Structuring and offering a Private Exchange to assist Employers, Employees, and Individuals in the decision-making processes requires a new set of tools and the proper choice of directions!

Private and Public Exchanges - A new Employee Health Insurance/Benefits Distribution Channel

PPACA/Obamacare has delivered disruptive changes to the Insurance and Employee Benefit Industries. What were familiar distribution channels for Carriers, Brokers, TPAs, Enrollment Companies, and Employers are now changed forever.

As a new health insurance distribution channel, the Public Exchanges are one of the most misunderstood and confusing parts of healthcare reform. There are basically two types of Exchanges:

1) Public - State and Federal Health Insurance Exchanges - exclusively for health/medical insurance coverage. According to the Henry J. Kaiser Family Foundation,"Exchanges are new organizations that will be set up to create a more organized and competitive market for buying health insurance. They will offer a choice of different health plans, certifying plans that participate and providing information to help consumers better understand their options.

Beginning in 2014, Exchanges will serve primarily individuals buying insurance on their own and small businesses with up to 100 employees, though states can choose to include larger employers in the future. States are expected to establish Exchanges--which can be a government agency or a non-profit organization--with the federal government stepping in if a state does not set them up. States can create multiple Exchanges, so long as only one serves each geographic area, and can work together to form regional Exchanges. The federal government will offer technical assistance to help states set up Exchanges." 

The Public Exchanges have the option of including Employers with more than 100 Employees beginning in 2017. Mid-size and large U.S. Employers are exploring alternate health care models - such as Private Exchanges and Self-Funding to deliver high-quality, cost-effective health care plans to their employees. 

2) Private Exchanges for Group/Individual Health Insurance and Employee Benefits - including Voluntary/Worksite and Ancillary Plans. These exchanges are marketplaces that connect Employers, Employees, and Individuals with the providers of Plans, Programs, and Services. According to Booz and Company "The value proposition of private exchanges differs from Public exchanges in some important ways. First, private exchanges are flexible and can be customized to address the needs of any employer group, unlike public exchanges, which are targeted to individuals and small groups. For instance, private exchanges can design benefits tiers specific to employer segments with robust multichannel employee decision support. Another advantage is that private exchanges can offer a broader range of retail products, such as dental and life insurance and even non-insurance products, than public exchanges can."

The Concept of a Private Exchange is not new! Private Exchanges are essentially the old Cafeteria/Flex-Plans on steroids powered by technology! The Broker provided a "Menu" of benefits. What makes the New Private Exchanges different from Cafeteria/Flex Plans?  The differentiating factor is the use of web-based technology for the Education, Communication, Enrollment, and Supporting Data Management. Emerging technologies have made it possible to mass-customize Individual Insurance and Employee Benefit Plans. This enables the Brokers, Consultants, TPAS, Enrollment Companies, and Employers to utilize multiple Carriers as well as a choice of Plans, Programs, and Services with efficiency and cost-saving. 

Combining Private Exchanges with a Defined Contribution Employee Plan Design Creates New Opportunities for Brokers and Employers! A white paper by Booz and Company stated the following: "Over the past decade, this model has come under increasing strain as healthcare costs have more than doubled, creating an affordability crisis for employers. Now the problem has reached a tipping point. Some employers are considering a paradigm shift to their health benefits strategy that’s akin to the transition from pension plans to 401(k) accounts: switching from defined benefits toward a defined contribution model. Instead of designing and offering defined health benefits, companies make cash contributions to savings accounts that employees use to purchase insurance products of their choice. This model allows the company to cap its healthcare cost at a desired threshold, improving control of current expenses and future liabilities." 

Current status in the development of Private Exchanges.  To date their appears to be four basic ways Private Exchanges are being created and offered:

1) Software companies have developed platforms for providing Brokers and Employers the technology required to establish Private Exchanges. The platforms are being sold as a Product or Service to the Insurance and Benefits Industries.

2) Technology companies have developed the software and are acting as the Broker for offering the Carrier/Providers Plans, Programs, and Services on the exchange platform. In most cases the companies are marketing directly to Employers. In some cases, they will partner with Brokers or license the technology.

3) Several large Brokerage Firms have created Private Exchanges utilizing either proprietary or purchased technology to provide a platform to their current and potential Clients. 

4) Companies like are developing platforms that take advantage of several software and technology opportunities making the platforms available to Brokers of all sizes. This permits the Broker to retain control of their Employer Groups and to build the "Menu" of Insurance and Benefits. This opportunity provides a choice of platforms to meet the requirements of different sized Employer Groups in various industries - Small Group Market; 50 to 500 Employees, and the Larger Group Markets. The Broker works with the Employers on a case-by-case basis to determine the plan designs that best meet their needs, ie. Fully Insured, Self-Funded, Defined Benefit, Defined Contribution, etc. In addition,the Broker can select the appropriate technology by Price and Complexity. The following Graphic should help explain how this platform works and its components:   


Offering Employers, Employees, and Individuals the opportunity to make Insurance and Benefit related decisions utilizing a Private Exchange is the new frontier in distribution. It is our feeling at and that Brokers should remain the guide and Trusted Advisor to the end-user consumers - Employers, Employees, and Individuals!

If you have questions about the above, please Email - or Call 216.577.5579


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