Employers Moving Toward Private Healthcare Exchanges

The employee benefits marketplace is quietly undergoing one of the largest transitions in recent history. A small but quickly growing number of companies are shifting from traditional healthcare coverage to private healthcare exchanges.

Private exchanges appeal to employers because they make it easier to predict and control healthcare costs. According to a recent survey by Towers Watson, the average annual cost of coverage for both employers and workers was $12,535 in 2013. Employees are paying almost a quarter of the cost with employees funding the balance.

Under the private exchange arrangement, employers gain more control over costs by contributing a fixed amount or “defined contribution” toward employee health coverage. Workers use those funds to shop for and subsidize coverage within the plans available to them.

The concept is proving popular with employers and employees alike. IBM and Time Warner recently said they are moving retirees to exchanges for those not yet Medicare-eligible and other exchanges for those who are. When Walgreens made private healthcare exchanges available this year 120,000 eligible employees opted for coverage for themselves and 40,000 family members. Once limited to two healthcare options, Walgreens workers now have a choice of as many as 25 plans from five insurers.

Interest in private exchanges is booming. According to a recent study by the Private Exchange Evaluation Collaborative, 45% of employers have either implemented or plan to consider private exchanges for active, full-time employees before 2018.

What are employers looking for in a private exchange? What are employee attitudes toward private healthcare exchanges? What lessons can be drawn from the federal and state experiences with creating a health insurance marketplace? What implications do private exchanges have for the voluntary benefits market? These topics will be discussed in future editions of this blog. We invite you to join in and follow the discussion.