Private Exchanges: Examining Potential Opportunities and Challenges

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The growing cost of providing health benefits is prompting some large employers to modify the ways they offer coverage to their employees.  Experts say these changes are part of a larger trend in which employers are replacing their defined health benefit (i.e. coverage through a specific health plan) with defined contributions that employees can use to purchase insurance products of their choice.  Similar to the shift from pension plans to 401(k) accounts, this move to “consumer-directed” coverage is intended to encourage greater engagement and decision-making among employees while helping mitigate costs for employers.  A recent article in the Washington Post explores the strategies employers are considering for promoting choice and controlling costs in the context of health reform, including the use of private exchanges.

As the Washington Post reports, recent surveys of mid- to large-size firms indicate large businesses expect to pay between 4 and 5 percent more for employee health benefits in 2015 after making adjustments to their plans.  Half of businesses surveyed by the National Business Group on Health in June plan to offer a consumer-directed health plan as their only benefit plan next year, and nearly three in four intend to add or expand tools to help employees be better health care consumers.  Some experts say these changes are driven in part by an excise tax on high-cost plans that will go into effect in 2018 under the Affordable Care Act.  According to the Post, many companies are looking to cut premiums while raising deductibles in an effort to lower their tax bill.

Another strategy gaining the attention of employers is the use of private exchanges – online platforms where consumers can use a contribution from their employer to directly purchase health plans and any additional benefits.  Multi-carrier exchanges are typically operated by brokers or benefits consultants and offer a wide range of plans from multiple payors. Single-carrier exchanges feature one payor and allow the employer to have a more hands-on role in tailoring the benefit options available to employees.  The recent survey by the National Business Group on Health found 3 percent of large employers will provide health insurance through a private exchange by next year, while 35 percent said they are considering use of a private exchange in 2016 or later.  However, survey results also indicated widespread uncertainty about the ability of private exchanges to control costs and engage employees better than employers’ own plans.

In a HCFO-funded study, Mark Hall, J.D., Wake Forest University, is using key informant interviews, document and data review, and legal research to examine the rise of private exchanges and the implications for state and federal policy moving forward.  In particular, Hall is examining potential concerns created by private exchanges, whether these exchanges require different regulatory oversight, how they dovetail with public exchanges, and whether they have spillover benefits or negative interference with other market and regulatory features.  The goal of the study is to help decision-makers assess whether private exchanges pose favorable opportunities or worrisome risks, and what measures might be taken to enhance their benefit or mitigate negative effects.  Findings may also help inform states as they consider whether to expand public exchanges to large employers in 2017.

Additional information about Hall’s study is available here.