By Eric Helman, Hodges-Mace | October 2016
Health insurance exchanges, private exchanges and public exchanges. These terms have been thrown around a lot since the passage of the Patient Protection and Affordable Care Act of 2010 (PPACA). Exchanges are a radical change from the pre-Obamacare status quo. And for that reason, the concept of the exchange is leaving many scratching their heads. What does it all mean? What are the differences between private and public exchanges? What does it mean for my business and me?
Let's start with the public exchange.
Public exchanges (now called "Marketplaces") were created by PPACA. Prior to this regulation, individuals and families could buy health insurance directly from insurance companies (like most people buy auto insurance). Insurance companies were allowed to ask questions about your medical history to determine your rates. They might even decide not to offer you a policy at all. This process is called medical underwriting. However, just as important was the fact that the premiums for these policies were not tax deductible for most people. As a result, few people with access to health insurance at work ever considered these policies.
PPACA eliminated medical underwriting and, for the first time, people with low incomes could qualify for subsidies (in a similar way that employees receive subsidies because their employer-based insurance is not taxed). These subsidies are only available on the public exchanges.
Types of Public Exchanges
There are two types of public exchanges: those run by an individual state (e.g., Covered California), and the one run by the U.S. Government (healthcare.gov). Exchanges are basically web stores where individuals go to buy insurance. The shelves are stocked with policies from private insurance companies (e.g., UnitedHealthcare, Aetna, Blue Cross Blue Shield), and consumers have choices depending on where they live. Choice is one of the primary attributes of an exchange. Recently, we have seen announcements from some of the top insurance companies that they are reducing the number of zip codes where they will offer coverage. According to a recent study conducted by McKinsey, up to 17% of Americans will only have one choice of health carrier in the public exchanges in 2017.
Herein lies the rub … While anyone can buy a policy on a public exchange, most employees will not qualify for subsidies because their employer offers them affordable and acceptable group insurance. Therefore, the majority of people purchasing coverage through the public exchanges either previously had individual insurance or were uninsured.
A private exchange is a way to deliver an employer-sponsored benefit program that looks similar to the public exchange, but retains the advantages of group coverage. Public and private exchanges look alike in one way: choice. But with choice comes complexity. Correspondingly, most private exchanges include decision support tools to help employees decide what is best for them.
If you've seen one private exchange, you've seen one private exchange.
In other words, just about every private exchange is different. One of the ways to think about private exchanges is to look at the products they offer, how they handle employer contributions and the service model they offer for employees. Some have medical products from different insurance companies, but most do not. Some use a defined contribution approach, and some do not. Some only provide a self-service support model while others are adding call center and enrollment counselors.
Private exchanges also come from a variety of sources. Some are run by third parties (i.e., brokers and consultants), some are run by technology providers and some are run by insurance companies. Some are customized for each individual employer, some are not.
Private exchanges are for employer-provided benefits. Public exchanges are for individual benefits available outside the employer.
So when is a private exchange the right answer for an employer? To answer: Â you first need to understand what benefit strategy a company is pursuing. Depending on the strategy, a particular private exchange may be the right benefit delivery solution, but only if the products, contribution approach and service model of the private exchange match the strategy of the employer.
Exchanges are a hot topic, and they are likely to be a hot topic for the next several years. Understanding them will be critical to making good decisions about benefit delivery. While there are no linkages between the public and private exchanges, it will be interesting to see how the success of the public exchanges affects the future adoption rate of private exchanges.
Read the October edition of Benefits & Work-Life Focus.
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