Private Exchanges

05-27-2014

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Private Exchanges

Private health exchanges are insurance marketplaces operated by a private company. These exchanges are separate from the federal and state-run marketplace and are becoming an increasingly popular way to purchase an insurance policy that meets the standards of the Affordable Care Act (ACA) including its essential health benefit requirements.

Private exchanges can sell plans to individuals, families, and employer groups. The largest private exchange in the U.S. is eHealth, which was founded in 1997 and offers both Obamacare and Medicare plans. This year eHealth’s number of new individual memberships significantly increased as a result of the demand created by the ACA. Technical issues on Healthcare.gov or various state exchanges likely contributed to the surge of private exchange signups. eHealth is currently working with the Department of Health and Human Services (HHS) to set up a system that allows people who are eligible for subsidies to enroll through eHealth’s private exchange instead of through the Federally-facilitated marketplace or state marketplaces.

One of the largest private Medicare exchanges is One Exchange, formerly known as Extend Health. Founded in 2006, Extend Health provided group Medicare coverage to over 150 private and public sector clients, including over 30 Fortune 500 companies. In 2012 Extend Health was sold to Towers Watson and changed its name to One Exchange. In addition to selling Medicare Part C, Part D, and Medigap plans, One Exchange also has a private exchange for Obamacare plans.

Private Exchanges & Employer-Sponsored Insurance

The ACA mandates that companies that employ 50 or more full-time employees must offer affordable healthcare or pay a penalty. Although the penalty portion of the mandate won’t be assessed until 2015, many companies are choosing to use a private exchange to provide their employees with health plans.

Traditionally, larger companies that have over 1,000 employees usually use a self-insured plan to provide healthcare, meaning that the employer will contract with a firm that specializes in managing health plans. By using self-insured plans, the employer saves money on health insurance benefits, but also assumes the risk of covering costs that exceed the plan’s deductible. Currently, about 60% of all insured American workers are covered under self-insured plans, but that number is changing as employers seek ways to cut costs under the ACA.

Approximately 33% of companies plan to switch their coverage to a private exchange in the next few years. Instead of automatic enrollment in the company’s self-insured plan, workers will be able to choose from a small number of plans offered by a private insurer. The company gives its employees a subsidy to cover monthly premiums, while the insurance carrier is responsible for plan management and financial risk.

Both Walgreens and Sears have switched their employee health benefits from a self-insured plan to a private health exchange. This move may be prompted by lowered costs to the companies that are changing over to private exchanges, but financial benefits are not the only reasons for the switch.

Employers like Walgreens and Sears have workers that are paid both hourly and by salary, and these wide ranges of pay levels may require many health plan options. By moving to a private exchange, companies can offer a variety of plan designs and outsource the administrative burden that comes with managing those plans. Another benefit is the ability to more accurately predict costs for healthcare, since companies would no longer be financially responsible for employees that exceed their deductible. These costs would be passed on to the private insurance carrier.

Several large companies, like IBM and General Motors, have moved their retired employee benefits to the private exchange system and are considering offering the option to their current employees in the future. It is predicted that the number of American workers on a private exchange could grow to 40 million by 2018.

Comparing Private and Public Health Care Exchanges

In a June 2013 study and a May 2014 study, HealthPocket compared the inventory of Obamacare plans on eHealth’s private exchange to the inventory of plans on government-run health insurance exchanges including Healthcare.gov and state-based marketplaces. The studies found that on average 38% of the plans on Healthcare.gov were displayed on eHealth’s exchange in June 2013, but eHealth had 71% as many Obamacare plans as the government-run health exchanges in May 2014. The 2014 study also found that on average the lowest available Obamacare premium for a 40-year-old non-smoker was 6.5% higher on eHealth than on the government exchanges. Moreover on average eHealth displayed half as many $0 deductible Obamacare plans as the government exchanges.

In the same studies HealthPocket also compared the inventory of Medicare plans on the private exchange at Extend Health / One Exchange to the inventory of Medicare plans on the plan finder at Medicare.gov. The studies found that on average Extend Health displayed 30% of the Medicare Advantage plans available on the government plan finder in June 2013, but One Exchange had 65% as many Medicare Advantage plans as the government plan finder in May 2014. In May 2014 One Exchange displayed 58% as many Medicare Advantage plans with $0 premiums and 64% as many Medicare Advantage plans with drug coverage as the government plan finder. Moreover in the cities examined, One Exchange displayed one third as many Medicare Advantage plans with five star ratings as Medicare.gov.

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