Private Exchanges: A Closer Look

insuranceWith companies always looking for ways to reduce their benefits spend and with employees wanting the freedom of choice when it comes to health insurance, a private insurance exchange is an option to consider.

With a private exchange, employers give employees a set amount of money to use at an online benefits marketplace, and it’s up to the employees on how to make their benefits choices. These exchanges can take a number of forms, with consumers having the chance to purchase a variety of insurance products from just one carrier or a variety of insurance offerings from multiple carriers.

Here are among the reasons employers might consider an exchange:

-- Cost certainty. For starters, it’s a defined contribution plan, which gives employers certainty in terms of how much they spend.

-- Time savings. Administrative time can decrease with a private exchange, given that employees are making their elections electronically.

-- Increased benefit options. This reportedly was the driving force behind Starbucks’ much-publicized decision to move to a private exchange earlier this summer. “People intuitively like choice,” said Ron Crawford, Starbucks vice president of global benefits, according to the Wall Street Journal.

Whether a private exchange is the right move for a company depends on a variety of factors, including cost and employee population size and demographics. Some firms might explore exchanges and find the cost savings aren’t what they expected — or that they don’t get many more benefit options by joining one. Furthermore, companies joining exchanges must know their benefit costs can be affected by the costs incurred by other groups on the exchange. In short, if other exchange participants prove costly for the insurer, it could result in higher premiums for all groups.

There is some evidence that the adoption of exchanges has slowed somewhat, but by now, they are an established option for companies considering their benefits strategies, with hundreds of exchanges now available. For more information on private exchanges, contact a Plexus employee benefits client service team member at 847-307-6100 (Deer Park, Ill.), 312-606-4800 (Chicago), 972-770-5010 (Dallas) or 405-840-3033 (Oklahoma City), or contact us via the Web.