Obamacare’s exchanges ended the second open enrollment period with a total of 11.7 million sign-ups, up significantly from last year’s final tally of 6.7 million. After accounting for people who won’t maintain coverage, or won’t pay their first month’s premium, this number will likely fall to around 10.7 million. Still, it’s nothing to belittle.
But Obamacare’s enrollees aren’t the only ones taking advantage of the health insurance exchange concept — private employers are starting to take notice too, and they appear to be doing a better job than the government.
So-called “private exchanges” are a relatively new approach that a growing number of employers are turning to when it comes to offering health care benefits. Analysts at the Kaiser Family Foundation provided a thorough overview of the private exchange market last year, finding a variety of exchange structures that cater to employers of all shapes and sizes.
More recently, Accenture has estimated that for the 2015 plan year, there are 6 million enrollees in so-called “private exchanges,” up from 3 million last year. By 2018, analysts at the consultancy estimate that take-up will hit 40 million, two-thirds more than the CBO expects on the public exchanges.
There are a few reasons for this. For starters, these exchanges offer a different way for employers to think about health benefits. Rather than tying employees down to a single insurer and giving them little choice in plans, private exchanges let employers provide a defined and tax-deductible contribution towards workers’ health care costs in a well-managed shopping environment. It’s the 401(k) revolution for health care.
Workers benefit as well. As opposed to the poorly-designed public exchanges (an Avalere Health analysis found that only one out of 13 exchanges had a full cost calculator available, while others were even missing provider directories), private exchanges typically offer more transparency on cost and quality for consumers, ensuring that shoppers make more informed choices.
Obamacare has played an important role in the rise of these exchanges. The looming Cadillac Tax (a 40 percent excise tax on high-value plans) that begins in 2018 effectively sets a ceiling on benefits for many employers. A defined contribution approach on a private exchange lets employers more easily manage that ceiling.
This might be just the tip of the iceberg for private exchanges. In a forthcoming essay contribution to a Manhattan Institute book on patient-focused health care reforms in New York, Robert Moffit of the Heritage Foundation argues that the public sector should take advantage of this growing trend, shifting state and local employees into an exchange environment.
This proposal is both practical and good policy.
The practicality is simple. The Cadillac Tax will likely hit the public sector much harder due to the more generous benefits public employees tend to receive. By proactively sending workers into a well-managed exchange environment with a generous (but not too generous) defined contribution, public employers will be able to manage the costs of the excise tax more easily and protect employees from sudden reductions in benefits.
As far as policy goes, reducing (not eliminating) excess health care benefits gradually allows states and localities to put more money into wage increases. The necessity of greater cost-sharing to “right-size” benefits will in turn make public employees more aware and involved in decisions about the cost and quality of their care. The increased transparency is likely to benefit not only the workers on the exchanges, but is likely to spill over elsewhere in the health care system, creating more demand for transparency on price and quality.
As Obamacare’s exchanges trudge along, a new (and better) model of exchanges is doing wonders for the private sector. More employers — both private and public –—should pay attention and start to take advantage of what may be the future of employer-sponsored health insurance.
Yevgeniy Feyman is deputy director of and a fellow at the Manhattan Institute’s Center for Medical Progress.
