THOUGHTS

Private Health Insurance Exchange: Right Option for Employers?

Aug 30, 2016

With the emergence of healthcare industry insurance exchange in the US healthcare industry insurance marketplace, employers need to be cognizant of their options and understand how to maximize the potential of this developing trend.

In the US, healthcare has been a controversial topic of discussion in recent years. Many battles have been fought in congress over healthcare reform and the role of the government in the healthcare industry insurance market, if there is one at all. President Obama has taken it upon himself to provide an answer to at least some of those questions with the rollout of the Affordable Care Act, (or “ObamaCare” as it has been infamously titled) designed to provide affordable healthcare industry insurance for Americans. In spite of ObamaCare, increasing healthcare costs have finally reached a tipping point for consumers, employers, and insurance providers alike, drastically changing the landscape of the healthcare industry insurance market.

The Affordable Care Act created a selection of highly regulated public health exchanges to deal with rising healthcare costs. Health exchanges are primarily online marketplaces through which consumers can review, compare, and purchase a wide variety of healthcare industry insurance polices. The public health exchanges created by the Affordable Care Act offer citizens options for public healthcare. However, these options are applied very generally and leave many Americans either over-covered or under-covered. Employers are also struggling to keep up with the rising health care costs incurred by their employees, and according to Eric Grossman, a senior partner at Mercer, Ltd., “Employers of all sizes are looking for new solutions to deliver benefits and manage costs.”  In response to these concerns, the healthcare industry insurance industry has begun promoting private healthcare industry insurance exchange, which provide exciting opportunities for all the stakeholders in the healthcare industry insurance market.

Private healthcare industry insurance Exchange

Although these private exchanges have received less attention than their public counterparts, they are now gaining momentum. Private health exchanges allow for decreased risk on behalf of the employer, simplified administration, as well as more choice and improved cost awareness for employees. Private exchanges are flexible, customizable, and offer a wider selection of plans and options than the more rigid public health exchanges. These private exchanges are a viable way for employers to satisfy the needs of their employees, while simultaneously keeping costs at reasonable levels.

Single carrier vs. Multi carrier

Private health exchanges currently exist in two forms – single carrier exchanges and multi carrier exchanges.

Single carrier exchanges are run directly by insurers like Blue Cross and Blue Shield, and offer employers greater control over the options available for their employees. Single carrier exchanges only offer plans provided by the sponsoring insurance company. If you are an employer seeking a more hands-on approach to employees’ insurance plans, single carrier exchanges are your best bet.

Multi carrier exchanges are run and operated by third-party consultants or brokers such as Aon Hewitt, Inc., Buck Consultants, Ltd., Towers Watson & Co., and Mercer, Ltd., and offer plans from a variety of different insurers. Although multi carrier exchanges offer a wider array of options from a multitude of insurers, they provide less control to employers, requiring only that they register their company with the consultant or broker. Multi carrier exchanges provide the hands-off alternative, and are currently the most preferred type of exchange among employers.

While both these private exchanges offer slightly different options for employers and employees, they are focused around the same principles – decreasing the cost of healthcare for both employers and their employees, reducing the administrative burdens in an increasingly complex regulatory environment, and expanding the number of benefit choices for employees.  Private exchanges are already gaining steam and becoming more popular as an alternative to the existing model of healthcare industry insurance, which according to experts, is no longer sustainable.

The current model of defined benefits is beginning to cost employers more than twice of what it cost in the past, causing a shift towards the more viable defined contributions model. The defined contributions model allows employers to put a designated amount of money into a savings account, from which their employers can draw the money out to purchase healthcare industry insurance.  This model allows employers to cap healthcare costs at a predetermined threshold, as opposed to the defined benefits model, in which costs to the employer rise alongside costs in the Healthcare industry. Private exchanges facilitate the shift towards the defined contribution model, while also allowing employers to retain reasonable control over insurance options for employees.

Future of Private Exchanges

Although these private exchanges are not the norm now, their future looks promising. It is predicted that private exchange participation will approach and then surpass public exchanges by as early as 2017. The choice, flexibility, and customer service provided by these private exchanges allow employers to manage cost trends, offer more options, and provide customized solutions for the needs of employees. Consumers are very positive about these options, and as a result, one-fourth of the employers are considering the switch over the next 3–5 years.

In order to stay competitive and offer viable insurance options for employees, employers must be aware of the choices available to them. Private exchanges provide employers with the ability to manage costs while allowing employees to get the best coverage for their specific needs. Employees can optimize their healthcare dollars and employers can continue to provide competitive insurance plans that would not otherwise be viable under the current market conditions. Private healthcare industry insurance exchange provide an enticing alternative to public exchanges, for both employers and employees. Providing more choices, flexible and customizable plans, and allowing employers to keep employee benefit costs under control, private exchanges are an exciting new trend for the Healthcare Insurance industry in the US.

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