For the past two decades employers have been finding it increasingly difficult to provide health insurance coverage to their employees due to the soaring costs of healthcare. Strategies such as offering consumer driven health plans, shifting more cost onto employees, reducing benefits and implementing wellness programs have been adopted by some employers in order to control costs.
Attention has been focused on the idea of health insurance exchanges with the enactment of the Affordable Care Act (ACA). The law makes available multiple private insurance options in standardized coverage tiers through a federal or state sponsored exchange to people buying insurance on their own. Additionally, depending on income, they may be eligible to receive a tax credit to subsidize their premiums. Though not fully implemented in most of the country, the ACA also created SHOP exchanges for small businesses.
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An emerging option for employers
Both fully-insured and self-insured employers are looking to a new strategy that offers their employees diversity of choice, leverages technology to aid in making decisions regarding health benefits but still allows the employer the ability to manage its health costs from year-to-year. This strategy includes the deployment of a retail marketplace that offers a wide array of health insurance products to employees and sets an allocation of dollars per employee. This retail marketplace is often referred to as a private health insurance exchange or a “private exchange”.
What are exchanges?
Private exchanges are marketplaces of health insurance and other related products. Employers purchase health insurance through the private exchange, and then their employees can choose a health plan from those supplied. A big attraction for private exchanges is they allow employers to retain some involvement in their employees’ healthcare all while shifting to a defined contribution model.
What are the advantages to a private exchange?
There are two major classifications of exchanges that have emerged:
Single Carrier Exchange-This type of exchange is promoted by a single payor and targets employers that want to keep some control by choosing both the insurance carrier and design of the plan. Products can be customized and priced for the employee group or individuals, depending on how involved employers want to be in benefits design and negotiation.
Multi Carrier Exchange-This type of exchange is promoted by third-party intermediaries such as brokers or benefits consultants who will provide a broad range of payor and plan design options encouraging employers to take a more hands off role.