The Affordable Care Act has changed the way American people and businesses approach health insurance.
In fact, many companies are deciding to forego their traditional group health insurance plans and are instead directing employees to private health insurance exchanges.
However, what factors are driving that decision? Let’s take a look at some of the top reasons.
As an HR professional, you are likely aware of the plethora of tasks associated with researching, selecting, and managing your company’s group health insurance vendors and administering benefits — not to mention handling any communications or issues that arise.
These kinds of tasks can be burdensome, especially in smaller companies where HR staff members are required to wear a number of different hats.
Private exchanges may offer businesses and their HR teams some much-appreciated relief. By shifting from group health insurance to individual coverage through private exchanges, companies are able to eliminate many of the administrative tasks that currently fall on their shoulders.
Instead, the private exchange takes the lead on administrative activities from enrollment through customer service, freeing HR professionals to focus on other responsibilities.
When selecting group health insurance for your company, you’re trying to select a plan or group of plans that will best suit your employees.
Often times, trying to please everyone means that no one gets stellar service. The reality is, your 56-year-old manager who suffers from diabetes probably needs a different plan than your healthy, 23-year-old software programmer or the boss’s 68-year-old wife who is battling cancer.
Companies that direct their employees to private exchanges for coverage allow them the autonomy and flexibility to design a plan that best fits their need and budget. Selecting from a group of pre-set choices, employees will be able to compare and purchase the coverage they need similar to the way they would compare and choose coverage in the public marketplace.
With an eye toward reining in increasing health care costs, one provision of the Affordable Care Act — dubbed the Cadillac tax— could potentially go into effect in 2018.
The Cadillac tax will impose a 40 percent excise tax on high-cost, employer-sponsored health care coverage. This means that employers whose plans cost of coverage exceeds $10,200 for individuals or $27,500 for families will be required to pay 40 percent tax on any coverage cost amount higher than the limits.
Rather than face any potential tax penalties, many companies are dropping their group health insurance plans and directing employees to private exchanges instead. By moving to the private exchange model, employees can choose their preferred level of coverage, and employers can ensure that their contribution falls well below the limits, effectively rendering the Cadillac tax issue a moot point.
Instead of providing every employee with essentially the same plan that may or may not meet their specific needs, many HR teams are urging their companies to consider a more flexible defined contribution plan.
By moving to this model — where the company provides a set amount of money toward a health insurance plan instead of offering a set plan — businesses are giving employees more autonomy and saving money in the process. Employees can pick the plan that offers the level of coverage they feel comfortable with, and neither they nor their employer gets stuck paying for benefits they don’t feel are necessary.
Many companies see private exchanges as the future of employee health insurance — and for good reason. Not only do private exchanges take the hassle out of benefits management, but they also let employees customize their plans to best suit their needs.
Additionally, shifting to private exchanges will help businesses avoid the Cadillac tax and can reduce costs for both the employee and the employer.
