Private exchanges for health care insurance have the potential for "explosive growth" within the next six years. A recent survey by Array Health indicates as many as 94 percent of employers anticipate more "defined contribution" health plans rather than traditional models of defined benefits. Defined contributions, plans that elucidate how many benefits workers purchase with pre-tax money, are the crux of private plans moving forward.
The same survey explains 45 percent of respondents knew of private exchanges in 2014, up from 31 percent during the 2013 survey. Respondents who chose "very aware" jumped four times from one year to the next.
Employers are ready to change business models for health care plans due to basic economics. Providing cost-effective and affordable health insurance is the goal of many firms who want to keep the best employees. Instead of denoting two or three plans available for set dollar amounts, employers and health insurance companies now attempt to fit plans to the needs of employees based on how much workers want to spend.
If an employee can spend $500 per month on a family plan but cannot afford an $800 plan, the defined contribution model delineates what services are available for $500. Private exchanges are just like online marketplaces for insurance — companies offer what is available for specific prices. As always, more expensive plans offer better benefits.
The defined benefits model features fixed prices for specific plans, whether an employee affords the benefits or not. Employers determine the best plans, offer a few selections, and employees may not choose to purchase those limited options.
A defined contribution model opens up health insurance to even more people who are unable to afford defined benefits. This is due more flexible benefits packages available for less money. An employer lists many more options from a provider, and chances are more employees will purchase a plan if one becomes more affordable.
Array Health claims 3 million people have private exchanges in 2014, and that number is expected to increase to more than 40 million by 2018, a 13-fold increase. The potential for a huge, untapped market is most certainly there now that employers seem to recognize a better way to insure employees.
The Affordable Care Act began the trend of online health insurance exchanges in an attempt to bring low-cost health care plans to more Americans. Prices for plans are stated clearly, and consumers select what insurance they can afford. Private exchanges in the workplace embrace the concept of public exchanges. Instead of insurance companies dictating prices, consumers have the upper hand for buying coverage. Now that employers are more aware of how exchanges work, more consumers will buy insurance who previously felt plans were unaffordable.
Millions of uninsured Americans now have more options for health care coverage. Thanks to the Affordable Care Act, public marketplaces and private exchanges, consumers have more tools to purchase insurance plans. When consumers spend more money on health insurance going forward, the entire health care industry wins.
Photo courtesy of Ambro at FreeDigitalPhotos.net
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