Why Private Health Insurance Exchanges are so popular?

With the private insurers set to offer defined contribution health plans through their private health insurance exchanges, there has been a growing interest in the defined contribution model in place of the traditionally offered defined benefit plans.

Defined contribution (DC) health plans allow employers to limit their healthcare expenses by providing fixed-dollar contributions to employees that employees can use to purchase individual health coverage policies. Private health exchanges with their DC plan models enable businesses to cap their healthcare costs and grant employees increased control over their health insurance benefits and costs.

There is still not much clarity on the public exchange implementation plans of most of the U.S. states. The uncertainties revolving around the availability of a local state exchange and other factors such as ignorance about federal health exchanges may drive several employers to private health insurance exchanges.

The Affordable Care Act mandates large employers to provide employer-sponsored health coverage to their employees and if such employers fail to provide employer-sponsored coverage to their employees, they are likely to incur a $2,000-per worker federal penalty. Private health insurance exchanges therefore serve as viable alternative for large employers to provide employer-sponsored health insurance to employees.

Shifting the health plan costing model to a defined contribution from the erstwhile defined benefit model helps employers predict their healthcare costs. Businesses can also limit the amount of dollars that they need to offer under employee-only coverage model which helps employers in optimizing their healthcare budgets.

Opting for private health insurance exchanges for offering health insurance to employees can help employers curb their administrative costs. With the private health exchanges, employers need not spend excessive resources for processes such as determining employees and their dependents eligibility for health plans, enrolling employees, selecting benefits for each employee etc. Another added of offering defined contribution plans and directing consumers to private exchanges to select own health benefits helps improve worker satisfaction. With private exchanges, workers would get more control over their health insurance coverage and may not require changing their health plans when they switch jobs if both the old and the new employer participate in the same exchange. Such portability of health coverage reduces a lot of administrative burden not only for the employer but also for the workers.

With so many visible advantages of participating in private health insurance exchanges and with the uncertainties clouding over the health insurance exchanges, employers are likely to switch to defined contribution plan models to manage rising healthcare costs and increasing worker satisfaction with their health plans. A trend that is expected to continue well into the next year.