What Is a Private Insurance Exchange?
The Patient Protection and Affordable Care Act (ACA) provides for the creation of government-sponsored health insurance Exchange Marketplaces through which consumers and small businesses (fewer than 50 full-time equivalent employees) can comparison shop for health insurance that meets the minimum requirements of the ACA. Consumers and small businesses also may use Exchange Marketplaces to apply for tax credits that help offset the cost of health insurance. Government Exchange Marketplaces also provide the venue through which consumers may apply for an exemption to the ACA's health insurance mandate that requires most people to have health insurance coverage.
But government Exchange Marketplaces are not the only health insurance forums through which consumers and businesses may shop for insurance. Private exchanges are growing in number and popularity for both individual consumers and businesses.
What is a private exchange?
A private exchange is typically an online resource set up by insurance brokers, insurance companies, or benefit consultants, through which consumers and businesses can shop for health insurance, enroll in a plan, and receive customer support. Private exchanges are not part of the ACA, so unlike government Exchange Marketplaces, private exchanges don't offer tax credits, nor do they provide exemptions to consumers from the health insurance mandate. However, some private exchanges may offer help to consumers enrolling for coverage through government Exchange Marketplaces, especially if the consumer may be eligible for tax credits.
What do private exchanges offer?
Private exchanges typically offer two or more health insurance options, which may be from a single carrier or multiple insurers. Private exchanges may also provide:
- Information on available insurance options
- Assistance and recommendations about what insurance best fits the needs of the consumer
- Automated billing and processing
- Insurance products that can't be purchased through a government Exchange Marketplace such as vision, dental, hospitalization, disability, long-term care, life, and property insurance
Types of private exchanges
Generally, there are three types of private insurance exchanges, although some private exchanges may offer a combination of services and products. Private exchanges may be described as follows:
Individual private exchange
These exchanges offer insurance products and services to individual consumers and their families. Health insurance policies must meet the requirements of the ACA as to underwriting, benefits, and cost. However, consumers are not able to receive premium tax credits or cost-sharing reductions directly through an individual private exchange.
Group private exchange
Group private exchanges service employers that provide fully insured health coverage to their employees. Employers may have several major medical insurance options available through the private exchange that can be offered to employees. In addition, employers may offer supplemental insurance products (e.g., life, accident, long-term care) to employees through the private exchange.
Employer-sponsored individual private exchange
Also referred to as defined contribution health care, employers commit a stated dollar amount to the employee for individual or family coverage. Employees then select from a variety of plans offered by the private exchange that best meet their respective needs and add their own salary-deferred contributions to cover the premium exceeding the employer's contribution.