The Basics of Private Health Insurance Exchanges

shoppingA study by Accenture Research claims that by 2017, nearly one in five Americans will purchase benefits from a health insurance exchange. Under private exchange plans, employers purchase coverage through a marketplace, allowing their workers to choose from a range of health plans. It is comparable to the publicly run exchanges set to launch under new healthcare reform measures in fall 2013. But like those public exchanges, a major problem exists in that few consumers understand the new model, which would shift considerable financial responsibility to employees.

The Basics…

These are programs where individuals or groups can purchase insurance coverage without the benefit of a government subsidy. Private exchanges offer customers several advantages, including:

  • An online marketplace for insurance products
  • A variety of options for consumers to shop and review
  • Decision support tools and counselors to aid in the selection process
  • Flexibility to meet individualized needs and budgets
  • Easy purchase and enrollment of desired insurance products

Insight for Employers…

In spite of the recent media attention to this issue, private exchanges are not a new concept. They have existed in the healthcare market for decades. In the early 1990s, these concepts were delivered through cafeteria plans, when the number of medical insurers in the marketplace was much greater than it is today. The truly new concept is pairing advanced decision support technology with multiple choices for consumers, and this can be accomplished for an employer both through a private exchange or in combining their current benefit offering with an HRIS system

While the overall description of private exchanges makes them appear desirable, several considerations can affect their true value for an employer. For example, there is a lack of competition among private exchanges that limits the actual number of products and services available. Employers who take part in them may not realize any savings from the current claims costs involved. Private exchanges using defined contributions, where an employer offers a set amount of dollars and the employee pays the rest out of pocket, can result in higher premiums for employees than alternate insurance plans.

The option of employers using a self-funded model for a private exchange does exist, but this poses potential problems as well. Since the cost is not consistent from month to month, unless the employee payroll deduction varies, the employer contribution must vary. Additionally, self-funding eliminates the possibility of having managed competition, because the risk is borne by the employer.

Given these considerations, a private exchange may not provide the right answer for your organization’s healthcare coverage needs. Your culture and approach to benefits may work well for it, or there may be better options to consider. Check with your broker for more guidance regarding private exchanges as an option for your business. Better yet, contact HCW.

Image Courtesy of: Salvatore

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