Public versus private exchanges.


Public and private exchanges share several common features. Any health insurance exchange is an online marketplace through which employees and retirees can purchase health insurance and evaluate the differences among plan designs and/or carriers.

An exchange is generally a Web-based portal, similar to a retail website, except that it sells health insurance coverage instead of consumer goods. It also includes member support tools to help users understand how the exchange operates and make informed decisions.

The private exchange model typically uses a defined contribution (DC) approach to health care. Employers provide a set dollar amount toward health coverage, and employees use that money toward the purchase of health insurance from the insurance carriers on the exchange their employer has selected.

Private exchanges are operated by private-sector companies or nonprofit organizations and are not subject to the Affordable Care Act (ACA). Private exchanges are typically fully insured with fixed premium payments paid on a per-employee basis. Private exchanges negotiate premium rates with participating insurers and employers select exchange options based on the needs of their employees. Generally, there are two types of private exchanges:

Single-carrier exchanges are typically run by insurers and offer only the sponsoring insurer's plans. Employers are generally involved in selecting the various plan design options, but there is no variety among insurers offered.

Multi-carrier exchanges are typically run by third parties and include numerous plan design options from multiple insurers. The insurers compete for enrollment by offering different pricing structures, health care networks and levels of performance and customer support.

A few private exchanges have been in existence for a number of years, focusing mostly on the retiree/Medicare market where individual plans are the dominant mode of coverage and thus more easily adaptable to exchange-based models. Although most were started by technology-oriented startup companies, a number of these exchanges have since been sold to brokerages, benefits outsourcing operations and other organizations that want to enter to this potentially lucrative market. They are generally considered group purchasers of health coverage and operate in the large group market.

In contrast, the ACA created a set of highly regulated public health insurance exchanges, which must be operational...

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