The "magic" of PBEs (if there is any) is that when you give employees more benefit choices, they report being happier with their benefit program even if, at the end of the day, they receive less insurance coverage. Choice, therefore, is the key feature. But contrary to the public exchanges, PBEs provide far fewer choices both in terms of plan designs and carriers. (Of course, given recent announcements by the major insurance companies, the public exchanges may offer a similar fewnumber of choices in the near future.)

To round out the value proposition, most PBEs provide some amount of benefits administration technology to ease the burden of compliance on overtaxed human resources departments. PBEs are the latest example of a benefit delivery system that offers an alternative to employers as they pursue their ongoing fight to balance cost, compliance, and employee retention.  

PBEs: What's the downside?

Sounds pretty good, right? But where is the downside? Depending upon an employer's benefit strategy and their perspective on the state of the benefits world, there may not be. However, many PBEs have been architected to support a specific benefits approach when it comes to products offered, employer contributions and employee assistance. If these selections line up well with an employer's benefit strategy, then a particular PBE might be perfect. But if they don't, adopting a PBE might result in significant disruption to many employees.

Related: Employers wary of private exchanges

Even prior to the passage of the Affordable Care Act, the world of employee benefits was (and is) characterized by significant changes in products and regulations from year to year. Combined with the pressure of healthcare inflation growing at two to three times the rate of inflation, brokers and consultants have been forced to continuously evolve their employers' benefits strategies to balance the often conflicting priorities of cost, compliance and employee retention.

For these brokers and consultants, adopting a PBE might lock their employer into a benefit strategy that does not provide enough flexibility to react to unanticipated future changes in products and regulations (not to mention cost pressures).

Upside of enrollment firms

Is there a way to achieve similar results to a PBE without the downside risk? The secret may be found by looking to the predecessor to the PBE in its role as a benefit delivery system — the enrollment firm.

Over a decade ago, enrollment firms came onto the scene in order to address a couple of large problems: employees neither understand nor appreciate their benefits; and they don't always make the best enrollment decisions. In order to provide value to large employers, enrollment firms customized their services to fit the employer's specific benefit strategy.

Related: Managing the growing pains of health exchanges

Furthermore, they were able to react to yearly changes in products and employer contributions and also provide various employee assistance approaches. Over time, many enrollment firms broadened their service offerings to include additional transaction support and compliance assistance, again continuously evolving to address changes in products and regulations.

The most important innovation of PBEs is the ability to offer more choices to employees, but employers are reticent to offer additional choices because of the increased burdens on employee communication and transaction support. These are the exact disciplines that enrollment firms have been mastering over the last decade.

For this reason, many benefit brokers and consultants are turning to the latest incarnations of enrollment firms to execute "exchange-like" strategies for their employer clients. Enhanced enrollment firms are able to deliver advanced technology and services to support the dominant features of PBEs: increased choice, flexibility in employer contributions and assistance with compliance. But unlike most PBEs, enrollment firms retain their architected flexibility to handle future changes in products, contributions and employee service approaches.

Increasingly, more brokers and consultants are discovering they can realize many of the benefits of PBEs without locking their clients into a long term strategy that may not be the best fit in the future.

Undoubtedly, the number of employers adopting PBEs will continue to grow in the coming years.  However, the widespread forecasts for PBE adoption may never occur, in part, because the most attractive features of PBEs are now available elsewhere.