Private Exchange vs. Traditional Large Employer Coverage

health insurance exchangesMany large, traditionally-insured employers are watching companies like IBM, Walgreens, TimeWarner, Sears, Aramark, Ingram Micro and Trader Joes move to private exchanges. And like most employers, they are asking themselves: 

  • Do I continue to offer medical benefits?
  • How do I cover new populations affordably?
  • How do I continue to meet changing employee needs and manage complexity?
  • How do I meet new regulatory requirements and manage compliance risks?
  • How do I manage ever-increasing costs and financial risk? 

Assuming they have made the decision to continue offering group insurance, employers are now starting to compare traditional coverage with the private exchange model. Here are the basics:

 Traditional Large Employer CoveragePrivate Exchanges 
Plan Type Group Typically Group 
FundingTypically “Defined Benefit” (self funded) “Defined Contribution” (fully insured) or self-funded
Plan ChoicesTypically 2-34+
Actuarial ValueAverage 80+ percent, with few if any low-cost plansTypically broader – 60-90 percent
CarriersOne or moreVaries per exchange
CustomizationHigh, as requested by employerLittle to none
ConsistencyHigh nationwideHigh, impacted by state mandates
Tax TreatmentDeductible by employerDeductible by employer
Member Support Varies by employer Generally high