A Health Care Revolution on Private Exchanges?
Employers, not politicians, can spark a health-care revolution.
For many years employers have struggled with providing health insurance to workers and their families. Competing for high-skilled workers typically requires offering fairly comprehensive benefits (valued at an average of $6,000 for an individual in 2014). Public-sector employers — states and municipalities — are often hemmed in by the old politics of powerful public-sector unions. Not surprisingly, their negotiated benefits are also routinely comprehensive and costly.
But employer-sponsored coverage will change in 2018. Obamacare's "Cadillac Tax" — a 40 percent excise tax on all plans above a specified amount — will make these plans even more expensive. One safety valve, for both private and public employers, may be a new approach to employer-sponsored coverage: privately run health-insurance exchanges.
A private exchange is a marketplace for private health plans. It enables workers to choose different health plans, weighing alternatives and balancing their costs and benefits. By contrast, the minority of employers who offer a choice today provide a limited range of options, typically two or three plans. The plans are often offered by the same carrier with the same provider networks, with no opportunity to make meaningful comparisons among formularies, physician networks, or the total costs.
In a private exchange, an employer can make a defined contribution to a tax-free group plan chosen by the worker. If the worker purchases a less expensive plan, the worker can keep the difference in savings. A worker who wants a more expensive plan can top off the employer's contribution with her own money.
In a well-run private exchange, self-insured employers can offer greater flexibility in benefit design, allowing workers and their families choice among a variety of health plans offered by multiple carriers. With cost calculators, plan and provider performance ratings, and easily accessible network and formulary information, workers are suddenly empowered to make well-informed health-care decisions. In the style of 401(k) pensions, the private exchange could emerge as the transformative platform for a revolution in health-care financing.
None of this is a pipe dream. With 6 million enrollees for 2015, according to Accenture, a prominent benefits consultant, private-exchange enrollment has doubled since 2014. Enrollment will grow even faster as the "Cadillac Tax" looms over employers, creating a natural "ceiling" on benefits ($10,200 for individual coverage in 2018). So, through private exchanges, private-sector employers are already taking control of health-care costs, and workers and their families are already exercising greater control over their health-care spending.
Perhaps even more intriguing is how public-sector employers will respond. Moving employees to Obamacare's exchanges is one option facing public employers, but this option is likely to be unattractive to many public employees, who may be satisfied with their existing coverage, enjoy access to broad provider networks, or be ineligible for exchange subsidies because of their income. The Obamacare exchanges' uneven performance and higher premium and deductible costs mean that forcing workers into them can invite serious political trouble.
In a forthcoming volume for the Manhattan Institute, I argue that states and municipalities would be better served by enrolling public-sector workers in the newly emerging private exchanges that already provide the affordable health coverage that corporate employees want. For example, enrollees on Bloom Health's exchange cost 22 percent less than the national average, and a whopping 42 percent of employees chose high-deductible HSA-eligible plans. With an average per-employee cost of $11,500 nationally, the potential for big savings is enormous. This would be especially true in high-cost states like New York.
With massive purchasing power, state and local governments could demand high standards of transparency. For workers and their families, a vital component of a well-functioning private exchange is information on costs and quality of providers and services. A strong public-sector demand for this information would reinforce the best efforts of privately financed patients.
Real choice and genuine market competition could spark the real health-care change America has been waiting for — for far too long.
Robert Emmet Moffit is a senior fellow at the Heritage Foundation's Center for Health Policy Studies. He is also a contributor in the forthcoming Manhattan Institute book New York's Next Health Care Revolution: How Employers Can Empower Patients and Consumers.