Private Health Insurance Exchanges: Early Evidence and Implications for the Future

Private exchanges offer employer health insurance, combining online shopping, increased plan choice, benefit administration, and cost-containment strategies. This report examines how private exchanges function, how they may affect employers and employees, and the possible implications for the Affordable Care Act's (ACA's) Small Business Health Options Program (SHOP) Marketplaces. The authors conducted a literature review; held discussions with private exchange operators, insurers, and other experts; and used a microsimulation model to assess the potential implications of private exchanges. Among other things, the authors found that private exchanges could encourage employees to select less-generous plans. While this could expose employees to higher out-of-pocket costs, premium contributions drop substantially, for a net decrease in employee spending. On the other hand, employee spending may increase if, in moving to private exchanges, employers decrease their health insurance contributions. While many discussion respondents argued that private exchanges are seen as a mechanism for avoiding the ACA's "Cadillac tax" (a 40-percent excise tax on high-premium plans taking effect in 2018), most employers should be able to avoid this tax by reducing plan generosity or making other changes, regardless of whether they move to a private exchange. In general, we found little evidence to suggest that private exchanges will have a significant impact on the ACA's SHOP Marketplaces.

Choosing Less-Generous Plans May Mean Lower Premiums but Risk Higher Out-of-Pocket Costs

To the extent that private exchanges encourage workers to enroll in less-generous plans, the exchanges could expose workers to higher out-of-pocket costs.
The modeling results suggest that, while moving to less-generous plans (60-percent actuarial value) increases consumers' out-of-pocket costs, premium contributions drop substantially, for a net decrease in average employee spending.
However, average employee spending may increase if firms decrease their health insurance contributions when moving to private exchanges.

Employers May Try to Avoid the Affordable Care Act's (ACA's) "Cadillac Tax" by Offering Less-Generous Plans

While many discussion respondents argued that private exchanges are seen as a mechanism for avoiding the ACA's Cadillac tax (a 40-percent excise tax on high-premium plans taking effect in 2018), most employers would be able to avoid this tax by reducing plan generosity or making other changes to benefit design, regardless of whether they move to a private exchange.

Private Exchanges Are Unlikely to Affect the ACA's Small Business Health Options Program (SHOP) Marketplaces

We found little evidence to suggest that private exchanges will have a significant impact on the ACA's SHOP Marketplaces.

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