Defining health exchanges: public vs. private

Hyong Jin Park

There has been a lot of media attention on the coming public (government-run) health exchanges (or marketplaces), how they’ll work and what they’ll mean for people who enroll in coverage through them. Recently, private exchanges have also been getting some attention from employers. While exchanges remain a hot topic, there is confusion surrounding both public and private exchanges.

Let’s try to clear up some of the confusion.

The public health exchanges mandated by the Patient Protection and Affordable Care Act (PPACA or healthcare reform) enable certain consumers—unemployed individuals, individuals without employer-sponsored plans and some small companies—to purchase health insurance. For most individuals with employer-sponsored health insurance available to them, the public exchanges are not an option, or at least not an affordable option. On the other hand, private exchanges are available only to employees of companies that choose to participate in it and all private exchanges are not alike. We’ll explain the differences in next week’s post.

To help you gain a deeper understanding, below are four key factors that help define the difference between public and private exchanges:

  • Who’s the sponsor? For public exchanges, the sponsor is the government, whether state or federal (depending on the state in which the individual resides). With a private exchange, the employer is still considered the sponsor.
  • Who’s it for? Public exchanges are for individuals, or small employer groups up to 50 lives (up to 100 lives in some states). A private exchange is built for employees of a company and the employees’ dependents specifically in mind.
  • What’s the coverage? Insurance available in public exchanges only covers medical and prescription drugs; this is a significant benefit for those who currently don’t have insurance, but fairly bare bones compared to what most employer-based plan participants are accustomed to. Private exchanges offer a significantly broader range of products; in addition to medical and prescription drugs, they also include dental, vision and various voluntary benefits. This enables participants to create a customized program to fit their and their families’ needs.
  • Who pays for the coverage? Individual consumers and small employer groups up to 50 lives (up to 100 lives in some states) pay for the coverage in a public exchange which may include varying subsidies provided by the government. In a private exchange, employers are paying for a portion of the coverage and the employees are also generally responsible for paying a portion of the coverage. Importantly for employers, a private exchange may create some cost certainty, because the employer can set a defined contribution amount to be used by the employee and the amount paid by the employer is tax deductible.

There are some clear advantages to private exchanges, and there is a lot of discussion in the insurance industry about this option as employers seek new solutions for covering employees and controlling costs. We anticipate that most employers will need to review all their options, including the private exchange, because they’ll be seeking methods and platforms that will enable them to provide health insurance that works for both their employees and their business.