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Are private exchanges the next big thing in health plans?

Experts say demand will increase due to increasing health plan costs and 'Cadillac' tax

Susan Morse, Senior Editor

Beginning in 2018, companies that offer health insurance packages the government deems too generous will start having to pay a 40 percent tax on those packages. Despite the "Cadillac" tax, Towers Watson, a consulting firm, predicts that 48 percent of employers will have to pay the tax in its first year.Beginning in 2018, companies that offer health insurance packages the government deems too generous will start having to pay a 40 percent tax on those packages. Despite the "Cadillac" tax, Towers Watson, a consulting firm, predicts that 48 percent of employers will have to pay the tax in its first year.

As companies face increases in the cost of health insurance, they will increasingly turn to private exchanges to offer plans to their employees, according to a report by Kaiser Health News, Minnesota Public Radio, and NPR.

In 2012, the John Henry Foster distribution company in Minnesota was facing a big increase -- 30 percent -- in its costs for employee medical benefits.

So, company leaders decided to sign up for a private exchange run by Medica, a Minnesota insurer, because they could choose to spend only about 10 percent more on health benefits in the first year.

Since then, the firm has increased the money it gives employees to spend on health insurance by roughly 10 percent each year.

"I think it definitely helps us from an operational budget standpoint," said Jan Hawkins, co-owner of John Henry Foster. "We've just seen only positives from this";

So far John Henry Foster is among relatively few businesses using a private health insurance exchange. Research last year by the Kaiser Family Foundation showed only 3 percent of employers, excluding the federal government, insure their employees this way.

But it's an increasing trend, according to experts.

"I would say a majority of the companies will switch to private exchanges," said Dr. Jim Bonnette with the healthcare consulting firm The Advisory Board Co.

Bonnette thinks that employees under this sort of system are likely to choose high-deductible plans and be much more motivated than in the past to search out the best value for care. That could finally force consumers to pay attention to the price of healthcare, he said, a goal that has eluded health policymakers for decades.

However, Kim Wagner, a benefits consultant, said predictions of a big shift to private exchanges are overblown. Although some employers are adding more health plan choices for workers, giving employees a set amount to buy insurance on an exchange could alienate workers and increase turnover, she told Kaiser Health News.

The practice of giving employees a limited amount of money to purchase their own insurance has been around for a while, Wagner said, but "it hasn't taken off, particularly in the large employer space, because truly it's a cost shift."

Workers suddenly asked to shoulder more of the cost of their health care may be more likely to look for a job elsewhere, opting for companies that offer better benefits.

Nonetheless, firms that now use generous benefits as a selling point to lure top talent may soon be more motivated to set up these sorts of private insurance exchanges.

Beginning in 2018, companies that offer health insurance packages the government deems too generous will start having to pay a 40 percent tax on those packages. Despite the "Cadillac" tax, Towers Watson, a consulting firm, predicts that 48 percent of employers will have to pay the tax in its first year.
 

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