Public vs. private: Understanding the difference between the health care exchange models

A 2013 survey of 2,000 U.S. health care consumers found that 83 percent are entirely unfamiliar with private exchanges, according to Accenture, a global management consulting company.

A Kaiser Health poll conducted at the same time found that almost half of respondents didn’t understand that public exchanges are a provision of the Affordable Care Act (ACA).

A year later, those numbers might have moved somewhat, but the confusion and caution about the health care exchange concept is still causing slow initial enrollment for both.

“I haven’t seen a massive uptake on the private exchanges yet,” says Mark Haegele, director of sales and account management at HealthLink. “But I have started to see, for the first time, a few employers say, ‘I’m no longer offering insurance, and you can just go on the public exchange.’”

However, the wait-and-see approach may change soon. By 2017, private exchanges are expected to catch up to public exchanges, with one in five Americans purchasing benefits from a health insurance exchange, Accenture projects.

Smart Business spoke with Haegele about how the two exchange types differ.

How are private exchanges different from the public ones?

The public exchanges, which are mandated by the ACA, allow certain unemployed individuals, individuals with employer-sponsored plans and some small companies to purchase health insurance. The exchanges are sponsored by the government, either state or federal, and cover medical and prescription drugs with four levels of coverage. The individual consumers and small employer groups pay for the coverage, with some eligible to receive government subsidies.

Private exchanges are available to employees of companies who decide to participate. Right now, only a few organizations are offering private exchanges, such as Aon Hewitt, Towers Watson and Gallagher Benefit Services, Inc. The employer sponsors the coverage, but a private exchange has a broad range of coverage from medical and prescription drugs to dental, vision and voluntary benefits. Like a traditional health plan, usually the employer and employee each pay for part of the coverage.

What’s the attraction to private exchanges? Do they help employers control health costs?

Private exchanges are a way for employers to easily establish a defined contribution-type health plan. They can say, ‘I spent $1 million last year on health care for my employees. I’m willing to spend $1 million plus 3 percent next year, but that’s it.’ Then, every person gets an allocation and can choose within the available plans.

Private exchanges create predictability. You’re buying a more budget-friendly solution, that helps employers be one more step removed from insurance, versus managing your own health plan. In fact, it may end up being a stepping-stone to the public exchanges. Once employees get used to exchange-type health plans, some employers may decide to stop health coverage altogether, having them go on the public exchange.

An exchange doesn’t inherently do anything to control health care costs. It’s not a silver bullet. The claims are still the claims. The health status is still the health status. And the insurance companies still have to price each plan with their underwriters. You can build in prevention measures to keep costs down, but that’s like any health plan.

What else should employers know about private exchanges?

So far, private exchanges are structured as a single carrier solution. For example, if Aon Hewitt’s private exchange has Anthem, UnitedHealthcare and Cigna, a 500-life employer can go to the exchange and pick one of those three carriers. Then, health plan members have a menu of plan offerings under that single carrier.

Typically, the majority of employer-sponsored health plans have two or three options. Under the exchange model, you might have upward of 10 choices, as well as ancillary coverages. There are still plenty of choices, but it’s not like each health plan member can decide between UnitedHealthcare, Anthem and Cigna. It basically puts different carriers’ defined contribution plans in a room together, making it easier for employers to choose one.

Mark Haegele is the director of sales and account management at HealthLink. Reach him at (314) 753-2100 or [email protected].

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