Forty-five percent of employers have implemented or are thinking about using a private health insurance exchange for active employees before 2018 according to a survey conducted by the Private Exchange Evaluation Collaborative. Private exchanges are run benefit consulting firms in conjunction with insurance companies. They are not new, but business interest in them has increased with the availability of public exchanges from the Affordable Care Act (ACA) combined with rising healthcare costs and aggressive marketing from the benefit consulting firms that operate them.
Private exchanges are similar in structure to the public exchanges of the ACA, but the private exchanges do not have a common solution template like that of the public exchanges. With the private exchanges, different insurers can offer a range of plans that take many forms whether they are low-premium/high-deductible plans or high-premium plans with greater coverage.
Some notable companies have already made the switch to a private exchange. Walgreens moved 170,000 employees to a private exchange operated by Aon Hewitt. Prior to this change, Walgreens offered two health plans to its employees. Now, Walgreens provides 25 different plans from five insurers. In addition to Walgreens, Alcoa Inc. announced this month that it will switch its retirees to a private exchange according to the Pittsburgh Tribune-Review.
Advocates of the private exchanges believe these marketplaces provide employees a greater variety of options that better fit their personal healthcare and financial needs. They argue that private exchanges limit increases in premiums, because insurers directly compete with each other. Private exchanges offer another alternative for the approximate 150 million American workers whose premiums for insurance coverage through work have increased 80% over the last 10 years based on research from the Kaiser Family Foundation.
While these advantages make private exchanges worth considering, critics of private exchanges make some important points. More specifically, critics view these marketplaces as an easy way to shift more costs to employers. Furthermore, they highlight research showing that many Americans do not understand basic insurance concepts such as deductibles, co-pays, co-insurance and out-of-pocket maximums. Consequently, these Americans are less likely to make smart decisions selecting on their own from a variety of choices on a private exchange compared to having their employer’s HR staff guide them through a more limited number of choices. Time will tell if the advocates or critics of private exchanges make a better case. For now, it makes sense to proceed with caution.