Are Private Health Insurance Exchanges Viable or Just a Cost-Shifting Scheme?

Private Exchanges: An Elaborate Cost-Shifting Mechanism?

Yes, the public exchange system may have stumbled out of the gate, but the private exchange system has its issues, too, and we’re not talking about technology “glitches.”

We’re talking about their fundamental design and the fact many private exchange strategies on the market today don’t address the main issue facing the benefits world: the steadily rising cost of health care.

We’re talking about the fact that without addressing health care utilization, the private exchange approach may be nothing more than a cost-shifting strategy. We’re talking about a future world where employees in the private exchange system may not be able to afford health care.

Drivers of Health Care Costs Unaddressed

Dramatic? Sure. But several private exchange approaches to lowering costs are based on aggregating volume and don’t address the real drivers of health care trend. Under a defined contribution model, which underpins the private health exchange system, the employer’s costs are easily capped. That leaves employees holding the bag when costs go up. And costs will go up if we don’t look at what’s driving them up.

So, yes, dramatic. But not doom and gloom. In combination with wellness and total population health management programs, the private exchange system has a lot to offer. In that context, employers can use it to advance health care consumerism and provide employees more accountability, responsibility and choice.

The appeal of the private exchanges is clear, especially in retail, hospitality and other industries with a seasonal workforce, as well as industries that are facing the requirement to provide benefits for the first time. Data we’ve seen suggests that between 5%- 20% of mid-market firms will move to private exchanges by 2017.

But before anybody migrates to this model, they need to consider the bigger picture and the potential consequences of making the shift.

See my full video interview with WillisTV’s Colleen McCarthy above.

About Jim Blaney

Jim is the CEO of the Human Capital Practice at Willis North America. He has served in the national practice in var…
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