Cover: Private Health Insurance Exchanges

Private Health Insurance Exchanges

Early Evidence and Implications for the Future

Published May 9, 2016

by Christine Buttorff, Sarah A. Nowak, James Syme, Christine Eibner

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Research Questions

  1. How do private health insurance exchanges function?
  2. How do private exchanges affect employers and their workers?
  3. Do private exchanges affect the Affordable Care Act's Small Business Health Options Program Marketplaces and, if so, how?

Private health insurance 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 found that private exchanges could encourage employees to select less-generous plans. This could expose employees to higher out-of-pocket costs, but premium contributions would drop substantially, so net spending would decrease. On the other hand, employee spending may increase if, in moving to private exchanges, employers decrease their health insurance contributions. Most employers can avoid the ACA's "Cadillac tax" by reducing the generosity of the plans they offer, regardless of whether they move to a private exchange. There is not yet enough evidence to determine whether the private exchanges will become prominent in the insurance market and how they will affect employers and their employees.

Key Findings

  • Workers who choose less-generous plans could risk higher out-of-pocket spending. But because premiums will drop substantially, their net spending would decrease.
  • Average employee spending could increase if firms decrease their health insurance contributions when moving to private exchanges.
  • Most employers can avoid the ACA's "Cadillac tax" by reducing plan benefits or making other changes, regardless of whether they move to a private exchange.
  • Private exchanges are unlikely to significantly affect the ACA's Small Business Health Options Program (SHOP) Marketplaces

The research described in this report was sponsored by the Office of the Assistant Secretary for Planning and Evaluation (ASPE) and conducted by RAND Health.

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