The emergence of private insurance exchanges

Private exchanges offer yet another alternative to group health plans

By Emily Berry
American Medical News, September 5, 2011

With potentially more than 50 state-based versions of a public health insurance exchange set to emerge by 2014, another version of a post-health reform insurance market is emerging: the private exchange.

A private exchange is an existing concept taking on a new name. The idea also has been pitched as a "defined benefit" plan and has been part of a package with a health reimbursement account. Simply put, a private exchange is an alternative to a group health benefit plan. Rather than paying a portion or all of a premium, an employer pays each of its workers a flat amount and sends each to choose his or her plan.

Here's how a private health exchange works:

An employer decides what it can afford to pay for health benefits -- for example, $1,000 per employee per month. Rather than enrolling every employee in the same plan and using the $1,000 to pay for a portion of a premium, the employer puts $1,000 in an account for each worker.

Then one of two things happens: One, the employee works with a third party that acts as a clearinghouse. The worker chooses from any plan available in the individual market, with the clearinghouse administering the employee's HRA, and helping connect brokers and health plans with the employees who want to buy coverage.

Under the second scenario, the employer sends the worker to a third party that gives him or her a limited set of choices, for instance a range of plans offered by the state's Blues plan.

A private exchange would be a better deal for the employer than not offering health benefits, because the company can still reap the tax advantage of offering health benefits and avoid the penalty that would apply to companies with 50 or more employees if they decided not to offer benefits, analysts said.


By Don McCanne, MD

Employers who want to reduce their roles in providing health insurance for their employees, yet do not want to turn their employees over to the state insurance exchanges and pay penalties for doing so, seem to have another option - private exchanges.

One of the greatest benefits for the employer is that they can convert their health benefit programs from a defined benefit to a defined contribution. This shifts the burden of future health care cost increases onto their employees.

In the next couple of years we can anticipate seeing many other similar efforts to skirt the provisions of the Affordable Care Act. It is really tragic that we are going to have to wait until far too many more people are destitute and suffer and die before we are ready to enact the reform we really need - an improved Medicare for all.