NEW YORK, Nov. 20, 2013 (GLOBE NEWSWIRE) -- With momentum building around the private health insurance exchange marketplace, and many organizations considering the marketplace as a way to redefine their approach to employee benefits, a WillisWire blog post and video published today warns organizations about the potential pitfalls in shifting to a private exchange/defined contribution strategy.
"Firms that are considering migrating to a private exchange/defined contribution strategy without considering the overall management of the underlying health care trend, risk simply engaging in an elaborate cost-shifting process," said WillisWire expert Jim Blaney, CEO of Willis North America's Human Capital Practice, a unit of Willis Group Holdings (NYSE:WSH), the global risk advisor, insurance and reinsurance broker. "Until we acknowledge and address the fact that it's our high degree of demand and utilization of health care resources that is driving costs, will we innovate a private exchange strategy that is really meaningful."
Under the defined contribution model that underpins the exchange system, he explained, once the employer's defined contribution is exhausted, "the entire cost is borne by the employee." Failure to bring down health care cost inflation, he said, could "result in an employee of the future that won't be able to afford health care" in the exchange environment.
"The private exchange/defined contribution model offers a variety of benefits to organizations looking to advance consumerism as we know it today – by providing employees more accountability, responsibility and choice within a defined contribution environment," he said. The way to make this model sustainable, he said, is to integrate wellness programs and other health management initiatives into the exchange strategy to reduce consumption of medical resources.
"Employers that have invested in worksite wellness and total population health management have seen the benefits related to increased productivity, reduced absenteeism and lower health care costs. Organizations that maintain that strategy within the private exchange construct are advancing consumerism in a healthy way that allows employees greater choice, flexibility and accountability, in a more sustainable cost-containment environment."
According to Blaney, recent data suggests between 5% and 20% of mid-market firms will move to private exchanges by 2017. The private exchange model is proving particularly appealing for employers with high concentrations of seasonal workforces and those in the retail and hospitality sectors. Organizations that may be subject to additional responsibilities for providing coverage under the Affordable Care Act are also considering a shift, Blaney said.
There are currently a number of private exchange strategies on the market today. "The majority of these strategies," he said, "focus on aggregating volume as a means to drive cost down. We believe that's not a sustainable cost containment measure. We believe that until we start to address the underlying factors that drive consumption of health care resources we will not be able to stabilize and reduce medical trend."
Click here to read the blog posting and watch the full video interview on WillisWire.
Willis Group experts regularly post their thoughts on WillisWire about the risk and insurance implications of significant events and trends, giving readers real-time information and insight into risks facing their business.
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