Healthcare costs

February 19, 2015

AZ Big Media

The business benefits of private healthcare exchanges

Employers across industries struggle to strike the ideal healthcare balance. They want to provide their employees with vital and necessary coverage, yet they must also consider the financial and administrative impacts, which can be cumbersome to say the least. To top it off, the healthcare requirements and preferences of individual employees may vary widely, making it even more difficult to find a plan that meets the needs of all parties.

The complexity of this issue is giving rise to private healthcare exchanges. While the general concept of an exchange isn’t new, more feasible options for employers are now entering the marketplace that address many of these top sticking points.

A private exchange is essentially like an online store where employees can “shop” for health insurance and other benefits that meet their specific needs. Employees are provided with a “gift card” of sorts that they can use to navigate the store. Exchanges often provide a dozen or more options for employees, as opposed to traditional employer health plans providing only one or two.

From the employer standpoint, private exchanges enable more cost control and predictability, allowing companies to more effectively and efficiently manage their benefits programs.

This recent rise in private exchanges is signaling a paradigm shift in healthcare from a “defined benefit,” employer-centric model to a “defined contribution,” employee-centric model. A similar shift occurred in the retirement industry in the 1980s with the introduction of the 401k – a “defined contribution” that is commonplace today. Healthcare needs vary among life stages just like retirement needs. One or two plans do not meet the preferences of a diverse, multi-generational workforce.

However, it’s important to note that if you’ve seen one private exchange – you’ve only seen one private exchange. This new frontier has yet to achieve widespread uniformity. Some employers are opting for single-carrier exchanges while others are choosing multi-carrier. Some are administered by health plans while others through third-party experts. Each option comes with its own set of pros and cons.

In this Wild West of private exchanges, employers must conduct thorough research and discuss numerous options with their brokers. A little more effort and exploration on the frontend can lead to far-reaching benefits for both the employer and employee:

  • Individualized Coverage – Private exchanges enable employees to select coverage that meets their needs, preventing both over-insurance and under-insurance. That means a single 18-year-old male who is new to the workforce can opt for different coverage than his 55-year-old manager with four children who is eyeing retirement. Their needs and budgets are drastically different, and a private exchange helps them break out of one-size-fits-all plans, applying the right insurance to the right risk.
  • Reduced Administrative Burdens – Private exchanges remove many of the headaches involved with the enrollment and implementation of benefits. For instance, bills from various lines of coverage (such as medical, dental, vision, life, disability, critical illness, etc.), are aggregated. That means the HR department only gets one bill – they don’t have to collect and remit payments to each company providing coverage.
  • Streamlined, Digital Benefits Selection Processes – Private exchanges are anchored by online systems that make it easier for both the employee and employer to select and enroll in benefits. The decision support software contained within the system allows employees to make informed choices best suited for themselves and their families, rather than rifling through hundreds of pages of confusing benefit summaries on their own, or relying on HR staff for direction.
  • Ability to Control and Predict Costs – Employers set the amount of money they will spend per employee each year, which means they are no longer at the mercy of rising renewal rates from carriers. So, even if rates go up, they don’t have to spend more. And, employees don’t necessarily have to spend more either. They can simply make different coverage choices.
  • Bolstered Employee Satisfaction – In order to attract and retain the right talent, employers need to provide valuable and competitive benefits. Healthcare coverage is often a factor that existing and prospective employees take into account when carving out their career paths, so providing right-sized coverage can help employers meet the needs of their workforces while avoiding costly turnover.

Private exchanges are providing employers with more options to satisfy employee healthcare needs while controlling costs and reducing administration burdens at the same time. More employers are expected to implement private exchanges in the near future in order to remain competitive, attract talent and meet the needs of today’s diverse workforce. Companies should conduct thorough research to find out which private exchange is ideal for their operations, as each comes has different attributes and online options.


Danielle Tantone is a sales excecutive with Lovitt & Touché. ClearPath Prime is a private exchange offered by Arizona-based Lovitt & Touché, one of the nation’s largest insurance brokerages. It provides employers with a centralized portal empowering consumer choice and enabling employees to select individualized healthcare and benefits coverage that best suits their needs.