Exec Summary - Private Exchanges

Private Health Insurance Exchanges

            Who:   Individuals, small employers and large groups. Private exchanges target:

(1)      Employers who want to better control their health care costs,

(2)      Employees who want to choose the benefit program that works best for their own families,

(3)     The need for portability - as workers move between jobs, and

(4)     The need for two-income families to combine their resources into a single benefits program for the whole family.
When: Some local exchanges have been operating for many years. New regional and national private exchanges may start operating in 2013 and 2014. PPACA increased awareness and the need for a new health insurance purchasing system. In addition, some of the private exchange developers hope to get a share of the PPACA federal exchange business. Government defined PPACA exchanges are scheduled to begin January 1, 2014.

What: The development of private exchanges pre-dates PPACA and is growing independent of PPACA. 
Exchanges produce a new process of shopping for health insurance. Like any business, consumers seeking value will ultimately decide which exchanges will succeed.  Exchanges will process traditionally funded health insurance. However, an important impetus for exchanges is the potential use of Health Reimbursement Arrangements (HRAs) that allow employers to designate a sum of money to pay for the health care needs of employees, whether through an insurance program or through the direct payment of medical services. Private exchanges can combine employer-paid HRA contributions with employee-paid Section 125 contribution to allow for individual health plans to be paid on a tax-free basis. 

             Executive Summary:  Developing private exchanges may be grouped into three categories.  Some are focused on the small group market, others on large groups, and still others on retiree health benefits.

         Business group exchanges:  developed from existing employer associations.  They typically will ensure portability for employees, but only when the employee moves between participating employers and health plans.

         Insurer-sponsored exchanges:  developed for insured policyholder, making it easy to move current small employers into an exchange and allow individual employees a wider choice of health plan design. The portability (the ability of a consumer to keep the same coverage as they move between jobs) is available to individuals moving among companies covered by the same insurer.

         Independent companies:  developed with various sponsorships, existing relationships, and business models.  These companies include existing information technology vendors, consultants/brokers, and entrepreneurs.  These players seek to meet the needs of existing health industry customers, employer groups, and broker clients. They see the opportunity to expand on existing services and technology to create new businesses in a growing market.

 The potential for private exchanges comes from the mid- and large-group markets that will not be involved in the state-based federal PPACA exchanges. 

 Private exchanges can address some of the existing problems in our current system:

 (1)   Employer costs will be fixed and controllable. An employer will be able to contribute only what it can afford.

(2)    Employees will be able to choose their plan design, the one that works best for their own family.

(3)   Coverage will eventually be portable, so employees can keep the same coverage as they change jobs, or lose their job altogether.

(4)   Unlike individual coverage today, the employee contribution may be tax free through using a Section 125 payroll deduction.

(5)   Two-income families may be able to use contributions from different employers to purchase a single plan for the whole family.

Private exchanges can move health insurance to a system of individual choice and ownership and allow employers to concentrate on their core business.   There may be legal or regulatory clarifications to accommodate the effective uses of private exchanges.

With or without PPACA, employers are finding ways to make “consumer empowerment” a reality. People want to have more control over their own lives.  They are demanding choice and individual ownership of their health benefits as they are in every other aspect of their lives. HRAs and Defined Contribution plans with personal choice and ownership of health coverage is the latest iteration of this demand for healthcare consumerism.

        Actions: Employers will need to determine the value of considering private exchanges as an alternative to their current health benefit plans.  Employers will need to determine the economics and employee attitudes in moving to a different system of health insurance purchasing. There are many benefits and some draw backs that need to be considered.. Employers should check with their compliance and legal teams, insurance brokers, agents, consultants, and insurers before reviewing or deciding to use a private health insurance exchange approach to health coverages.   


The information presented and contained within this article was submitted by Ronald E. Bachman, President & CEO of Healthcare Visions.This information is general information only, and does not, and is not intended to constitute legal advice. You should consult your legal advisors to determine the laws and regulations impacting your business.