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 Coverage Private Exchanges 
Plan Type  Group Typically Group 
Funding Typically “Defined Benefit” (self funded)  “Defined Contribution” (fully insured) or self-funded
Plan Choices Typically 2-3 4+
Actuarial Value Average 80+ percent, with few if any low-cost plans Typically broader – 60-90 percent
Carriers One or more Varies per exchange
Customization High, as requested by employer Little to none
Consistency High nationwide High, impacted by state mandates
Tax Treatment Deductible by employer Deductible by employer
Member Support  Varies by employer  Generally high