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The Rise of Private Health Insurance Exchanges

Health care costs have been on the rise in recent years, prompting employers to search for alternatives that will help keep expenses lower while continuing to provide quality coverage to their employees. When the Affordable Care Act was passed in 2010, it called for the creation of public health insurance exchanges in each state. At the time, it was widely believed that employers might opt to place their employees in the state exchanges. However, many companies are looking at private health exchanges as an alternative that allows their employees to continue to receive coverage through work while offering more choices.

How does Private Health Exchanges Work?

Private health insurance exchanges have existed for several years but until recently have mostly served the Medicare/retiree market. They are similar to the public exchanges that have been created under the Affordable Care Act, but there are some differences. The public exchanges are heavily regulated with set open enrollment periods and with plans that are open for any consumer in the state to purchase.

Private exchanges are closed exchanges that are set up in one of two ways:

  • Directly between an employer and the health insurance company.
  • Between an employer and a third party.

If done through a third party, the private exchange includes insurance multiple carriers and more options for the employees. This more closely resembles the public state exchange model. Using private exchanges, employers contribute a set dollar amount toward the employee’s insurance coverage. This gives the employee the ability to take this contribution and shop around to find the best plan available to fit his/her needs and budget.

Benefits of Private Exchanges

Private health exchanges offer several potential advantages for employers and employees over the traditional employer-based health insurance model. These include:

  • Greater Cost Transparency: With employees able to spend their own money (a portion of which is contributed from the employer), they have a better understanding of the true cost of the available plans. This increased awareness should help them make a better purchasing decision.
  • More Options for Employees: Using the exchange model, employees are given a wider range of choices rather than the usual one or two options they would receive with a traditional employer health plan. The increased choices and customization options give employees a greater sense of control over the health care they are receiving.
  • Lower Employer Risk: Because the employer is no longer self-insuring, they are able to minimize risk and better control costs.
  • Easier Administration: Again, because the plans are no longer administered in-house, employers are able to utilize far less staff to offer the plans to their employees.

Private health exchanges are an innovative way for many businesses to offer health coverage to their employees, but they are not right for everyone. For example, there are companies with lower income workers that may benefit from the federal subsidies available through the public exchanges (these subsidies are not available on private exchanges). To find out what is best for your company, speak with a commercial insurance agent with access to several of the top health insurance carriers in your area. An independent commercial agent can give you the guidance you need to pick the best health care plan for the employees in your organization.