May 10, 2013 (PLANSPONSOR.com) - Public exchanges are getting lots of attention due to the Affordable Care Act (ACA), but employers are also considering private exchanges to make health care function more like a defined contribution (DC) plan.
Private exchanges can have many benefits, but before making the decision to join one, plan sponsors must do their homework. The private exchange is an alternative to public exchanges and current forms of employer-sponsored health coverage, and many private exchanges are aggressively marketing their services as they compete for business, according to Sibson Consulting’s paper, “Thinking of Joining a Private Health Insurance Exchange? Look Before You Leap.”
In a private exchange, employers provide a set dollar amount toward health coverage, and the employees use that money toward the purchase of health insurance from the insurance carriers on the exchange their employer has selected. Private exchanges negotiate premium rates with participating insurers, and employers select exchange options based on the needs of their employees.
Generally, there are two types of private exchanges:
- Single-carrier exchanges: These are typically run by insurers and offer only the sponsoring insurer’s plan. Employers are generally involved in selecting the various plan design options that will be offered to their employees, but there is no variety among insurers offered, Sibson's paper says.
- Multi-carrier exchanges: These are typically run by third parties and include numerous plan design options from multiple insurers. The insurers compete for enrollment by offering different pricing structures, health care networks and levels of performance and customer support.
Nancy Duta, health consultant at Sibson, told PLANSPONSOR the industry is initially seeing larger employers—a minimum of 3,000 to 5,000 employees—attracted to the private exchanges. “We are not seeing smaller employers jump on board just yet,” she said.
This is partially because the private exchange carriers are not marketing heavily to smaller employers, said Chris Calvert, Sibson’s senior vice president and health practice leader. The private exchange is thought to be more expensive, so smaller employers are less likely to choose this option, he said.
Public exchanges, as part of the Affordable Care Act (ACA), also offer Small Business Health Options Program (SHOP) exchanges. A federal subsidy is not available in the SHOP exchanges, but employers can use cafeteria plans to allow employees to pay their portion of the premium on a pre-tax basis, Sibson’s paper says.