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Small Business Employee Benefits and HR Blog

Private Health Insurance Exchanges 101

One of the biggest trends in employee health benefits right now is private health insurance exchanges. The concept is taking off with both large and small businesses. And, employers are turning to brokers to understand how they can benefit from a private health insurance exchange.

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What is a Private Health Insurance Exchange?

A private health insurance exchange is a health insurance exchange run by a private company. 

Webster defines an exchange as a place where things or services are exchanged, such as a store or shop specializing in merchandise usually of a particular type. 

So, at a basic level, a private health insurance exchange is a store or shop specializing in health insurance merchandise.

More specifically, a private health insurance exchange is a broker’s health insurance offering to individuals and/or employees. 

Private health insurance exchanges typically include the following components:

  1. A choice of two or more health insurance options

  2. Advice and recommendation on what health insurance options best fit the consumer's needs

  3. Automated billing for the chosen health insurance plan premium(s)

  4. On-going support for the chosen health insurance plan(s)

Numerous entities ranging from start-ups to new divisions of leading insurance companies have been created to offer new private health exchanges.

But, health insurance brokers can easily offer a private health insurance because a private health insurance exchange is nothing new! 

 

Two Types of Private Health Insurance Exchanges

In general, there are two types of private health insurance exchanges:

1. Group Market Private Health Insurance Exchange: An exchange that sells "group" health insurance to employees of an employer. This type of private health insurance exchange is more common with larger employers and is traditionally referred to as a "cafeteria plan". Here's how it works:

  • The carrier/broker sells a group health plan to an employer 

  • Employer decides how much money they want to spend on their employees' health care coverage via a defined amount or percentage of the premium

  • Employees select from multiple plan designs (ex: low or high deductibles), typically from a single carrier

  • The employer pays the premiums directly to the carrier on behalf of the employees

2. Individual Market Private Health Insurance Exchange: An exchange that sells "individual" health insurance to individuals and families (that may be employees) in the individual health insurance market. This type of private health insurance exchange is more common with smaller employers using a "pure" defined contribution approach. Here's how it works:

  • The carrier/broker offers a variety of individual health plans to an individual

  • The individual selects from multiple plan designs (ex: low or high deductibles), typically from multiple carriers

  • The individual pays the premiums directly to the carrier out-of-pocket. If the employer offers a defined contribution allowance, the individual can get reimbursed for the individual premiums

To summarize, a private health insurance exchange is nothing new. Brokers can create a private health insurance exchange by following these three easy steps.

Questions about private health insurance exchange basics? Leave a comment or question below.

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