What is a Private Benefit Exchange? Does it Make Sense for Us?
A private benefit exchange (PBE) is simply an online marketplace where employees can choose from a wide array of medical, dental, life, disability and voluntary benefits. A private exchange is usually offered by an employer as a convenient, economical way for employees to choose benefit plans and employers to pay for these plans. This is different from the state or federal exchanges that tend to offer only health benefits. These are part of the private, for-profit world, not regulated and are very flexible.
Private exchanges are growing in popularity nationwide. Numerous studies suggest private exchanges will likely represent the way 30-50% of employers offer benefits by the year 2020. Why is this? There are a wide variety of reasons. Let’s look at it from the “What’s In It For Me?” approach (WIIFM). What’s in it for Employers? Employees? Human Resources staff?
For Employers - a PBE offers cost controls. The employer can join a group exchange that is used by multiple employers and immediately benefit from group purchasing discounts. Also, since enrollment data is transmitted from an enrollment website to all the insurance carriers, your census data is going to be inherently more accurate and timely. This eliminates carrier overcharges and delayed plan terminations which are estimated to save 3-5% of your annual premium costs. Finally, by using a PBE, employers can take advantage of what’s called Defined Contribution for health and welfare benefits. Much like a defined contribution 401(k) approach, the employer sets a defined dollar amount they are willing to contribute and the employee then spends the employer provided “allowance” on the benefit plans they choose.
For Employees - the main benefit is choice and the ability to tailor their benefit plans to suit their needs. A company that uses a private exchange can offer many more plan options and plan types than if they just offered benefits on their own. With choice comes the ability for the employee to choose and purchase the benefits that best fit their personal or family situation, as opposed to a plain vanilla “one-size-fits-all” approach most employers now use.
For Human Resources - there is a huge administrative burden lifted. They no longer do RFP’s to choose and contract with carriers. They no longer do paper enrollment forms. They no longer spend hours trying to reconcile carrier bills. And through the PBE they can perform almost all benefit communications online – avoiding the need to print and distribute numerous documents.
PBE’s are just now emerging and becoming more accessible. In years past, they were only offered to the largest employers or large retiree populations. PBE’s will soon come to a market near you.
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