The Affordable Care Act is probably best known for its Federal Marketplace, or exchange, but as the law evolved it has helped increase the popularity of another product: private exchanges.
Private exchanges are increasingly seen as a viable business option because they offer employers predictable cost control through defined contribution, while also empowering employees to become smarter consumers.
“Private exchanges are increasing in popularity because they may offer a strong balance of product and cost choices, decision support that empowers employees to become health care consumers, and administrative and financial benefits to employers,” says Kismet Toksu, president of EBenefits Solutions, a subsidiary of UPMC.
Smart Business spoke with Toksu about why private exchanges can make good business sense for employers.
What are some of the differences between private and public exchanges?
Either the federal or state government sponsors a public exchange. An employer, broker or association may sponsor a private exchange. While public exchanges serve individuals or small employer groups of up to 50 lives, private exchanges, typically, serve the employer group market. Private exchanges also vary on the size of companies they target. Due to rules that govern public exchanges, the products offered are more limited than those available on private exchanges. Another big difference relates to customer experience and service.
What are some of the advantages of a private exchange over a public exchange?
One is an increase in options, both in terms of benefits that may be offered and companies that offer products.
With a public exchange plan, members may choose coverage for medical expenses and prescription drugs only. Private exchanges may offer more than medical and prescription plans, such as dental and vision coverage, disability, accident or critical illness. Even non-medical plan options may be offered. Private exchange plan options have fewer limitations and may be more customized.
In addition, there is more cost certainty for employers, who are often responsible for paying the largest portion of the coverage. This type of funding is called defined contribution. Employees may use the defined contribution to offset costs of the products they select.
How can an employer benefit from going to a private exchange?
First, an employer may continue to reap tax benefits by providing employees access to health insurance. An employer also may retain control over their benefit offering. When employees understand the true cost of their options, they tend to be more cost-effective, which is an advantage for both the employer and employee.
A private exchange may reduce the administrative burdens while maintaining employee loyalty associated with offering coverage.
How do employees benefit from private exchanges?
On a private exchange employees have the opportunity to select a plan that best fits his or her needs and budget. Private exchanges provide decision support not often available elsewhere. Employees may also find that private exchanges provide better customer service.
Is there a set amount that an employer must contribute to a private exchange?
The amount an employer contributes is determined entirely by the employer. With a defined contribution plan, the employer gives the employee a set amount for health care and the employee increases that, as he or she sees fit. A defined contribution can cover the entirety of an employee’s plan, or only a portion of the total cost.
What else do you need to know about private exchanges?
Remember that no two private exchanges are the same. Some offer individual plans; some offer group plans targeting specific group sizes. The types of benefits offered — such as dental, vision or disability — may vary, depending on the exchange. Certainly the member experience and quality of support varies. Also, private exchanges are only available to employees of companies that choose to participate in it.
Insights Health Care is brought to you by UPMC Health Plan