What About the Private Exchange?

Nowadays, every turn of a newspaper page, click of a media page on the Internet, or flip to a news channel brings us to an update, or more likely a criticism, of the public exchanges. With all of the attention on this side of the exchanges, we might be forgetting about the private exchange.   The private exchange serves as a channel for individuals and employers to purchase health insurance that is separate from the newly opened public exchanges developed under the Patient Protection and Affordable Care Act.

The biggest difference between the two stems from the fact that government subsidies aren’t available to those choosing to purchase health insurance from the private exchange. This explains why much of the news regarding private exchanges focuses on the group market, as employers that choose to participate in a private exchange provide employees with an subsidy to be used toward the purchase of health insurance, a method also known as defined contribution.

Not long ago, IBM and Time Warner announced the shift of retirees into the private exchange. Walgreens, too, and a number of other companies announced that they were moving employees to private exchanges. More recently, Towers Watson acquired Liazon Corp. to strength its well established private exchange platform. These large moves on the private exchange side may reinforce a number of predictions that estimate up to 40% of employers will move employees to the private exchange over the next 5 years.

While the private exchange may benefit the employer through decreased administrative burden and the ability to better predict costs, I also believe the exchanges will create better-informed consumers.  The private exchanges had been operating successfully as online marketplaces and call centers well before the opening of the public exchange, and employees have already learned how to shop for health insurance.

Private exchanges and employers have begun to take note of trends in consumer plan selection and some have even reported customers realizing the true cost of health insurance and, as a result, thanking their employers for their contributions. Hopes are that these well informed customers will reduce medical expenditure by more effectively managing their health care. It remains to be seen whether customers will remain satisfied in the long run, especially if employers do not increase contributions to match rising health care costs.