Health Insurance Exchanges. Private Exchanges. Public Exchanges.
These are phrases that get thrown around a lot since the passage of the Affordable Care Act (ACA). 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 me and my business?
Let’s start with the Public Exchange.
Public Exchanges (now called Marketplaces) were created by the ACA. Prior to the ACA, 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 and might even decide not to offer you a policy at all. This process is called medical underwriting. But just as important was the fact that the premium for these policies were not tax deductible. As a result, few people with access to health insurance at work ever pursued these policies.
The ACA eliminated medical underwriting and, for the first time ever, people with low incomes could qualify for subsidies (much like 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 federal government (healthcare.gov). It is basically a store to buy insurance. The shelves are stocked with policies from private insurance companies (e.g., UnitedHealthcare) and consumers have choices depending on where they live. Choice is one of the primary attributes of an Exchange.
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 they 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. The number one way they look alike: choice. With choice comes the need for 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 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.
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.
The Bottom Line?
Private Exchanges are for employer-provided benefits and Public Exchanges are for individual benefits available outside the employer.
So when is a Private Exchange the right answer? To answer this, you need to understand what benefit strategy a company is pursuing. Depending upon the strategy, a particular Private Exchange may be the right benefit delivery answer 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 are likely to be a hot topic for the next several years. Knowing how to think about them will be critical to making good decisions about benefit delivery over the next several years.
Want to learn more, or have questions about your benefits enrollment options? Contact us at Hodges-Mace. We’d love to help!