What is a Private Exchange?

Private Exchange Explained

Before you purchase or renew a traditional employee benefits plan, you would do yourself a favor by considering a Private Exchange instead.  What’s a private exchange?

A private exchange is a health insurance marketplace for a company’s employees.

The employEE then takes that contribution and applies it to the benefits THEY prefer.  That means the employee chooses the insurance company AND the plan within that insurance company.

In California, employees can choose from major insurance carriers such as Aetna, Anthem, Health Net, Kaiser, United Healthcare and more.  Your employees will find that plans in a private exchange are basically the same as the ones offered through their traditional plans.  The insurance doesn’t change, just the way it is selected and paid for.

If the plan they choose is less than the employer contribution the received, the employee pays nothing and the employer gets a little savings.

If they choose a plan costs more than what the employer contributed, then the employee simply pays the difference through a payroll deduction.

THIS is how employers are fixing their benefits budget.  Employers define their own contribution instead of leaving it up to the insurance company to tell them what they are going to pay for benefits this year.

Additional Benefits of a Private Exchange

One of the additional benefits of a private exchange is that employers are far less likely to pay for coverage that employees don’t want or don’t need.  In a traditional health plan, offering a Gold or a Platinum plan to some young 20-something who never sees the doctor doesn’t make sense.  They just don’t appreciate that Gold or Platinum plan because they don’t need it.  If they had a choice, they would probably pick something lower, especially if they had to pay a small portion of the premium.

Something else you will notice with a private exchange is that some employees will pick smaller networks of doctors which will result in lower cost for the employer.  That’s because their doctor is in that network and they are happy with it.  Of course some will want that expanded network but they will be willing to pay extra for it so they can reach their doctor.  Their doctor is very important to them.

All you have to do is look at dental PPOs vs dental HMOs.  A dental HMO has great coverage and is much, much less expensive than a dental PPO but everybody wants a dental PPO and they’re willing to pay a lot more for it because they can go to any doctor they want.  We all know the anxiety of visiting the dentist so if you find one you like, you want to keep it.  This shows us that employees will pay extra for what they want and they won’t take what they don’t need.

The key is that it’s their decision to make.  And a Private Exchange is the only way to put the power of that decision in the employee’s hands.