Employers Turning to Private Exchanges to Cut Costs

Published February 27th, 2014 by Chris Riley
Fact Checked by
Chris Riley

A recent survey by Aon PLC, an insurance broker located in the United Kingdom, revealed nearly one-third of U.S. employers will likely switch their employee health insurance plans to a private health exchange over the next few years. Of the 95 percent of employers that intend to continue offering a plan, 33 percent are giving serious consideration to a private exchange. 

With Obamacare in the picture, employers are looking at changes in the healthcare field as well as the fact their employees are weary of traditional company insurance offerings. Large employers tend to carry their own coverage, putting health costs and financial risk on them. If employers follow through with a private health exchange, employees would pick health plans with the insurer still holding the risk.

It’s believed as a direct result of the Patient Protection and Affordable Care Act (ACA), or Obamacare, health spending will probably surge six percent over the coming year and 6.2 percent every year between 2015 and 2022. Millions of Americans who were once unable to get insurance will finally be able to close the coverage gap with adequate insurance.

Retail giant Walgreens has announced their plan to go with a private exchange service provided by Aon. They are one of almost two dozen companies looking to participate. This will give employers access to no less than five carriers, each of which carries five plans. That means employees will have a total 25 plan options to work with.

Traditionally healthcare plans were provided voluntarily by employers. This was for the sake of competition in the labor market and drawing a better pool of talent. But unemployment has dropped and employers are hesitant to leave exiting as an option if health insurance is the deciding factor.

The changes are likely not to end here. While most companies do not offer insurance to part time employees, many that do are reconsidering. Almost 40 percent of companies that do said they will likely stop within the coming three to five years. Those part time employees will have the option of turning to the ACA for any coverage gap.

With Obamacare in place, any enterprise that’s not offering employee coverage would be fined $2,000 per employee. The potential of the new health exchange shifts a lot of the power to the employee. This means employers need to up the ante in health insurance if they expect to continue attracting and holding onto the best talent.

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