested that “the proportion of private-sector-workers with employer-sponsored insurance by January 1, 2025 will be less than 20% (p.296).” This trend isn’t about to start, it has already started.

 

Forecasts

Employees won’t be given straight cash, but rather offered a hybrid model where they can choose plans from a company selected private health insurance marketplace. Private exchanges do provide reasonable choices at competitive premiums. On the surface it sounds pretty good. Employees are empowered with more choice and employees pick plans they feel have the most value. But the conversation doesn’t stop there. As we saw with defined benefit (DB) pension plans, mobile workers didn’t prefer traditional benefits, largely because they leverage ‘backloaded’ formulas that don’t easily move between employers and favored long-tenured employees. Turning our focus back to healthcare. Are employees choosing plans that are the best value including plan benefits and network or simply the cheapest? What are the implications does this shift have on individual and household taxes?

 

The Drive Behind Adoption

What trend will we experience in healthcare regarding defined contributions? First defined contributions need a marketplace for workers to select health insurance in order to be successful. This helps crack open the private exchange market. Second employer benefits of expense management (predictable employee health benefit costs), administration time savings (setup simplicity and decrease necessity of employer resources), and enhanced employee choice (selecting plans and preferred networks) are going to lean employers toward private health exchanges. Third in the technology-rich environment of today this trend is a logical extension of the consumer-directed health care plans such as a health savings accounts (HSA) or flexible spending accounts (FSA).

 

My Prediction

Employers will have some difficult choices. Large private exchanges like Aon Hewitt, Mercer, Towers Watson, Walgreens, and Wal-Mart are each very distinctive in the type of markets they target (individual, small group, large group, retiree) and their strategies around price, promotion, plan offerings, and distribution channels all vary greatly. Private exchanges that have huge employee numbers will awaken and influence further market consolidation. Defined contribution plans will be mainstream within two-to-three years, with the employees watching the shift from the sideline.

 

References

 

ASME. (2013). Top 5 Medical Technology Innovations (Online Image). Retrieved September 10, 2015, from https://www.asme.org/engineering-topics/articles/bioengineering/top-5-medical-technology-innovations

 

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Peter is a technology executive with over 20 years of experience, dedicated to driving innovation, digital transformation, leadership, and data in business. He helps organizations connect strategy to execution to maximize company performance. He has been recognized for Digital Innovation by CIO 100, MIT Sloan, Computerworld, and the Project Management Institute. As Managing Director at OROCA Innovations, Peter leads the CXO advisory services practice, driving digital strategies. Peter was honored as an MIT Sloan CIO Leadership Award Finalist in 2015 and is a regular contributor to CIO.com on innovation. Peter has led businesses through complex changes, including the adoption of data-first approaches for portfolio management, lean six sigma for operational excellence, departmental transformations, process improvements, maximizing team performance, designing new IT operating models, digitizing platforms, leading large-scale mission-critical technology deployments, product management, agile methodologies, and building high-performance teams. As Chief Information Officer, Peter was responsible for Connecticut’s Health Insurance Exchange’s (HIX) industry-leading digital platform transforming consumerism and retail-oriented services for the health insurance industry. Peter championed the Connecticut marketplace digital implementation with a transformational cloud-based SaaS platform and mobile application recognized as a 2014 PMI Project of the Year Award finalist, CIO 100, and awards for best digital services, API, and platform. He also received a lifetime achievement award for leadership and digital transformation, honored as a 2016 Computerworld Premier 100 IT Leader. Peter is the author of Learning Intelligence: Expand Thinking. Absorb Alternative. Unlock Possibilities (2017), which Marshall Goldsmith, author of the New York Times No. 1 bestseller Triggers, calls "a must-read for any leader wanting to compete in the innovation-powered landscape of today." Peter also authored The Power of Blockchain for Healthcare: How Blockchain Will Ignite The Future of Healthcare (2017), the first book to explore the vast opportunities for blockchain to transform the patient experience. Peter has a B.S. in C.I.S from Bentley University and an MBA from Quinnipiac University, where he graduated Summa Cum Laude. He earned his PMP® in 2001 and is a certified Six Sigma Master Black Belt, Masters in Business Relationship Management (MBRM) and Certified Scrum Master. As a Commercial Rated Aviation Pilot and Master Scuba Diver, Peter understands first hand, how to anticipate change and lead boldly.