Private exchanges: The solution to your benefit vs. cost conundrum?

Published on Mon, 03/10/2014 - 18:00
Private exchanges

The benefit vs. cost conundrum is a challenge that keeps many business owners up at night.

The average annual cost of health insurance coverage for both employers and their employees has risen to $12,535 in 2014, up from $11,938 in 2013. Employees are paying almost a quarter of that at $2,975 a year, an increase of almost 7 percent from last year and more than $100 more per month than they paid three years ago.

Those statistics come from a recent survey of 595 large employers by benefits consultant Towers Watson and the National Business Group on Health. And while the survey confirms that employers are increasingly shifting more of the burden of healthcare costs to their employees, it also tells another tale. Those same employers are getting more creative about their options, experimenting with ways to offer their employees more healthcare plan choices while controlling costs. One option that’s getting more attention recently is the private exchange.

What’s the attraction of a private exchange?

Like the public exchanges created under the Affordable Care Act, private exchanges operate on the theory that multiple participants and multiple plans create more competition and drive down costs for everyone. But unlike the public exchanges, private exchanges are only available to employees of certain companies, and you won’t find them on the open individual market.

Employers can use private exchanges as a way to cap how much they’ll pay for health benefits by using a defined contribution model. In a defined contribution model, employers provide employees with a predetermined amount of money to use for health care benefits. Employees then decide how to allocate those resources through the private exchange.

Employees like the exchanges because they can choose the kind of plan that fits their needs and their budget instead of having their plan chosen by the government or their employer. And just like individuals in the public exchanges, employees in private exchanges can switch insurers if they feel their premiums have risen unfairly or if they’ve had issues getting claims paid.

Despite rising healthcare costs, regulatory uncertainty associated with the ACA, and a sluggish economy, most employers are still committed to providing health insurance benefits to their employees. But it’s also clear that change is underway, with 94 percent of survey respondents anticipating modest to major changes in employer-sponsored healthcare benefits by 2018.

Of the 122 million workers currently getting health insurance coverage through their employers, only a few are enrolled in private exchanges. But that number is expected to rise dramatically in coming years as the Affordable Care Act continues to alter the health insurance landscape.

When you’re ready to explore your private exchange options, Heffernan's Employee Benefits division can provide a benefits plan tailored to your budget and your employees’ individual needs. And we’ll handle all of the administrative details for you. Watch our video to learn more. And, count on Heffernan to help you find a competitive, flexible solution to your benefit vs. cost conundrum.